Upload
dangnhu
View
213
Download
0
Embed Size (px)
Citation preview
Companies (Auditor’s Report) Order, 2016
- Practical Challenges
CA Ananthi Amarnath
May 18, 2016
1
Companies (Auditor’s Report) Order, 2016
• CARO 2016 notified
• Applicable for all financial years beginning on or after April 1, 2015
• Does not apply to consolidated financial statements
• Changes in threshold limits for companies not covered by the order
• 9 new clauses added, 4 clauses of CARO 2015 deleted in addition to changes to some of the clauses of CARO 2015.
2
Companies (Auditor’s Report) Order, 2016
• .
3
Applicability for private limited company, not being a subsidiary or holding of a public company:
a) Paid up capital and reserves and surplus more than one crore rupees as on the balance sheet date
b) Total borrowings exceeding rupees one crore from any bank or financial institution at any point of time during the financial year
c) Total revenue as disclosed in Schedule III to the Companies Act, 2013 (including revenue from discontinuing operations) exceeding rupees ten crores during the financial year as per the financial statements.
a) For determining applicability of CARO, total revenue (including revenue from discontinuing operations) of the Company need to be considered as against the earlier requirement of turnover for the year.
b) Total revenue is the aggregate of revenue from operations and other income as disclosed in the Statement of Profit and Loss from both continuing and discontinuing operations.
c) Reserves include all amounts disclosed as part of reserves in the financial statements. For e.g., capital reserve, securities premium, general reserve, debit / credit balance in P&L, ESOP outstanding, revaluation reserve, hedging reserve, foreign currency translation reserve, foreign currency monetary item translation difference account, etc.
Companies (Auditor’s Report) Order, 2016
4
Key changes Challenges
Whether the title deeds of immovable properties are held in the name of the company. If not, provide the details thereof
• Legal and technical ability to validate title deeds
• Verification of title deeds pledged with bankers
• Title deeds in different languages
• Information about area not appropriately captured in the Fixed
Asset Register
• Exceptions noted in title deeds and dealing with them in the CARO
report and its consequent impact on the financials
• Immovable assets to include items in Capital Work in Progress too
• Name of the entity has changed in the past
• Merger of the entity
• Title deeds in the process of being registered
• Disputed title deeds
• Increased efforts
Companies (Auditor’s Report) Order, 2016
5
Key changes Challenges
The Company has not granted any loans, secured or unsecured, to companies, firms, Limited Liability Partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013.
• If a party is covered by section 188 or section 184, even
if the loan given to these parties are not entered in the
Register specified under section 189 of the Act,
reporting must be made under Clause (iii) of CARO
2016.
• All loans to such parties whether given in cash or in
kind needs to be considered.
• Special attention needs to be given to interest free
loans granted for which repayment terms/ schedule is
not specified.
• In case of waiver of principal amount and/ or interest on
the loans given by the Company, the same need to be
assessed and concluded for reporting as to why such
waiver is not prejudicial to the interest of the Company.
Companies (Auditor’s Report) Order, 2016
6
Key changes Challenges
In respect of loans, investments, guarantees, and security whether provisions of section 185 and 186 of the Companies Act, 2013 have been complied with. If not, provide the details thereof.
• Private companies are not exempt from the applicability of section
186
• Per FAQ no. 128 published by the Institute of Company
Secretaries of India, ‘Section 186 is applicable to loans to ‘any
person’ or other body corporate. ‘Any person’ will include
employees also.
Companies (Auditor’s Report) Order, 2016
7
Key changes Challenges
Whether the company has defaulted in repayment of loans or borrowing to a financial institution, bank, Government or dues to debenture holders? If yes, the period and the amount of default to be reported (in case of defaults to banks, financial institutions, and Government, lender wise details to be provided).
• Government includes central, state governments in India and
foreign governments. Government companies excluded.
• Lender wise details to be provided
• Deferred sales tax liability or loans ab-initio granted by the
government are required to be included in this clause for reporting.
