MVJ COLLEGE OF ENGINEERING(MBA)

DEPARTMENT OF MANAGEMENT STUDIES ACCOUNTING FOR MANAGERS

MODULE-6

AUDITOR REPORT

INTRODUCTION

Information is key for decision making. Success of mangers depends on how effectively they make decision. Their efficiency is measured in terms of their timely and results oriented decision. An effective decision to attain the objectives of the concern is possible only if they are provided with the proper information in the needed form in time. Presentation of information to the management to support decision making is called as MIS or MR.

3

RIGHTS OF THE STATUTORY AUDITOR

Rights to access the books of a/c. Rights to obtain information and

explanations. Rights to attend general body meeting. Rights to visit the branch office and access

the books of a/c and the vouchers maintained by BO.

Rights to receive his remuneration. Rights to receive notice of his removal. Rights to make a representation on removal.

4

DUTIES OF THE STATUTORY AUDITOR

Duty to make an audit report: it is the basic duty of an auditor to prepare a report to the members of the company

Duty to make required disclosures in the report: this basically concerns the true and fair view of an auditor for his opinion regarding the FR.

Duty to give reasons for qualifications.

5

AUDIT REPORTS UNDER THE COMPANIES ACT, 1956

An Auditor of a Joint stock company has to be a Chartered Accountant as per the Chartered Accountants act 1949. He takes office on his appointment as a Statutory auditor. He may also confirm as to what is his role if he not appointed for the statutory role as an Statutory Auditor. Such an Auditor is required to provide his report to the shareholders based on certain assertions, and specific enquiries.

6

1. REPORT ON SPECIFIC ENQUIRIES SEC 227 1 (A)

Whether Loans and Advances made by the company on the basis of security have been properly secured and whether the terms on which these have been provided are not prejudicial to the interests of the company.

Whether book entries are prejudicial to the interests of the company.

Whether the sale price of shares, debentures and other securities held by the company is less than their purchase price.

Whether loans and advances made by the company have been shown as deposits.

Whether personal expenses have been charged to revenue account.

When shares have been allotted for cash as per the books of account then whether cash actually has been received.

7

2. REPORT ON TRUE AND FAIR VIEW:

Section 227 (2) requires the Statutory Auditor has to state whether in his opinion and to the best of his information and the explanations given to him the Profit and loss statements and the Balance sheet provide information required by the act and also provide a true and fair view of the state of affairs of the company.

8

3. REPORT ON PRINCIPAL ASSERTIONS:

Section 227(3) requires that the Statutory Auditor should comment on the following:-

Whether he has obtained all the information and explanations necessary for his audit.

Whether in his opinion, proper books of account as required by the law have been kept by the company.

Whether the balance sheet and the profit and loss account are in agreement with the books of account and the returns.

9

3. REPORT ON PRINCIPAL ASSERTIONS

Whether the report of branch auditor has been forwarded to him and how he has dealt with the same in preparing his audit.

Whether Accounting Standards have been complied with.

Whether any director is disqualified from being appointed as a director.

Whether the cess payable by the company has been paid.

April 13, 2023CMA. Prof. D Gopinath 10

KINDS

Unqualified opinion

Qualified opinion

Disclaimer opinion

Adverse opinion

11

4. REPORT ON CARO:- sec 227 4A

APPLICABILITY The order is not applicable to a Banking

Company, an Insurance Company and the companies which are licensed to operate under sec 25 of the companies act 1956. (Section 25 companies are those companies which are formed for the sole purpose of promoting commerce, art, science, religion, charity or any other useful object and have been granted a licence by the central government recognizing them as such),

12

APPLICABILITY OF CARO 2003

A private limited company which satisfies the following conditions :(a) Its paid up capital and reserves do not exceed Rs.50 lacs; (b) It has not accepted any public deposits;(c) Its turnover does not exceed Rs.5 crores ; and(d) Its outstanding loan from any bank or financial institution does not exceed Rs.10 lacs. If any of the above conditions are not satisfied, the above order will apply to the private limited company.

13

CARO – AUDITOR’S REPORT

As per sec 227 the Auditor’s report shall provide his opinion on the following :-

FIXED ASSETS:- Maintenance of proper records showing

particulars and location of fixed assets, physical verification by management at reasonable intervals and treatment of material discrepancies in the books of accounts.

14

INVENTORIES

Whether physical verification of inventories is conducted by the management at reasonable intervals. Whether procedure for physical verification of inventories is reasonable and adequate. If not, inadequacies to be reported. Whether material discrepancies noticed on physical verification are properly dealt with in the books of accounts.

15

LOANS

Secured or unsecured loans granted or taken by the company to or from companies, firms or other parties in which directors are interested. Whether rate of interest and other terms and conditions of such loans are prima facie prejudicial to the interest of the company. Whether the receipt of principal and interest are regular.

16

INTERNAL CONTROL SYSTEM

The requirements of reporting on the existence of internal control procedures commensurate with the size of the company and the nature of business, for purchase of inventory and fixed assets and for sale of goods. In addition, CARO provides that the auditor should report whether there is continuing failure to correct major weaknesses in internal control procedures.

