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8 CARO, 2016

8.1 - Applicability of Companies Auditor Report Order, 2016

Application CARO, 2016 shall apply to every company including a foreign

of CARO, company as defined in Sec. 2(42) of the Companies Act, 2013, except:
2016
(i) a banking company;

(ii) an insurance company;

(iii) a company licensed to operate u/s 8 of the Companies Act;

(iv) a One-Person Company as defined in Sec. 2(62) of the Companies

Act and a Small Company as defined in Sec. 2(85) of the
Companies Act; and

(v) a private limited company, not being a subsidiary or holding of a

public company,

• having a Paid-up capital & Reserves & Surplus not more than
₹1 Cr. as on the balance sheet date, and

• which does not have total borrowings exceeding ₹1 Cr. from

any bank or financial institution at any point of time during the
financial year, and

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• which does not have a total revenue as disclosed in Schedule

III to the Companies Act, 2013 (including revenue from
discontinuing operations) exceeding ₹10 Cr. during the
financial year as per the financial statements.

The order would be applicable for unlimited companies

irrespective of the size of their paid-up capital and reserves,
turnover or borrowings.

Every report made by the auditor u/s 143 of the Companies

Act, 2013 on the accounts of every company examined by him
to which this Order applies for the financial year
commencing on or after 1st April, 2015, shall contain the
matters specified in paragraphs 3 and 4, as may be
applicable.

The Order shall not apply to the auditor’s report on

consolidated financial statements.

Points to remember

(a) Provisions of CARO are equally applicable in case of branches

also, because under sec, 143(8), a branch auditor has same duties
as of company auditor.

(b) A company is covered under the definition of small company, it

will remain exempted from the applicability of the Order even if
it falls under any of the criteria specified for private company.

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(c) Paid up capital includes equity as well as preference.

(d) Amount originally paid up on forfeited shares should be added to

the figure of paid up capital.

(e) Share Application money should not be considered as part of

paid up capital.

(f) Reserves includes Capital reserves, revenue reserves as well as

Revaluation Reserves.

(g) Credit Balance of Profit and Loss Account will form part of
reserve.

(h) In case of debit balance of profit or loss, same shall be netted for
computing reserves & surplus.

(i) Loans from banks and financial institutions are to be considered

in aggregate. Financial Institutions will include NBFC.

(j) Loans may be in any form like term loan, demand loans, cash
credit overdraft, export credit, bill purchased/discounted.

(k) Non fund-based credit facilities have devolved and have been
converted into fund based credit facilities should also be
considered as outstanding loan.

(l) Long term loans as well as short term loans, secured as well as
unsecured will be considered.

(m) Outstanding dues in respect of credit cards will also be

considered.

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(n) Interest accrued as well as due does form part of outstanding

loan, whereas interest accrued but not due is not considered as

loan.

(o) Total revenue as disclosed in Schedule III comprises of Revenue

from operations and Other Income.

(p) In respect of a company other than a finance company revenue

from operations shall consists of revenue from (a) Sale of

products; (b) Sale of services; and (c) Other operating revenues,

as reduced by Excise duty.

(q) In respect of a finance company, revenue from operations shall

consists of revenue from (a) Interest; and (b) Other financial

services.

(r) Other income shall consist of the followings:

➢ Interest Income (in case of a company other than a finance

company);

➢ Dividend Income;

➢ Net gain/loss on sale of investments;

➢ Other non-operating income (net of expenses directly

attributable to such income).

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Important Questions

Q. No. 1: ABC Pvt. Ltd. is a holding company of XYZ ltd. Whether CARO is
applicable to ABC Pvt. Ltd.?

HINT: CARO is applicable.

Q. No. 2: Astha Pvt. Ltd. has fully paid capital of ₹140 lakh. During the year, the
company had borrowed ₹15 lakh each from a bank and a financial
institution independently. It has the turnover (Net of excise ₹50 lakh
which is credited to a separate account) of ₹475 lakhs. Will
Companies (Auditor’s Report) Order, 2016 be applicable to Astha Pvt.
Ltd.?

HINT: CARO is applicable as paid up capital exceeds ₹1 Cr.

Q. No. 3: E-Tech Pvt. Ltd., which has an aggregate outstanding loan of ₹20 lakhs
from Banks and ₹30 lakhs from Financial Institutions, defaulted in
repayment thereof to the extent of 50%. The company holds that it
being a private limited company, the Companies (Auditor’s Report)
Order, 2016 is not applicable.

You are required to state the list of companies to which CARO is not
applicable and state how would you deal with the given situation as
an auditor of the company.

HINT: Contention of the E Tech Pvt. Ltd., is correct that CARO, 2016 will
not be applicable on it as outstanding loan from banks and financial
institution in aggregate does not exceeds ₹1 Cr.

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Q. No. 4: A Pvt. Ltd. is incorporated on 1st July, 2019. During the year ended
31st March, 2020, it had issued shares (fully paid up) of Rs. 80 lakhs,
had borrowed Rs. 60 lakhs each from 2 financial institutions and its
turnover (Net of excise Rs. 100 lakhs which is credited to a separate
account) is Rs. 950 lakhs. Will Companies Auditors Report Order,
2016 (CARO) be applicable to A Pvt. Ltd.?

HINT: Contention of the A Pvt. Ltd. is not correct as total borrowings

exceeds Rs. 1 Cr., hence reporting under CARO, 2016 will be required.

Q. No. 5: As an auditor, how would you deal with the following: L Private Ltd.,
which has outstanding loan of more than Rs. 100 lakhs from Financial
Institution defaulted in repayment thereof to the extent of 50%. The
company holds that it being a private limited company, the
Companies Auditors Report Order (CARO) is not applicable.

HINT: Contention of L Pvt. Ltd. is not correct as borrowings from financial

institution exceeds Rs. 1 Cr., and auditor is required to report the period
and amount of default in repayment of dues under Para 3(viii) of CARO,
2016.

Q. No. 6: T Pvt. Ltd.’s paid up Capital & Reserves are less than ₹1 Cr. and it has
no outstanding loan exceeding ₹1 cr. from any bank or financial
institution. Its sales are ₹12 Crores before deducting Trade discount
₹20 lakhs and Sales returns ₹.90 Cr. The services rendered by the
company amounted to ₹20 lakhs. The company contends that
reporting under Companies Auditor’s Reports Order (CARO) is not
applicable. Discuss.

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HINT: Contention of the company that CARO is not applicable is not

correct, as revenue of the company of the company as per Schedule III
including value of service rendered, after deducting trade discount and
sales returns amounts to ₹10.10 Cr. (i.e.12 - 0.20 – 1.90 + 0.20 crore).

