AUDITORS REPORT ADDITIONAL INFORMATION REQUIRED UNDER THE NEW ACT 2013
- Report on other Legal and Regulatory Requirements
As required by section 143(3) of the Act, we report that:
- a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
- b) In our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books (and proper returns adequate for the purposes of our audit have been received from the branches not visited by us)
- c) [The reports on the accounts of the branch offices of the Company audited under Section 143(8) of the Act by branch auditors have been sent to us and have been properly dealt by us in preparing this report]
- d) The Balance Sheet, the Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account.[and the returns received from the branches not visited by us]
- e) In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.
- f) The going concern matter described in sub-paragraph (b) under the Emphasis of Matters paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.
- g) On the basis of written representations received from the directors as on 31 March, 20XX, taken on record by the Board of Directors, none of the directors is disqualified as on 31 March, 20XX, from being appointed as a director in terms of Section 164(2) of the Act.
- h) With respect to the other matters included in the Auditor’s Report and to our best of our information and according to the explanations given to us :
- The Company has disclosed the impact of pending litigations on its financial position in its financial statements – Refer Note XX to the financial statements; [or the Company does not have any pending litigations which would impact its financial position]
- The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts – Refer Note XX to the financial statements; [or the Company did not have any long-term contracts including derivatives contracts for which there were any material foreseeable losses]
- There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company [or, following are the instances of delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company or there were no amounts which required to be transferred ]
- Inquiry on certain matters (Similar to Section 227 (1A) of Companies Act, 1956)
Apart from exercising the right of access at all times and requiring information from officers of the company, the auditor has to inquire into the following matters, namely
- Whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are prejudicial to the interests of the company or its members.
- Whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company.
- Where the company not being an investment company or a banking company, whether so much of assets of the company as consist of shares, debentures and other securities have been sold at a price less than at which they were purchased by the company.
- Whether loans and advances made by the company have been shown as deposits
- Whether personal expenses have been charged to revenue account.
- Where it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading.
Again, as was the case in the Companies Act, 1956, under this Companies Act, 2013 also, the auditor is required to inquire on the matters said above and the reporting requirement on this clause arises only when the auditor is not satisfied with the inquiry on the above mentioned matters.
- Special Focus on reporting of fraud
- Section 143 (12) casts an additional responsibility on auditors with respect to reporting of fraud.
- The section begins with a non-obstante clause.
- If the auditor of a company, in the course of the performance of his duties as auditor , has reason to believe that an offence involving fraud, is being or has been committed against the company by officers or employees of the company, the auditor shall report the matter to the Central Government immediately but not later than sixty days of the auditors knowledge , after following the procedure below , the procedure being given by Companies (Audit and Auditors) Rules, 2014
- The auditor shall forward his report to the Board of Directors or the Audit Committee, as the case may be, immediately after the auditor comes to know of the fraud, seeking their reply or observations within forty five days.
- On receipt of such reply or observations the auditor shall forward his report and the reply or observations of the Board of Directors or Audit Committee along with the auditors comment on such reply or observations of the Board of Directors or the Audit Committee, to the Central Government within fifteen days of receipt of such reply from the Board of Directors or Audit Committee.
- In case the auditor fails to get any reply or observations from the Board of Directors or Audit Committee within forty five days, then the auditor shall forward his report to the Central Government along with a note containing the details of the report earlier forwarded to the Board of Directors or Audit Committee, for which he failed to receive any reply or observations within the stipulated time.
- The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed Post followed by an e-mail in confirmation of the same.
- The report shall be on the letter- head of the auditor containing postal address, e-mail address and contact number and shall be signed by the auditor with his seal and shall indicate his membership number.
- The report shall be in the form of a statement as specified in Form ADT-4.
- The provisions of this rule shall also apply, mutatis mutandis, to a cost auditor and a secretarial auditor during the performance of his duties under section 148 and section 204 respectively.
- Restricted Scope of reporting on fraud
The auditor’s responsibility with respect to reporting on fraud discussed above is restricted to fraud either presently being committed or committed in the past, against the company by officers or employees of the company. This does not include-
- Fraud by the company, either discovered by the auditor or that comes to the knowledge of the auditor (either past or present).
- Fraud on the company by external parties other than officers or employees of the company that comes to the knowledge of auditor or discovered by the auditor.
- CARO 2003 applicability :
Applicable for financial year commencing on or after April 1, 2014.
Even though the exclusions above gets fitted in Companies Auditors Report Order, 2003 (CARO, 2003) (presently for the purpose of passive reference, a connection is resorted to CARO,2003 understanding fully that there is a necessity for revised CARO ) and would also be factored in the order that the Central Government in consultation with National Financial Reporting Authority would give ( i.e in the New Version of CARO), the auditor’s responsibility in case of the fraud stated as exclusion in point a & b above would not extend to communication of the same to the Board of Directors or the Audit Committee and eventually to Central Government.
Key Changes in CARO:
- Provisions of Companies Act, 1956 replaced with corresponding notified provisions of Companies Act, 2013
- Deletion of certain clauses of CARO, 2003 such as clause v, vii, xii, xiii, xiv, xvii, xviii, xix, xx
- Exemption of CARO applicability to One Person Company as per section 2(62) and small company as per section 2(85) of the 2013 Act
- Separate clause regarding amount required to be transferred to IEPF
- Effect on going concern on disposal of substantial fixed assets, need not be given
- No comments required to be given under loans taken from parties covered in the register maintained u/s 301 of 1956 Act and further disclosures under loans given, reduced
- Mandatory disclosure regarding amounts involved in case of disputed specified statutory dues and forum where such dispute is pending
- Signing of audit reports- Section 145
- The auditor shall sign the audit report or sign or certify any other document of the company in accordance with the provisions of Section 141(2) of the Companies Act, 2013 (Sec. 141 (2) reads as follows “Where a firm including a limited liability partnership is appointed as an auditor of a company, only the partners who are Chartered Accountants shall be authorised to act and sign on behalf of the firm”).
- The qualifications, observations or comments on financial transactions or matters, which have any adverse effect on the functioning of the company mentioned in the auditor’s report shall be read before the company in general meeting and shall be open to inspection by any member of the company.
The Companies Act, 2013 has certainly added to the responsibilities of an independent auditor. This additional responsibility coupled with a necessity/ possible arrival of revised addendum (i.e. revised CARO) will usher in a new era of challenges and greater transparency in reporting front.