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CARO (2003) SOME IMPORTANT ISSUES AND RECENT DEVELOPMENTS. STUDY CIRCLE MEETING ORGANISED BY MALAD-GOREGAON CPE STUDY CIRCLE. HISTORY SECTION 227 4A MAOCARO 1975 - PowerPoint PPT Presentation
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CA PRANAY MARFATIA
STUDY CIRCLE MEETING ORGANISED BY MALAD-GOREGAON CPE STUDY CIRCLE
*CARO (2003)SOME IMPORTANT ISSUES ANDRECENT DEVELOPMENTS
11 August 2013
CA PRANAY MARFATIA 2
HISTORY*SECTION 227 4A *MAOCARO 1975*Central Government issued the Manufacturing
and Other Companies (Auditor’s report) order, 1975
*Applied to all manufacturing, service, trading and finance companies. (1975-1987)
*Auditor to Report on 22 items *MAOCARO 1988 (Between 1988 to 30-6-2003)*Auditor to report on 27 items
*CARO 2003* Issued originally on 12th June 2003 & Amended on
25th November 2004 from 1-7-2003 * Paragraph 4 has 21 sub paragraphs and 37
questions
11 August 2013
CA PRANAY MARFATIA 3 11 August 2013
MAJOR CHANGES BROUGHT IN BY CARO 2003*a) Changes towards more corporate
disclosures and investor protection*b) Changes which increase the protection
of interest of the depositors/lenders*c) Changes which Enhance certain limits/
coverage of reporting*d) Procedural/ consequential changes
CA PRANAY MARFATIA 4 11 August 2013
APPLICABILITY OF CARO 2003
*Applicable to every company including a foreign company except the following:*Banking Company*Insurance Company*Section 25 Company*Private Company * paid up capital and reserves upto fifty lakh
rupees * Loan outstanding from bank or FI upto 25 lakhs and*Turnover upto 5 crores*All the three conditions are cumulative
CA PRANAY MARFATIA 5 11 August 2013
CERTAIN ISSUES ON APPLICABILITY OF ORDER
*Whether applicable to a liaison office of a foreign company*Point of Time of the applicability to private
limited company*Turnover*Private Company accepting deposit*Deposits existing in a company on conversion
through route Part IX
CA PRANAY MARFATIA 6 11 August 2013
CLAUSE 4 (i) (a)*Whether the company is maintaining
proper records showing full particulars, including quantitative details and situation of fixed assets.
Issues*What constitutes proper records ? CLAUSE 4 (i) (b)Physical verification of fixed assets at reasonable intervals*How to determine period of reasonability
CA PRANAY MARFATIA 7 11 August 2013
CLAUSE 4 (i) (c)If a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern* What constitutes substantial part ?* What is meant by going concern ? AS-1
CA PRANAY MARFATIA 8 11 August 2013
CLAUSE 4 (ii) (a),(b),(c) / Regarding Inventory*The term ‘Inventory’ should be construed
to have same meaning as assigned to it in AS 2, “valuation of inventories” * Would this clause be applicable to the
construction companies governed by AS 7/ AS 9
CA PRANAY MARFATIA 9 11 August 2013
CLAUSE 4 (iii) (a) to (g)*Has the Company granted/taken any loans
secured or unsecured to parties covered u/s 301*Loans given and taken both to be reported
separately*Loans given or taken to other parties not covered *Auditor to look into all terms and conditions such
as rate of interest, repayment etc. and to ascertain whether prima facie prejudicial to the interest of the company or not
CA PRANAY MARFATIA 10 11 August 2013
* CLAUSE 4 (iv)*Adequate internal control system
commensurate with size of the company and nature of its business for the purchase of inventory and fixes assets and for the sale of goods and services*Auditor required to verify internal control
system and to comment on major weaknesses *What constitutes major weakness depends on
facts and circumstances
CA PRANAY MARFATIA 11 11 August 2013
* CLAUSE 4 (v) (a) & (b)*Particulars of contracts or arrangements referred
to in section 301 of the act*Clause more on compliance part*Auditor to verify contracts or arrangements to
which section 297 and 299 apply*Information required only in case of transactions
exceeding ₹ 5 lacs*Auditors to ascertain that price is comparable to
prevailing market price at relevant time
CA PRANAY MARFATIA 12 11 August 2013
* CLAUSE 4 (vi)*Acceptance of deposits are within the
directives issued by the R.B.I and provision of section 58A and 58AA and rules framed thereunder*Auditor to report nature of contravention,
if any
CA PRANAY MARFATIA 13 11 August 2013
* CLAUSE 4 (vii)*Report on internal audit system
commensurate with the size and nature of its business*Applicable to company who's paid up
capital and reserve exceed ₹ 50 lacs at the commencement of the financial year or average annual turnover exceeding ₹ 5 crores for 3 consecutive preceding financial years
CA PRANAY MARFATIA 14 11 August 2013
CLAUSE 4 ( viii)- Maintenance of Cost Records*Section 209 (1)(d) – Applicability of Cost
Accounting Records Rules*Vide notification dated 3rd June 2011, this rule
applies to every company engaged in the Production, Processing, Manufacturing or Mining activities and fulfilling any one of the conditions as on 31.3.2011*Aggregate Value of net worth exceeding ₹ 5
crores Or*Aggregate Value of turnover exceeding ₹ 20
crores Or*Listed Company
CA PRANAY MARFATIA 15 11 August 2013
* CLAUSE 4 ( ix)- Regularity in depositing undisputed statutory dues in time – if not, extent of arrears to be disclosed for more than six months from the date payable*For the disputed dues to disclose the
amount involved and stage at which dispute is pending
CA PRANAY MARFATIA 16 11 August 2013
*CLAUSE 4 (x)- To report cash loss incurred during the year and immediately preceding financial year*To report if accumulated losses exceeds
50% of its net worth
CA PRANAY MARFATIA 17 11 August 2013
CLAUSES 4 (xi) to (xv)
* Are more of disclosure and compliance nature
CA PRANAY MARFATIA 18 11 August 2013
CLAUSE 4 (xi) and (xvii)
* Term Loans and Funds raised*Auditors to verify that loans and funds
raised are used for the same purpose and not diverted
CA PRANAY MARFATIA 19 11 August 2013
CLAUSE 4 (xviii) to (xx) *Relates to disclosure
CLAUSE 4 (xxi)* Whether any fraud on or by the company
has been noticed or reported during the year. If yes than nature and amount involved is to be indicated*Auditor should examine as he would do in
an normal audit. Also to comply with AAS*Materiality to be looked into
CA PRANAY MARFATIA 20 11 August 2013
THANK YOU
CA PRANAY MARFATIA 21 11 August 2013
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