Q. No. 7: A Private limited company reports the following position as on 31st

March 2020:

Paid up capital 60 Lacs

Revaluation reserves 20 Lacs

Capital reserves 22 Lacs

P & L A/c (Dr. Balance) 4 Lacs.

The management of the company contends that CARO 2016 is not

applicable to it.

HINT: CARO is not applicable as paid up capital and reserves does not
exceed ₹1 cr. (60 Lacs + 20 Lacs + 22 Lacs – 4 Lacs).

Q. No. 8: Under CARO 2016, how as a statutory auditor would you comment on
the following: X Pvt. Ltd. is a subsidiary of a listed entity. The
management of the company believes that since X Pvt. Ltd. is a
private company and satisfies all conditions under CARO 2016,
reporting under CARO is not applicable.

HINT: CARO is applicable as exemption is not available to a private

company which is a subsidiary or holding of a public company.

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Q. No. 9: H Private Ltd had taken overdrafts from two banks with a limit of ₹40
lacs each against the security of fixed deposit it had with those banks
and an unsecured overdraft from a financial institution of ₹36 lacs.
The said loans were outstanding as at 31st March 2020. The paid-up
capital and reserves of the company as at that date was ₹80 lacs and
its revenue for the financial year ended on 31st March 2020 was ₹6
crores. The management of the company is of the opinion that CARO,
2016 is not applicable to it because turnover and paid up capital were
within the limits prescribed and loans taken against the fixed
deposits cannot be considered. The company further contended that
loan limit is to be reckoned per bank or financial institution and not
cumulatively. Comment.
HINT: The contention of the company is not correct as total borrowings
exceeds ₹1 cr., hence reporting under CARO, 2016 will be required.
Q. No. 10: A Private Limited Company reports the following position as on 31st
March, 2020:

Paid up Capital Rs. 70 Lacs

Revaluation Reserve Rs. 24 Lacs

Capital Reserve Rs. 20 Lacs

Profit & Loss (Dr.) Balance Rs. 24 Lacs

The Management of the Company contends that CARO, 2016 is not

applicable to it. Comment.
HINT: CARO, 2016 is not applicable to the Company, as paid up capital and
reserves amounts to ₹0.90 Cr.

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8.2 - Matters to be included in Auditor’s Report

Fixed Adequacy of → Whether the company is maintaining proper

Assets Records records showing full particulars, including
[Para 3(i)] quantitative details and situation of fixed assets;

Physical → Whether these fixed assets have been physically

verification verified by the management at reasonable intervals;

→ whether any material discrepancies were noticed

on such verification and if so,

→ whether the same have been properly dealt with in

the books of account;

Title Deeds → Whether title deeds of immovable properties are

held in the name of the company. If not, provide

details thereof.

Important Points to remember (As covered in Guidance Note on

CARO, 2016)

• The Order does not define as to what constitutes ‘proper records’.

Thus, what constitutes proper records is a matter of professional

judgment made by the auditor after considering the facts and

circumstances of each case.

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• What constitutes “reasonable intervals” depends upon the

circumstances of each case. The factors to be taken into
consideration in this regard include the number of assets, the
nature of assets, the relative value of assets, difficulty in verification,
situation and geographical spread of the location of the assets, etc.
The management may decide about the periodicity of physical
verification of fixed assets considering the above factors. While an
annual verification may be reasonable, it may be impracticable to
carry out the same in some cases. Even in such cases, the
verification programme should be such that all assets are verified at
least once in every three years. Where verification of all assets is not
made during the year, it will be necessary for the auditor to report
that fact, but if he is satisfied regarding the frequency of verification
he should also make a suitable comment to that effect.

• The Order is silent as to what constitutes ‘title deeds’. In general,

title deeds mean a legal deed or document constituting evidence of a
right, especially to the legal ownership of the immovable property.

• Title deeds of the immovable property may be

(a) Registered sale deed/transfer deed/conveyance deed, etc. of

land, land & building together, etc. purchased, allotted,

transferred by any person including any government,

government authority/body/agency/corporation, etc. to the

company.

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(b) In case of leasehold land and land & buildings together, covered

under the head fixed assets, the lease agreement duly registered

with the appropriate authority.

• Reporting under this clause, where the title deeds of the immovable

property are not held in the name of the Company, may be made

incorporating following details, in the form of a table or otherwise:

(a) In case of land:

• total number of cases,

• whether leasehold/freehold,

• gross block and net block, (as at Balance Sheet date), and

• remarks, if any.

(b) In case of Buildings: -

• total number of cases,

• gross block & net block, (as at Balance Sheet date) and

• remarks, if any.

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Important Questions

Q. No. 11: X Ltd. closed its manufacturing operations and sold all its
manufacturing fixed assets during the financial year ended 31st
March, 2020. However, it intends continue its operations as a
trading company. In respect of other fixed assets, the company
carried out a physical verification as at the end of 31st March, 2020
and found a material discrepancy to the tune of ₹1 lac, which was
written off and is disclosed separately in the profit and loss
account. Kindly incorporate the above in your audit report.

HINT: Reporting required w.r.t. Fixed Assets:

“The fixed assets have been physically verified by the management at

reasonable intervals; material discrepancies were noticed on such
verification and the same the same have been properly dealt with in the
books of account;”

Auditor is also required to perform procedures covered in SA 570 so as

to ensure appropriateness of use of Going concern assumption.

Q. No. 12: Under CARO, 2016, as a statutory auditor, how would you report:
NSP Limited has its factory building, appearing as fixed assets in its
financial statements in the name of one of its director who was
overlooking the manufacturing activities. [RTP-Nov. 19]

HINT: Auditor shall report under Clause (i)(c) of Para 3 of the CARO,
2016.

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Q. No. 13: ABC Ltd. owns a piece of Land and Building situated at IP road,
Mumbai which was purchased before 30 years. The title deeds for
the same are deposited with State Bank of India for obtaining credit
facilities by the company.

As the statutory auditor of the company for the year ended 31st
March, 2018, what are the audit procedures to be followed and
what is the reporting under CARO 2016? [May 17 (4 Marks)]

HINT: Auditor shall report under Clause (i)(c) of Para 3 of the CARO,
2016.

Q. No. 14: The Property, Plant and Equipment of Amir Ltd. included Rs. 25.75
crores of earth removing machines of outdated technology which
had been retired from active use and had been kept for disposal
after knock down. These assets appeared at residual value and had
been last inspected ten years back. As an Auditor, what may be
your reporting concern in view of CARO, 2016 on matters specified
above? [MTP-Aug.18]

HINT: Auditor shall report under clause (i)(b) of Para 3 of CARO, 2016.