Companies (Auditor’s Report) Order, 2016
8
Key changes Challenges
Whether managerial remuneration has been paid or provided in accordance with the requisite approvals mandated by the provisions of section 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.
• Compliance with Section 197 of the Companies Act, 1956 read
with Schedule V of the Act as regards limits
• Not applicable for a private Limited Company
• Companies (Appointment and Remuneration of Managerial
Personnel) Rules, 2014 applicable for Managerial Remuneration of
Public companies which are not subsidiaries of listed entities
• Where there is exception, disclosure to be made covering:
- Payments made to Director/ whole time director/Managing
Director/ Manager
- Amounts paid/ provided in excess of limits prescribed
- Amount due for recovery as at Balance sheet date
- Steps taken to secure recovery of the amount,
- Remarks, if any
Companies (Auditor’s Report) Order, 2016
9
Key changes Challenges
To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company and no material fraud on the Company by its officers or employees has been noticed or reported during the year.
• Auditor should refer to the ‘Revised Guidance Note on Reporting
on Fraud under Section 143(12) of the Companies Act, 2013’ and
ensure that reporting under CARO, 2016 is reconciled with the
reporting that they make to the Central Government / the
Company.
• This clause applies to all frauds regardless of whether it has been
identified by us as auditors.
• Rs. 1 crore threshold determined for reporting on frauds to the
Central Government under section 143(12) of the Act may not
determine what is material from a CARO standpoint.
• Quantitative and qualitative analysis of materiality
Companies (Auditor’s Report) Order, 2016
10
Key changes Challenges
Whether all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in the Financial Statements etc., as required by the applicableaccounting standards
• Responsibility extended to auditors
• To ensure completeness of the related party transactions
• The definition of related parties under accounting standards is
different from that of the Companies Act, 2013
• Compliances in this regard involve verifying approvals at various
levels including board of directors, audit committee and
shareholders of the Company as per monetary thresholds
prescribed, the categories of transactions and amount of
transactions approved.
• Assessment of ‘ordinary course of business’ and ‘arm’s length’
should be on the basis of SA 550 – Related Parties.
Companies (Auditor’s Report) Order, 2016
11
Key changes Challenges
Whether the company has made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review and if so, as to whether the requirement of Section 42 of the Companies Act, 2013 have been complied with and the amount raised have been used for the purposes for which the funds were raised. If not, provide the details in respect of the amount involved and nature of non-compliance.
• Covers equity shares, preference shares and fully or partly
convertible debentures
• Private placement excludes Qualified institutional Buyers and
employees of the Company being offered ESOP’s.
• In cases where the issue has taken place before the Balance Sheet
date but allotment is done after the Balance Sheet date but before
the date of signing, the report should be suitably worded.
• Where there is exception, detailed disclosure required:
- Type of security, amount involved and nature of non compliance
which would also include (if applicable)the amounts utilized for
any other purpose other than the started objective and unutilized
balance as at the year end.
Companies (Auditor’s Report) Order, 2016
12
Key changes Challenges
Whether the company has entered into any non-cash transactions with directors or persons connected with him and if so, whether the provisions of section 192 of Companies Act, 2013 have been complied with.
• Identification of person connected with a director
• Determination of whether the transaction is a non-cash transaction
• Reporting under this clause arises only if the Company acquires or
disposes assets for a consideration other than cash.
• Mergers under Court schemes entered into subject to requisite
approvals of Court etc., would not be considered as non-cash
transaction.
• Settlement of a genuine debt by issuing equity shares is also
considered to be an allotment of shares against cash
consideration and hence would not be treated as non cash
transaction.
Companies (Auditor’s Report) Order, 2016
13
Key changes Challenges
Whether the company is required to be registered under section 45-I of the Reserve Bank of India Act, 1934 and if so, whether the registration has been obtained.
• Investment holding companies to be critically analysed
• Examine transactions of the company with relation to activities
covered under RBI act and directions related to NBFC
• Examination of Financial statements to ascertain whether
Company’s financial assets constitute more than 50% of the
assets and income from financial assets constitute more than 50%
of the gross income
14