17

INTERNAL AUDIT SYSTEM

CARO now provides that this reporting requirement about internal audit system will apply to any of the following companies :(i) Listed company(ii) Any other company with paid up capital and reserves exceeding Rs.50 lacs as at the commencement of the financial year, or(iii) Any company having an average turnover exceeding Rs.5 crores for a period of 3 consecutive financial years immediately preceding the relevant financial year.

18

ACCEPTANCE OF PUBLIC DEPOSITS

The Auditor has to mention whether the company has accepted Public Deposits and whether the terms and conditions are prejudicial to the interests of the company. This is the same as was in MAOCARO 1998. the auditor has to report whether the company has complied with any order passed by the Company Law Board in respect of such public deposit.

19

MAINTENANCE OF COST RECORDS

The reporting requirements with regard to maintenance of cost records by the company as prescribed u/s.209(1)(d) of the Act .

20

STATUTORY DUES

 whether undisputed statutory dues such as Provident Fund,

Investor Education and Protection Fund, ESIC, Income-tax, Wealth tax, Sales Tax, Customs Duty, Excise Duty, Cess, etc. with various statutory authorities have been deposited regularly, and the extent of outstanding dues in arrears as on the last day of the financial year for a period exceeding six months are to be disclosed.

21

ACCUMULATED LOSSES

CARO provides that the auditor should report, in the case of a company which has been registered for a period of not less than 5 years, whether the accumulated losses of the company at the end of the relevant financial year are not less than 50% of its net worth and whether it has incurred cash losses in that financial year and immediately preceding such financial year. This is a new requirement which will give signal about the impending financial sickness of the company

22

Repayment of dues of banks, etc and creation of securities

CARO has put additional responsibilities on auditors who will now have to report about defaults in repayment of dues to a financial institution, bank or debenture holders. If there is any default, the period and amount involved in the default should be reported. This reporting requirement will require the auditor to ascertain the due dates for repayment of loans taken from the banks and financial institutions as well as loans taken against debentures.

23

TRANSACTIONS PREJUDICIAL TO THE INTEREST OF THE COMPANY

CARO now requires the auditor to report whether the company has given any guarantee for loans taken by others from a bank or financial institution where the terms and conditions are prejudicial to the interest of the company. In other words, if any loan taken by a staff member or an associate concern is guaranteed by the company, the auditor will have to examine whether any counter guarantee is taken by the company and whether such counter guarantee gives sufficient comfort against any liability that may arise if the lender invokes the guarantee.

24

END USE OF BORROWED FUNDS

CARO has placed additional responsibility on the auditor who will now have to report about end use of the borrowed funds . For this purpose, the auditor will have to examine the cash flow statement in greater detail so that any diversion of funds can be ascertained. He will have to examine whether short term funds raised are used for long term purposes etc and what if they are used as short term investments.

25

REPORTING ABOUT FRAUDS

CARO requires the auditor to report whether during the financial year any fraud on the company is noticed. Similarly, he has also to report whether he has noticed that the company has committed any fraud on others. If the auditor has not noticed any such fraud, but the same is reported to the company or by the company, he will have to refer to such report in the audit report. The reporting of the fraud may be in the media. It appears that the auditor will have to take note of such media reports also and refer to the same in his audit report, if such reports are found to be authentic.

26

FINANCE, INVESTMENT, CHIT FUND, NIDHI OR MUTUAL BENEFIT FIRMS

Whether adequate documents and records are maintained in cases where the company has granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Under CARO, apart from the above, it is necessary to point out in the report the deficiencies in the maintenance of above documents and records. Whether the provisions of any special statute applicable to chit fund have been duly complied with.

27

FORMS OF AUDIT REPOT

CARO requires that the auditor should make a statement on the matters contained in the order. This requirement applies even where the answers to any of the questions are un favourable or qualified. In such cases, the auditor should state his un favourable or qualified answers and the reasons for the same. If the auditor is not able to express his opinion about any of the items contained in the order, he should indicate such fact, and give reasons as to why he is unable to express an opinion.

28

DIRECTOR’S REPORT

Director’s report is a statement by a company’s directors in its annual a/c giving the directors opinion or the state of the company, and how much should be paid to people owning share in the company

Contents of report The state of the company’s affairs. The amount, which it proposes to carry to any reserves in

such a balance sheet. The amount, which it recommends should be paid by way

of dividend, Details of appointment with respect to whole time director. Details of fixed deposits.

29

DIRECTOR’S RESPONSIBILITY STATEMENT

In the preparation of the annual a/c, the applicable accounting standards have been followed and that there are no material departures .

That they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent.

That the director’s had taken proper and sufficient care for the maintenance of the adequate accounting records in accordance with the provision of the act.

That the director’s had prepared the annual a/c on a going concern basis.

THANK YOU

Change According To Change, Otherwise Change Will Change You