Inventories (a) whether physical verification of inventory has been conducted

[Para 3(ii)] at reasonable intervals by the management; and

(b) whether any material discrepancies were noticed on physical

verification and if so, whether the same have been properly
dealt with in the books of account.

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Important Points to remember (As covered in Guidance Note

on CARO, 2016)

• Physical verification of inventory is the responsibility of the

management of the company which should verify all material

items at least once in a year and more often in appropriate

cases.

• What constitutes “reasonable intervals” depends on

circumstances of each case. The periodicity of the physical

verification of inventories depends upon the nature of

inventories, their location and the feasibility of conducting a

physical verification. The management of a company normally

determines the periodicity of the physical verification of

inventories considering these factors. Normally, wherever

practicable, all the items of inventories should be verified by the

management of the company at least once in a year.

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Important Questions

Q. No. 15: What are the reporting requirements for closing stock in the CARO
2016.

HINT: Refer Para 3(ii) of CARO 2016.

Q. No. 16: As the statutory auditor of B Ltd. to whom CARO, 2016 is applicable,
how would you report in the following situations: Physical
verification of only 50% (in value) of items of inventory has been
conducted by the company. The balance 50% will be conducted in
next year due to lack of time and resources. [MTP - Oct. 19]

HINT: Procedure of physical verification followed by management is not

reasonable and hence the auditor should point out the inadequacies in
physical verification procedures, under Para 3(ii) of CARO, 2016.

Loans and Whether the company has granted any loans, secured or unsecured
Advances to companies, firms, LLPs or other parties covered in the register
[Para 3(iii)] maintained under section 189 of the Act. If so,

(a) Whether the terms and conditions of the grant of such loans are
not prejudicial to the company’s interest;

(b) Whether the schedule of repayment of principal and payment of

interest has been stipulated and whether the repayments or
receipts are regular.

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(c) If the amount is overdue, state the total amount overdue for more
than 90 days and whether reasonable steps have been taken by
the company for recovery of the principal and interest;

Important Points to remember (As covered in Guidance Note on

CARO, 2016)

• Clause 3(iii)(a) covers determination of terms and conditions at

the time of the grant of the loan. In this regard it may be noted
that though the clause uses the term “grant” which would
ordinarily be understood to mean loans granted/given during the
year, however, it may be appropriate to include such loans also
that were renewed during the year.

• Clauses 3(iii)(b) and 3(iii)(c) cover the loans granted during the
year and also all loans having opening balances.

• In case of non-stipulation of schedule of repayment of principal &

payment of Interest, the auditor should state the fact and may
report that he is unable to make specific comment on the
regularity of repayment of principal & payment of interest, in
such cases.

• In case where the schedule of repayment of principal & payment

of interest is stipulated but repayment of principal or payment of
interest is not regular then the auditor may report the fact and
may give no. of cases and remarks, if any.

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Important Questions

Q. No. 17: In the course of audit of Y Ltd., as the auditor of the company you

observe the following: The company has advanced a loan to a firm in

which a director was interested at a rate lower than the prevailing

market rate as well as there was no agreement on terms of

repayment.

How auditor will report in CARO 2016? [May 14 (6 Marks)]

HINT: Reporting required under Para 3(iii) of CARO, 2016. Auditor

should also ensure compliance of disclosure requirements of AS 18 and

perform procedures as prescribed under SA 550.

Q. No. 18: H Ltd. granted unsecured loan of ₹1 crore @ 15% p.a. to two of its

subsidiaries during the Financial Year 2019-20. Before the year end

both the companies repaid the loan. The management of H Ltd. is of

the opinion that since no balance is outstanding as on 31st March

2020, these loans are not required to be reported in CARO 2016.

Comment and draft a suitable report.

HINT: Draft Report: “The Company has granted loan of ₹1 Crore @ 15%

p.a. to 2 of its subsidiaries covered in the register maintained u/s 189 of

the Companies Act, 2013 during the Financial Year 2019-20. The

maximum amount involved during the year was ₹1.00 crore and the year-

end balance of such loans was Nil”.

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Q. No. 19: ABC Ltd. has granted a loan of ₹20 crores to its associate XYZ (P) Ltd.

at the beginning of the financial year and it remain outstanding at

the year end. How the auditor should report the fact?

HINT: Reporting required under Para 3(iii) of CARO, 2016. Auditor

should also ensure compliance of disclosure requirements of AS 18 and

perform procedures as prescribed under SA 550.

Compliance In respect of loans, investments, guarantees, and security whether

of provisions of Section 185 and 186 of the Companies Act, 2013 have
provisions been complied with. If not, provide details thereof.
of Sec. 185
& 186 Important Points to remember (As covered in Guidance Note on
– Para 3(iv) CARO, 2016)

• For this purpose of ensuring compliance of Sec. 185, the auditor

should carry out the following procedures:

(i) Obtain from the management the details of the directors or

any other person in whom the director is interested. He may
also check the details of the persons covered under this clause
from Form MBP-1 and from the Register maintained u/s 189
of the Act.

(ii) Obtain and check the details of the transactions carried out
with such persons, including of any guarantee given and
security provided.

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(iii) Further examine the details to find out whether any of the
transaction is attracting the provisions of section 185 of the Act.

(iv) In case of transactions that are covered under the exceptions

as provided under section 185, the auditor should obtain the
necessary evidence in support of such exception.

• The auditor should report the nature of noncompliance of Sec. 185,

the maximum amount outstanding during the year and the amount
outstanding as at the balance sheet date in respect of

(i) the Directors; and

(ii)persons in whom directors are interested (specify the

relationship with the Director concerned).

• For this purpose of ensuring compliance of Sec. 186, the auditor

should:

1. Obtain the details of, loans given to any person or other body
corporate, guarantee given or security provided in connection
with a loan to any other body corporate or person and securities
acquired of any other body corporate by way of subscription,
purchase or otherwise, made during the year as well as the
outstanding balances as at the beginning of the year.

2. Check whether, at any point of time during the year in case of

aforesaid transactions, the company has exceeded the limit of
60% of its paid-up share capital, free reserves and securities
premium account or 100% cent of its free reserves and

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securities premium account, whichever is more. If it exceeds the

limits specified above, whether prior approval by means of a
special resolution passed at a general meeting has been
obtained.

3. Check whether the company has made investments through

more than two layers of investment companies

4. Check whether the company has disclosed the full particulars of

the loan given, investment made or guarantee given or security
provided in the financial statement including the purpose for
which the same is proposed to be utilized by the recipient.

5. Check whether the company has passed the board resolution as

prescribed and obtained the prior approval, wherever required,
from the public financial institution concerned where any term
loan is subsisting.

