New reporting requirement in Auditor‘s Report

under Rule 11(d) of Companies (Audit and Auditors) Amendment Rules, 2017 and

Amendment to Schedule III to Companies Act, 2013

The Ministry of Corporate Affairs vide notifications dated March 30, 2017 has notified the Companies (Audit and Auditors) Amendment Rules, 2017 and Amendment to Schedule III to the Companies Act, 2013.

Pursuant to these notifications, a new clause (d) has been inserted in Rule 11 of the Companies (Audit and Auditors) Rules, 2014 requiring auditors to report on whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company.

Amendment has also been made to Schedule III to the Companies Act, 2013 to require that every company shall disclose the details of Specified Bank Notes held and transacted during the period from 8th November, 2016 to 30th December, 2016 in the specified format.

Both these amendments are effective from the date of their publication in the Official Gazette i.e. from March 30, 2017.

Meaning of “Specified Bank Notes”

  • As mentioned in the notification, ‘Specified Bank Notes‘ shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated the 8th November, 2016. The said notification, defines the term as “bank notes of denominations of the existing series of the value of five hundred rupees and one thousand rupees”.

For which accounting periods does the Amendment to Schedule III apply:-

  • The disclosures are applicable to financial statements which are issued after March 30, 2017 and which include the period from 8th November 2016 to 30th December 2016.

Whether disclosure given in the financial statements should also mention denominations along with the value

  • Notification as mentioned above, seeks disclosure of closing cash in hand as on 08.11.2016 and as on 30.12.2016 with other detail, which should be mentioned in terms of INR, thus there is no specific requirement to mention the denomination.

What need to be disclosed

  • Every company shall disclose the details of Specified Bank Notes (SBN) held and transacted during the period 08/11/2016 to 30/12/2016 as provided in the Table below:-
Particulars SBNs Other denomination notes Total
Closing cash in hand as on 08.11. 2016
(+) Permitted receipts
(-) Permitted payments
(-) Amount deposited in Banks
Closing cash in hand as on 30.12. 2016

Whether there could be a situation for modifying the main audit report along with reporting against Rule 11(d)

  • Where instance of non-compliance with relevant notifications are noted by the auditor and where in the auditor‘s professional judgement it is concluded that the non-compliance is of such nature that it has an impact on the true and fair view of the financial statements, the auditor should consider modifying his report in accordance with SA 705 ‘Modifications to the Opinion in the Independent Auditor‘s Report‘.

What auditors’ need to do:

  • Obtain closing cash balance certificate with denominations from the Management as at 8th November, 2016 and as at 30th December, 2016 in respect of Specified bank notes (SBNs) and other denomination notes.
  • Check the controls and procedures implemented by the company during the period 9th November, 2016 to as at 30th December, 2016 to ensure that there were no payments and receipts made in SBN other than those permitted by regulators from time to time. Whether the controls (if implemented by the company) were reasonable to prevent and detect any non-permitted transactions.
  • Cross check the balances as certified by the management from the books of accounts as at the abovementioned dates.
  • Obtain a list from the management as to how the SBNs available with the company as at closing hours on 8th November, 2016 were dealt with (viz, Used for payment for permitted transactions, Deposited in bank accounts, Used for Payment for non-permitted transactions) and SBNs as available with the company as at closing hours of 30th December, 2016.
  • Obtain a list from the management if there were any receipts of the SBNs during the period from 9th November, 2016 to 30th December, 2016, including the nature of transaction and amount with denominations. Also examine with the relevant notification that they were eligible to accept SBNs.
  • Obtain management representation regarding the following:

(i) Completeness of the disclosure made in the notes to the financial statements.

(ii) Manner of dealing in the SBNs during 9th November, 2016 to 30th December, 2016, deposited in bank, payment against permitted transactions etc.

(iii) Permitted receipts and permitted payments made by the company as per the Government notifications issued from time to time.

Likely mode of Reporting requirement – depending upon various situations:-

  • The Company has provided requisite disclosures in the financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016. Based on audit procedures and relying on the management representation, we report that the disclosures are in accordance with books of account maintained by the Company and as produced to us by the Management – Refer Note No. …….
  • The Company did not have any holding/dealt in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 – Refer Note No. …..
  • The disclosure requirement as envisaged in Notification G.S.R 308(E) dated 30th March 2017 is not applicable to the Company – Refer Note No. ……
  • The Company has provided requisite disclosures in the financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016. However, we are unable to obtain sufficient and appropriate audit evidence to report on whether the disclosures are in accordance with books of account maintained by the Company and as produced to us by the Management – Refer Note No. …..
  • The Company has not provided certain requisite disclosures in the financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016. Consequently, we are unable to obtain sufficient and appropriate audit evidence to report whether the disclosures to the extent stated in the notes are in accordance with books of account maintained by the Company and as produced to us by the Management – Refer Note No. ……
  • The Company has not provided requisite disclosures in the financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016.
  • The Company has provided requisite disclosures in the financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016. However, as stated in notes no. …. to the financial statements, amounts aggregating to Rs. …. as represented to us by the Management have been utilized for other than permitted transactions/received amount aggregating Rs. …. from transactions which are not permitted.

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