MCA has issued Companies (Auditor’s Report) Order, 2015 (CARO 2015)

New Del­hi, the 10th April, 2015

S.O. __________ (E).- In exer­cise of the pow­ers con­ferred by sub-sec­tion (11) of sec­tion 143 of the Com­pa­nies Act, 2013 (18 of 2013 ) and in super ses­sion of the Com­pa­nies (Auditor’s Report) Order, 2003, pub­lished in the Gazette of India, Extra­or­di­nary, Part II, Sec­tion 3, Sub-sec­tion (i), vide num­ber G.S.R. 480 (E), dat­ed the 12(11 June, 2003, except as respects things done or omit­ted to be done before such super ses­sion, the Cen­tral Gov­ern­ment, after con­sul­ta­tion with the Insti­tute of Char­tered Accoun­tants of India, con­sti­tut­ed under the Char­tered Accoun­tants Act, 1949 (38 of 1949), here­by makes the fol­low­ing Order, namely:-

1. Short title, appli­ca­tion and com­mence­ment. – (1) This order may be called the Com­pa­nies (Auditor’s Report) Order, 2015.

(2) It shall apply to every com­pa­ny includ­ing a for­eign com­pa­ny as defined in clause (42) of sec­tion 2 of the Com­pa­nies Act, 2013 (18 of 2013) [here­inafter referred to as the Com­pa­nies Act], except -

(i)  a bank­ing com­pa­ny as defined in clause © of sec­tion 5 of the Bank­ing Reg­u­la­tion Act, 1949 (10 of 1949);

(ii) an insur­ance com­pa­ny as defined under the Insur­ance Act,1938 (4 of 1938);

(iii) a com­pa­ny licensed to oper­ate under sec­tion 8 of the Com­pa­nies Act;

(iv) a One Per­son Com­pa­ny as defined under clause (62) of sec­tion 2 of the Com­pa­nies Act and a small com­pa­ny as defined under clause (85) of sec­tion 2 of the Com­pa­nies Act; and

(v) a pri­vate lim­it­ed com­pa­ny with a paid up cap­i­tal and reserves not more than rupees fifty lakh and which does not have loan out­stand­ing exceed­ing rupees twen­ty five lakh from any bank or finan­cial insti­tu­tion and does not have a turnover exceed­ing rupees five crore at any point of time dur­ing the finan­cial year.

(3)     It shall come into force on the date of its pub­li­ca­tion in the Offi­cial Gazette.

2.   Auditor’s report to con­tain mat­ters spec­i­fied in para­graphs 3 and 4. Every report made by the audi­tor under sec­tion 143 of the Com­pa­nies Act, on the accounts of every com­pa­ny exam­ined by him to which this Order applies for the finan­cial year com­menc­ing on or after 1St April, 2014, shall con­tain the mat­ters spec­i­fied in para­graphs 3 and 4.

3.  Mat­ters to be includ­ed in the auditor’s report. – The auditor’s report on the account of a com­pa­ny to which this Order applies shall include a state­ment on the fol­low­ing mat­ters, namely:-

(i)      (a) whether the com­pa­ny is main­tain­ing prop­er records show­ing full par­tic­u­lars, includ­ing quan­ti­ta­tive details and sit­u­a­tion of fixed assets;

(b) whether these fixed assets have been phys­i­cal­ly 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;

(ii) (a) whether phys­i­cal ver­i­fi­ca­tion of inven­to­ry has been con­duct­ed at rea­son­able inter­vals by the management;

(b)    are the pro­ce­dures of phys­i­cal ver­i­fi­ca­tion of inven­to­ry fol­lowed by the man­age­ment rea­son­able and ade­quate in rela­tion to the size of the com­pa­ny and the nature of its busi­ness. If not, the inad­e­qua­cies in such pro­ce­dures should be reported;

©     whether the com­pa­ny is main­tain­ing prop­er records of inven­to­ry and 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;