6. Check whether rate of interest is not lower than the prevailing

yield of one year, three-year, five years or ten-year government
security closest to the tenor of the loan granted.

7. Check if the company is in default in the repayment of any

deposits accepted or in payment of interest thereon, then the
company is not allowed to give any loan or guarantee or any
security or an acquisition till such default is subsisting.

8. Check whether the company has maintained a register (as per

Form MBP-2) in the manner as prescribed and also check the
compliances of other provisions and relevant rules.

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• Non-compliance of Sec. 186 may be reported incorporating

following details:

S. Non-compliance of Section 186 Remarks,

No. if any

Name of Amount Balance

Company Involved as at
/ Party Balance
Sheet
Date

1 Investment through
more than two
layers of
investment
companies

2 Loan given or
guarantee given or
security provided
or acquisition of
securities
exceeding the limits
without prior
approval by means
of a special
resolution

3 Loan given at rate

of interest lower
than prescribed

4 Any other default

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Important Questions
Q. No. 20: As a Company auditor you noticed that there is an inter-corporate
loan granted by the company. What are the reporting requirements
as regard the matters concerning terms of interest on the inter-
corporate loan? [Nov. 18-Old Syllabus (4 Marks)]
HINT: Reporting required under Para 3(iv) of CARO, 2016.

Public ➢ In case the company has accepted deposits from the public,
Deposits whether the directives issued by the RBI and the provisions of
[Para 3(v)] sections 73 to 76 or any other relevant provisions of the
Companies Act and the rules framed there under, where applicable,
have been complied with. If not, the nature of contraventions be
stated;

➢ If an order has been passed by Company Law Board or National

Company Law Tribunal or Reserve Bank of India or any Court or
any other Tribunal, whether the same has been complied with or
not?

Important Points to remember (As covered in Guidance Note on

CARO, 2016)

• It may be difficult for the auditor to ascertain that deposits

accepted by the company are within the limits on each day of the
accounting year. He would, therefore, be justified in making a
reasonable test check to ensure that the company has not accepted
deposits during the year in excess of the limits.

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• In case where the auditor is of the view that any kind of

contravention of sections 73 to 76 or any other relevant provisions
of the Act or relevant rules or directives from Reserve Bank of
India, if any, has taken place, the auditor should state in his report
that the provisions of that section(s) and/or relevant rules, as the
case may be, have not been complied with. The auditor should also
report the nature of contraventions.

Cost Whether maintenance of cost records has been specified by the CG u/s
Records 148(1) of the Companies Act, 2013 and whether such accounts and
[Para 3(vi)] records have been so made and maintained;

Important Points to remember (As covered in Guidance Note on

CARO, 2016)

• The word “made” applies in respect of cost accounts (or cost

statements) and the word “maintained” applies in respect of cost
records relating to materials, labour, overheads, etc.

• The auditor has to report under the clause irrespective of whether a

cost audit has been ordered by the central government.

• The auditor should obtain a written representation from the

management stating

(a) whether cost records are required to be maintained for any

product(s) or services of the company u/s 148 of the Act, and the
Companies (Cost Records and Audit) Rules, 2014; and

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(b) whether cost accounts and records are being made and
maintained regularly.

• The auditor should also obtain a list of books/records made and

maintained in this regard.

• The Order does not require a detailed examination of such records.

The auditor should, therefore, conduct a general review of the cost
records to ensure that the records as prescribed are made and
maintained. He should, of course, make such reference to the
records as is necessary for the purposes of his audit.

• It is necessary that the extent of the examination made by the

auditor is clearly brought out in his report. The following wording
is, therefore, suggested:

“We have broadly reviewed the books of account maintained by the

company pursuant to the Rules made by the Central Government for
the maintenance of cost records under section 148 of the Act, and
are of the opinion that prima facie, the prescribed accounts and
records have been made and maintained.”

Important Questions

Q. No. 21: CARO, 2016 requires the auditor of the company to report whether
maintenance of cost records has been specified by the Central
Government under section 148 of the Companies Act, 2013 and
whether such accounts and records have been so made and
maintained.

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You are required to briefly explain the audit procedure to be

followed by the auditor and suggest the reporting pattern.

HINT: Refer Clause vi of Para 3 of CARO, 2016 and related points of

Guidance Note on CARO, 2016.

Statutory (a) Whether the company is regular in depositing undisputed

Dues statutory dues including provident fund, employees’ state

[Para 3(vii)] insurance, income-tax, sales-tax, service tax, duty of customs,

duty of excise, value added tax, cess and any other statutory

dues to the appropriate authorities and if not, the extent of the

arrears of outstanding statutory dues as at the last day of the

financial year concerned for a period of more than six months

from the date they became payable, shall be indicated.

(b) Where dues of income tax or sales tax or service tax or duty of

customs or duty of excise or value added tax have not been

deposited on account of any dispute, then the amounts involved

and the forum where dispute is pending shall be mentioned.

(A mere representation to the concerned Department shall not be

treated as a dispute).

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Important Points to remember (As covered in Guidance Note on

CARO, 2016)

• “Any other statutory dues” indicates that the clause covers all

type of dues under various statues which may be applicable to a

company having regard to its nature of business.

• With reference to regularity, the auditor should clearly

understand the nature of each statutory due payable by the

company before commenting on the same. For instance, the

regularity is a normal feature in case of certain statutory dues

such as, provident fund, employees’ state insurance, sales tax,

etc., but this is not the case in respect of, say, duty of custom on

import of goods or demands arising on account of assessment

orders etc., Such dues should be construed to have been paid

regularly if the company deposits them as and when they become

due.

• In respect of goods imported earlier and placed in a bonded

warehouse the interest and rent that are required to be incurred

under section 61 of the Customs Act, 1962 would come under

other statutory dues and the auditor would have to examine and

comment upon the regularity of the company in depositing such

interest and rent.

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• Non-payment of advance income tax would constitute default in

payment of statutory dues.

• In cases where there are no arrears on the balance sheet date but

the company has been irregular during the year in depositing the

statutory dues, the auditor should state this fact while reporting

under this clause.

• For the purpose of this clause, the auditor should consider a

matter as “disputed” where there is a positive evidence or action

on the part of the company to show that it has not accepted the

demand for payment of tax or duty, e.g., where it has gone into

appeal.

• The auditor should obtain a written representation with

reference to the date of the balance sheet from the management:

(i) specifying the cases and the amounts considered disputed;

(ii) containing a list of the cases and the amounts in respect of

the statutory dues which are undisputed and have

remained outstanding for a period of more than six months

from the date they became payable; and

(iii) containing a statement as to the completeness of the

information provided by the management.

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• Statement of Arrears of Statutory Dues Outstanding for More

than Six Months can be in following format:

Name Nature Amount Period Due Date of Remarks,

of the of the (₹) to Date Payment if any

Statute Dues which

the

amount

relates

• Statement of Disputed Dues can be in the following format:

Name Nature Amount Period to Forum Remarks,

of the of the (₹) which the where if any

Statute Dues amount dispute is

relates pending

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Important Questions

Q. No. 22: As a statutory auditor, how would you deal with the following case:
During the course of audit of ABC Ltd. it is noticed that out of ₹12 Lacs
of provident fund contribution accounted in the books, only ₹2 Lacs
has been remitted to the authorities during the year. On enquiry the
Chief Accountant informed that due to financial problems they have
not remitted but will remit the same as and when the position
improves.

Or

During the course of Audit of M/s CT Ltd. for the financial year 2019-
20, it has noticed that ₹2.00 lakhs of employee contribution and
₹9.50 lakhs of employer contribution towards employee state
insurance contribution have been accounted in the books of accounts
in respective heads. Whereas, it was found that ₹4.00 lakhs only have
been deposited with ESIC department during the year ended 31st
March, 2020. The Finance Manager informed that auditor that due to
financial crunch they have not deposited the amount due, but will
deposit the amount overdue along with interest as and when
financial position improves. Comment as a statutory auditor.

[May 16 (4 Marks), MTP-April 18, Aug. 18]

HINT: Non-payment of PF/ESI contribution needs to be disclosed by the

auditor in his audit report as per requirement of Para 3(vii)(a) of CARO
2016. Auditor should also perform the procedures as covered in SA 250.

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Q. No. 23: As a Statutory Auditor, how would you deal with the following: PQR
Ltd. has not deposited Provident Fund contribution of ₹10 lakhs with
the authorities till the year-end.

HINT: Non-payment of provident fund of ₹10 Lacs needs to be disclosed

by the auditor in his audit report as per requirement of Para 3(vii)(a) of
CARO 2016. Auditor should also perform the procedures as covered in SA
250.

Q. No. 24: Comment on the following: Is the company regular in depositing

undisputed statutory dues including Provident Fund, Employees
State Insurance, Income Tax, Sales Tax, Wealth Tax, Customs duty,
Excise duty, Value added Tax, Cess and any other statutory dues with
the appropriate authorities and if not, the extent of arrears of
outstanding statutory dues as at the last day of the financial year
concerned for a period of more than six months from the date they
became payable shall be indicated by the auditor.

HINT: Refer Para 3(vii)(a) of CARO, 2016. Auditor should also perform the
procedures as covered in SA 250.

Q. No. 25: Big and Small Ltd. received a show cause notice from central excise
department intending to levy a demand of ₹25 lakhs in December
2019. The company replied to the above notice in January 2020
contending that it is not liable for the levy. No further action was
initiated by the central excise department upto the finalization of the
audit for the year ended on 31st March, 2020. As the auditor of the
company, what is your role in this?

[May 11 (4 Marks), Nov. 14 (3 Marks)]

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HINT: The auditor needs not to report on this, as required under Para
3(vii) of CARO, 2016. Auditor should also perform the procedures as
covered in SA 250.

Q. No. 26: XYZ Pvt. Ltd. has submitted the financial statements for the year
ended 31-03-20 for audit. The audit assistant observes and brings to
your notice that the company’s records show following dues:

• Income Tax relating to Assessment Year 2015-16 ₹125 lacs –

Appeal is pending before ITAT since 30-9-16.

• Customs duty ₹85 lakhs – Demand notice received on 15-9-19 but

no action has been taken to pay or appeal.

As an auditor, how would you bring this fact to the members?

[Nov. 11 (5 Marks)]

HINT:

(a) Matter related with Income Tax: In the present case an appeal
relating to income tax is pending with the ITAT, which need to be
reported as under:

S. Name of Nature Amount Period to Forum where

No. the of (in Lacs) which amount dispute is
Statute Dues relates pending

1 Income Income 125.00 AY 2015-16 ITAT

Tax Act, Tax
1961

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(b) Matter related with Custom Duty: Demand Notice has been received
for ₹85 Lacs but the company has not taken any action yet. Auditor
may state the fact accordingly.

Auditor should also perform the procedures as covered in SA 250.

Repayment of • Whether the company has defaulted in repayment of loans or

Dues– Para borrowings to a financial institution, bank, government or dues
3(viii) to debenture holders?

• If yes, the period and amount of default to be reported (In case

of defaults of banks, financial institutions and government,
lender wise details to be provided).

Important Points to remember (As covered in Guidance Note

on CARO, 2016)

• Auditor should report the period and amount of all defaults

existing at the balance sheet date irrespective of when those
defaults have occurred.

• Financial Institution includes all Banks, Public Financial

Institutions, as well as Non–Banking Institutions and also
includes Non- Banking Financial Companies.

• Submission of application for re-schedulement/restructuring

does not mean that no default has occurred.

• Lender wise details may be provided in the following format:

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Particulars Amount of Period Remarks, if

default as at of any
balance sheet default
date

(i) Name of the

Lenders:

In case of:

Bank

Financial
Institution &

Government

(i) Debentures

Important Questions

Q. No. 27: OK Ltd. has taken a term loan from a nationalized bank in 2015 for
₹200 lakhs repayable in five equal instalments of ₹40 lakhs from 31st
March, 2016 onwards. It had repaid the loans due in 2016 & 2017,
but defaulted in 2018, 2019 & 2020. As the auditor of OK Ltd. what is
your responsibility assuming that company has sought
reschedulement of loan?

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HINT: The auditor has to report in his audit report that the Company has

defaulted in its repayment of dues to the bank to the extent of ₹120 lakhs,

as required under Para 3(viii) of CARO, 2016.

Q. No. 28: R Ltd as at 31st March 2020 defaulted in the repayment of interest

and principal due to a financial institution. The due date was 28th

February 2020. However, the defaulted amount was paid on 5th April

2020. The company’s management is of the opinion that since the

default is set right before the audit completion these need not be

reported in CARO 16. Comment & draft a suitable report.

Or

C Limited has defaulted in repayments of dues to a financial

institution during the financial year 2019-20 and the same

remained outstanding as at March 31, 2020. However, the Company

settled the total outstanding dues including interest in April, 2020

subsequent to the year end and before completion of the audit.

Discuss how you would deal with this matter and draft a suitable

Auditor's Report.