(iii) whether the com­pa­ny has grant­ed any loans, secured or unse­cured to com­pa­nies, firms or oth­er par­ties cov­ered in the reg­is­ter main­tained under sec­tion 189 of the Com­pa­nies Act. If so,

(a)       whether receipt of the prin­ci­pal amount and inter­est arc also reg­u­lar; and

(b)           if over­due amount is more than rupees one lakh, whether rea­son­able steps have been tak­en by the com­pa­ny for recov­ery of the prin­ci­pal and interest;

(iv)         is there an ade­quate inter­nal con­trol sys­tem com­men­su­rate with the size of the com­pa­ny and the nature of its busi­ness, for the pur­chase of inven­to­ry and fixed assets and for the sale of goods and ser­vices. Whether there is a con­tin­u­ing fail­ure to cor­rect major weak­ness­es in inter­nal con­trol system.

(v)           in case the com­pa­ny has accept­ed deposits, whether the direc­tives issued by the Reserve Bank of India and the pro­vi­sions of 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? I I not, the nature of con­tra­ven­tions should 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?

(vi)       where main­te­nance of cost records has been spec­i­fied by the Cen­tral Gov­ern­ment under sub-sec­tion (1) of sec­tion 148 of the Com­pa­nies Act, whether such accounts and records have been made and maintained;

(vii) (a) is the com­pa­ny reg­u­lar in deposit­ing undis­put­ed statu­to­ry dues includ­ing prov­i­dent fund, employ­ees’ state insur­ance, income-tax, sales-tax, wealth tax, ser­vice tax, duty of cus­toms, duty of excise, val­ue added tax, cess and any oth­er statu­to­ry dues with 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 by the auditor.

(b)    in case dues of income tax or sales tax or wealth tax or ser­vice tax or duty of cus­toms or duty of excise or val­ue added tax or cess 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 con­sti­tute a dispute).

©     whether the amount required to be trans­ferred to investor edu­ca­tion and pro­tec­tion fund in accor­dance with the rel­e­vant pro­vi­sions of the Com­pa­nies Act, 1956 (1 of 1956) and rules made there under has been trans­ferred to such fund with­in time.

(viii) whether in case of a com­pa­ny which has been reg­is­tered for a peri­od not less than five years, its accu­mu­lat­ed loss­es at the end of the finan­cial year are not less than fifty per cent of its net worth and whether it has incurred cash loss­es in such finan­cial year and in the imme­di­ate­ly pre­ced­ing finan­cial year;

(ix)    whether the com­pa­ny has default­ed in repay­ment of dues to a finan­cial insti­tu­tion or bank or deben­ture hold­ers? If yes, the peri­od and amount of default to be reported;

(x)    whether the com­pa­ny has giv­en any guar­an­tee for loans tak­en by oth­ers from bank or finan­cial insti­tu­tions, the terms and con­di­tions where­of are prej­u­di­cial to the inter­est of the company;

(xi) whether term loans were applied for the pur­pose for which the loans were obtained;

(xii)    whether any fraud on or by the com­pa­ny has been noticed or report­ed dur­ing the year; If yes, the nature and the amount involved is to be indicated.

4. Rea­sons to be stat­ed for unfavourable or qual­i­fied answers.- (1) Where, in the auditor’s report, the answer to any of the ques­tions referred to in para­graph 3 is unfavourable or qual­i­fied, the auditor’s report shall also state the rea­sons for such unfavourable or qual­i­fied answer, as the case may be.

(2) Where the audi­tor is unable to express any opin­ion in answer to a par­tic­u­lar ques­tion, his report shall indi­cate such fact togeth­er with the rea­sons why it is not pos­si­ble for him to give an answer to such question.

File No. 17/ 4 /2015-CL‑V]

Amardeep Singh Bhatia

Joint Sec­re­tary to the Gov­ern­ment of India

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