HINT: Draft Report:

“The company has defaulted in repayment of principal and interest to the

financial institution amounted to ₹………, that become due on

_________________. Also the period of default is ________days”.

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Application of • Whether moneys raised by way of initial public offer or further

Money raised public offer (including debt instruments) and term loans were
by public issue applied for the purposes for which those are raised.
& term Loan –
• If not, the details together with delays or default and subsequent
Para 3(ix)
rectification, if any, as may be applicable, be reported.

Important Points to remember (As covered in Guidance Note

on CARO, 2016)

• Currently, there is no legal requirement under the Act to

disclose the end use of money raised by IPO or FPO in the
financial statements. The companies, however, make such a
disclosure in the Board’s Report. Schedule III to the Act requires
that only unutilized amount of any IPO or FPO made by the
company should be disclosed in the financial statements of a
company. In the absence of any legal requirement of such
disclosure, it appears that the clause envisages that the
companies should disclose the end use of money raised by the
IPO or FPO (including debt instruments) in the financial
statements by way of notes and the auditor should verify the
same.

• Terms loans are generally provided by banks and financial

institutions for acquisition of capital assets which then become
the security for the loan, i.e., end use of funds is normally fixed.

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• The Order is silent as to term loans obtained from

entities/persons other than banks/financial institutions. A strict

interpretation of the clause would mean that the term loan

obtained from entities/persons other than banks/financial

institutions would also have to be examined.

• In case of term loans, raised against title deeds, long term FDRs,

NSCs etc., where the lender is not concerned with the purpose

for which it is being obtained, the auditor should clearly

mention the fact that in absence of any stipulation regarding the

utilization of loans from the lender, he is unable to comment as

to whether the term loans have been applied for the purposes

for which they were obtained.

• Sometimes, companies, may, temporarily invest the surplus

funds pending utilization for the purpose for which funds were

arranged. In such cases, the auditor should mention the fact that

pending utilisation of the funds raised through IPO or FPO

(including debt instruments) or term loans for the stated

purpose, the funds were temporarily used for the purpose other

than for which they were raised but were ultimately utilised for

the stated end-use.

• Reporting Format:

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“In our opinion and according to the information and

explanations given to us, the Company has utilized the money
raised by way of IPO/FPO (including debt instruments) and the
term loans during the year for the purposes for which they were
raised, except for:

Nature of the Details of Amount Subsequently

fund Raised default (`) rectified
(Reason/Delay (Yes/No) and
) details

Important Questions

Q. No. 29: Under CARO how, as a statutory auditor how would you comment on

the following: A Term Loan was obtained from a bank for ₹75 lakhs

for acquiring R&D equipment, out of which ₹12 lakhs were used to

buy a car for use of the concerned director, who was overlooking the

R&D activities.

HINT: As per requirement of Para 3 (ix) of CARO, 2016, auditor is

required to report the fact that out of the term loan obtained for R & D

equipment, ₹12 Lacs was not utilized for the purpose of acquiring the R &

D equipment.

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Q. No. 30: As a Statutory Auditor, how would you deal with the following: LM
Ltd. had obtained a Term Loan of ₹300 lakhs from a bank for the
construction of a factory. Since there was a delay in the construction
activities, the said funds were temporarily invested in short term
deposits.
HINT: Auditor is required to report the fact that the pending utilisation of
term loan, the funds are temporarily invested in short term deposits, in
his audit report as per requirement of Para 3 (ix) of CARO 2016.
Q. No. 31: During the financial year ended on 31/03/2020, LM Private Limited
had borrowed from a Nationalized Bank, a term loan of Rs. 120 lakhs
consisting of Rs. 100 lakhs for purchase of a machinery for the new
plant and Rs. 20 lakhs for erection expenses. As on the date of 31st
March, 2020, the total of capital and free reserves of the Company
was Rs. 50 lakhs and turnover for the year 2019-20 was Rs. 750
lakhs. The Bank paid Rs. 100 lakhs to the vendor of the Company for
the supply of machinery on 31/12/2019. The machinery had
reached the yard of the Company. On 28/02/2020, the Company had
drawn the balance of loan viz. Rs. 20 lakhs to the credit of its current
account maintained with the Bank and utilized the full amount for
renovating its administrative office building. The machinery had
been kept as capital stock under construction. Comment as to
reporting issues, if any, that the Auditor should be concerned with
for the financial year ended on 31/03/2020, in this respect.
[Nov. 18-New Syllabus (5 marks)]
HINT: As per requirement of Para 3 (ix) of CARO, 2016, auditor is
required to report the fact that out of the term loan obtained for
machinery purchase and erection, ₹20 Lacs was not utilized for the
purpose of erection of machinery.

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Fraud • Whether any fraud by the company or any fraud on the Company by
[Para 3(x)] its officers/employees has been noticed or reported during the year;

• If yes, the nature and the amount involved is to be indicated.

Important Points to remember (As covered in Guidance Note on

CARO, 2016)

• The scope of auditor’s inquiry under this clause is restricted to

frauds ‘noticed or reported’ during the year.

• The use of the words “noticed or reported” indicates that the

management of the company should have the knowledge about the

frauds.

• This clause does not relieve the auditor from his responsibility to

consider fraud and error in an audit of financial statements. In other

words, irrespective of the auditor’s comments under this clause, the

auditor is also required to comply with the requirements of SA 240.,

• The auditor should obtain written representations from

management that:

(i) it acknowledges its responsibility for the implementation and

operation of accounting and internal control systems that are

designed to prevent and detect fraud and error;

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(ii) it believes the effects of those uncorrected misstatements in

financial statements, aggregated by the auditor during the

audit are immaterial, both individually and in the aggregate, to

the financial statements taken as a whole. A summary of such

items should be included in or attached to the written

representation;

(iii) it has disclosed to the auditor all significant facts relating to

any frauds or suspected frauds known to management that

may have affected the entity; and

(iv) it has disclosed to the auditor the results of its assessment of

the risk that the financial statements may be materially

misstated as a result of fraud.

• For reporting under this clause, the auditor may consider the

following:

(i) This clause requires all frauds noticed or reported during the

year shall be reported indicating the nature and amount involved.

As specified the fraud by the company or on the company by its

officers or employees are only covered.

(ii) Of the frauds covered under section 143(12) of the Act, only

noticed frauds shall be included here and not the suspected

frauds.

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(iii) While reporting under this clause with regard to the nature and

the amount involved of the frauds noticed or reported, the auditor

may also consider the principles of materiality outlined in

Standards on Auditing.

Important Questions

Q. No. 32: As a statutory auditor, how would you report on the following under
CARO: ABC Pvt. Ltd. is a manufacturer of jewellery. A senior
employee of the Company informed you that the Company does not
properly disclose the purity of gold used on the jewellery.

HINT: From the view point of reporting on frauds under CARO, 2016,
there is no implication for misstatement in the financial statements.
Hence, no reporting is necessary for improper disclosure of purity of gold
on the jewelry.

Q. No. 33: What are the reporting requirements in the audit report under the
Companies Act, 2013/CARO, 2016 for the following situations?

(a) A fraud has been committed against the company by an officer

of the company.

(b) A fraud has been committed against the company by a vendor of

the company.

(c) The company has committed a major fraud on its customer and
the case is pending in the court.

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(d) A fraud has been reported in the cost audit report but not
noticed by statutory auditors in his audit.

[Nov. 18-Old Syllabus (4 Marks)]

HINT: Refer Sec. 143(12) read with Rule 13 of Companies (Audit &
Auditor’s) Rules, 2014 and Para 3(x) of CARO, 2016.

Managerial • Whether managerial remuneration has been paid or provided in

Remuneration accordance with the requisite approvals mandated by the
– Para 3(xi) provisions of Sec. 197 read with schedule V to the Companies
Act?

• If not, state the amount involved and steps taken by the

company for securing refund of the same.

Important Points to remember (As covered in Guidance Note

on CARO, 2016)

• Section 197 of the Act prescribes that the maximum ceiling for
payment of managerial remuneration by a public company to its
directors, including managing director and whole-time director
and its manager which shall not exceed 11% of the net profit of
the company in that financial year, computed in accordance with
section 198 of the Act, except that the remuneration of the
directors shall not be deducted from the gross profits.

• The overall managerial remuneration and requisite approval is

summarized as under:

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S. Person entitled Maximum If remuneration

No for Remuneration exceeds

remuneration in any maximum
financial year remuneration in
any financial
year as provided
under column
(b)

(a) (b) (c)

1 Directors 11% of the net Company in

including profits* of the general meeting
managing company for subject to
director, whole that financial provisions of
time director and year Schedule V may
managers of pay remuneration
public company in excess of 11%
(for all such of the net profits
directors and of the company.
manager
together)

2 One managing 5% of the net With the approval

Director/Whole profits* of the of the company in
time company for general meeting

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director/manager that financial by special

year resolution, this
limit may be
exceeded.

3 More than one 10% of the net With the approval

M.D./Whole time profits* of the of the company in
director/manager company for general meeting
(for all such that financial by special
directors & year. resolution, this
manager limit may be
together) exceeded.

4 Directors who are 1% of the net With the approval

neither managing profits* of the of the company in
director nor company, (if general meeting
whole time there is a by special
directors Managing or resolution, this
whole-time
limit may be
director or
exceeded.
Manager) for
that financial
year.
In any other
case 3% of net
profits.

• The default may be reported incorporating the following details:

(i) Payment made to Director/Whole time

Director/Managing Director/Manager.
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(ii) Amount paid/provided in excess of the limits prescribed.

(iii) Amount due for recovery as at Balance Sheet date.

(iv) Steps taken to secure the recovery of the amount.

(v) Remarks, if any.

Nidhi • Whether the Nidhi Company has complied with the Net Owned
Companies Fund to Deposits in the ratio of 1: 20 to meet out the liability

– Para 3(xii) and

• Whether the Nidhi Company is maintaining 10% unencumbered

term deposits as specified in the Nidhi Rules, 2014 to meet out
the liability.

Important Points to remember (As covered in Guidance Note

on CARO, 2016)

• Section 406(1) of the Act defines “Nidhi” to mean a company

which has been incorporated as a Nidhi with the object of
cultivating the habit of thrift and savings amongst its members,
receiving deposits from, and lending to, its members only, for
their mutual benefit, and which complies with such rules as are
prescribed by the Central Government for regulation of such
class of companies.

• Ministry of Corporate Affairs on 31st March 2014, vide its

Notification No. GSR 258(E) notified the ‘Nidhi Rules 2014’,
which came into force on the first day of April 2014.

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• As per Rule 3(d) Net Owned Funds are defined as the aggregate
of paid up equity share capital and free reserves as reduced by
accumulated losses and intangible assets appearing in the last
audited balance sheet. Provided that, the amount representing
the proceeds of issue of preference shares, shall not be included
for calculating Net Owned Funds.

• A Nidhi company can accept fixed deposits, recurring deposits

and savings deposits from its members in accordance with the
directions notified by the Central Government. The aggregate of
such deposits is referred to as “deposit liability”.

• The auditor should ask the management to provide the

computation of the deposit liability and net owned funds on the
basis of the requirements mentioned above. This would enable
him to verify that the ratio of deposit liability to net owned
funds is in accordance with the requirements prescribed in this
regard.

Important Questions

Q. No. 34: CARO 2016 has made several significant changes and has introduced
many new reporting requirements vis-à-vis CARO 2015.

In view of the above, describe the relevant clause relating to Nidhi

Companies – compliance with net owned funds to deposit
requirements and the relevant provisions.

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What audit procedures are to be adopted for verification and

reporting on the same? [Nov. 16 (4 Marks)]

HINT: Refer Para 3(xii) of CARO, 2016

Transactions • Whether all transactions with the related parties are in

with related compliance with Sec. 177 and 188 of Companies Act, 2013 where
Parties applicable and
– Para 3(xiii) • the details have been disclosed in the Financial Statements etc as

required by the applicable accounting standards.

Important Points to remember (As covered in Guidance Note on

CARO, 2016)

• The auditor is required to perform appropriate procedures to

satisfy himself as regards compliance with section 177 and 188 of
the Act so that auditor is able to appropriately report under this
clause.

• Auditor can refer SA 550, “Related Parties” which has prescribed

auditor’s responsibilities regarding related party relationships
and transactions when performing an audit of financial
statements, including guidance on the procedures to be
performed by auditors.

• The auditor should obtain written representations from

management and, where appropriate, those charged with
governance that:

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(i) They have disclosed to the auditor the identity of the entity’s
related parties and all the related party relationships and
transactions of which they are aware; and

(ii) They have appropriately accounted for and disclosed such

relationships and transactions in accordance with the
requirements of the framework.

• Based on the procedures performed by the auditor, if auditor

comes across any non-compliance, then, it should be duly
reported. The following particulars may be incorporated:

Nature of the related Amount involved Remarks

party relationship (`) (details of
and the underlying noncompliance
transaction may be given)

Preferential • Whether the company has made any preferential allotment or

Allotment private placement of shares or fully or partly convertible

– Para 3(xiv) debentures during the year under review and

• if so, as to whether the requirement of Sec. 42 of the Companies

Act, 2013 have been complied and the amount raised have been
used for the purposes for which the funds were raised. If not,
provide details in respect of the amount involved and nature of
non compliance.

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Important Points to remember (As covered in Guidance Note on

CARO, 2016)

The auditor may report the non-compliances incorporating the

following details:

Nature of Purpose Total Amount Unutilized Remarks,

Securities for Amount utilized balance as at if any

viz. Equity which Raised/ for the Balance

shares / funds opening other sheet Date
Preference raised unutilized purpose

shares / balance
Convertible
debentures

Non cash • Whether the company has entered into any non-cash transactions
transactions with directors or persons connected with him and
with
• if so, whether provisions of Section 192 of Companies Act, 2013
directors
have been complied with.
– Para 3(xv)
Important Points to remember (As covered in Guidance Note on
CARO, 2016)

• Section 192 of the Companies Act, 2013 of the Act deals with
restriction on noncash transactions involving directors or persons

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connected with them. The section prohibits the company from

entering into following types of arrangements unless it meets the
conditions laid out in the said section:

(i) An arrangement by which a director of the company or its

holding, subsidiary or associate company or a person
connected with such director acquires or is to acquire assets
for consideration other than cash, from the company.

(ii) An arrangement by which the company acquires or is to

acquire assets for consideration other than cash, from such
director or person so connected.

• Section 192(1) and (2) envisage the following compliances in

respect of non cash transactions:

(i) The company should have obtained a prior approval for

such arrangement by a resolution in the General Meeting.

(ii) If the concerned Director or connected person is a director

of the company’s holding company, the latter too should
have obtained a similar prior approval for the arrangement
by a resolution at its General Meeting.

(iii) Notice for approval of the resolution should contain details

of the arrangement along with the value of assets involved
duly calculated by a registered valuer.

• The reporting requirements under this clause are in two parts.

The first part requires the auditor to report on whether the

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company has entered into any non-cash transactions with the

directors or any persons connected with such director/s. The
second part of the clause requires the auditor to report whether
the provisions of section 192 of the Act have been complied with.
Therefore, the second part of the clause becomes reportable only
if the answer to the first part is in affirmative.

• Suggested paragraph on reporting:

“According to the information and explanations given to us, the

Company has entered into non-cash transactions with one of the
directors/person connected with the director during the year, by
the acquisition of assets by assuming directly related liabilities,
which in our opinion is covered under the provisions of Section
192 of the Act, and for which approval has not yet been obtained
in a general meeting of the Company”

Important Questions

Q. No. 35: RNT Ltd. has entered into non-cash transactions with Mr. Ram, son of
one of the directors of the company, which is an arrangement by
which the RNT Ltd. is in process to acquire assets for consideration
other than cash. Under CARO, 2016, as a statutory auditor, how
would you report? [RTP-Nov. 19]

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Registration Whether the company is required to be registered u/s 45IA of the

with RBI – Reserve bank of India Act, 1934 and if so, whether the registration
Para 3(xvi) has been obtained.

Important Points to remember (As covered in Guidance Note on

CARO, 2016)

• The auditor is required to examine whether the company is

engaged in the business which attract the requirements of the
registration. The registration is required where the financing
activity is a principal business of the company.

• The auditor’s report shall incorporate the following:

(a) Whether the registration is required under section 45-IA of the

RBI Act, 1934.

(b) If so, whether it has obtained the registration.

(c) If the registration not obtained, reasons thereof.

8.3 - Reasons to be stated for Unfavourable or Qualified remarks (Para 4)

• Where, in the auditor’s report, the answer to any of the questions referred to in
Para 3 is unfavourable or qualified, the auditor’s report shall also state the basis
for such unfavourable or qualified answer, as the case may be.

• Where the auditor is unable to express any opinion on any specified matter, his
report shall indicate such fact together with the reasons as to why it is not
possible for him to give his opinion on the same.

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8.4 - General Approach for compliance of requirements of CARO, 2016 (As per
Guidance Note on CARO, 2016 issued by ICAI)

(a) Submit to the company, a questionnaire on all important matters covered by

the Order.

(b) Make specific inquiries in writing on all important matters not covered by the
questionnaire.

(c) Insist that replies of the company are furnished in writing and are signed by a
responsible officer of the company.

(d) Where the explanations are not already separately recorded, maintain a record
of the discussions with the management.

(e) Prepare his own “check-list” in respect of the requirements of the Order and
record the names of the members of his staff who made the examination and
the name of the company’s staff who provided the information.

Miscellaneous Questions

Q. No. 36: Whilst the Audit team has identified various matters, they need your
advice to include the same in your audit report in view of CARO
2016:

(a) The long-term borrowings from the parent has no agreed terms
and neither the interest nor the principal has been repaid so
far.

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(b) The Company is in the process of selling its office along with the
freehold land available at Chandigarh and is actively on the
lookout for potential buyers. Whilst the same was purchased at
₹25 Lakhs in 2008, the current market value is ₹250 Lakhs,

This property is pending to be registered in the name of the

Company, due to certain procedural issues associated with the
Registration though the Company is having a valid possession
and has paid its purchase cost in full. The Company has
disclosed this amount under Fixed Assets though no disclosure
of non-registration is made in the notes forming part of the
accounts.

(c) An amount of ₹3.25 Lakhs per month is paid to M/s. WE CARE

Associates, a partnership firm, which is a 'related party' in
accordance with the provisions of the Companies Act, 2013 for
the marketing services rendered by them. Based on an
independent assessment, the consideration paid is higher than
the arm's length pricing by ₹0.25 Lakhs per month. Whilst the
transaction was accounted in the financial statements based on
the amounts' paid, no separate disclosure has been made in the
notes forming part of the accounts highlighting the same as a
'related party' transaction. [MTP-Oct. 19]

(d) The Internal Auditor of the Company has identified a fraud in

the recruitment of employees by the HR department wherein
certain sums were alleged to have been taken as kick-back from
the employees for taking them on board with the Company.

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After due investigation, the concerned HR Manager was sacked.

The amount of such kickbacks is expected to be in the range of
₹12 Lakhs. [MTP-March 19, RTP-May 19]

HINT: (a) Reporting required under Para 3(xiii) of CARO, 2016; (b)
Reporting required under Para 3(1)(c) of CARO, 2016; (iii) Reporting
required under Para 3(xiii) of CARO, 2016; (iv) Reporting required under
Para 3(x) of CARO, 2016

Summary of Examination Weightage

Attempt Marks Topics Covered

May 2018 0 -

Nov. 2018 5 Reporting under Para 3(ix) of CARO, 2016

May 2019 0 -

Nov. 2019 0 -

May 2020

Nov. 2020

May 2021

Nov. 2021

May 2022

Nov. 2022

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Notes

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