AUDITORS’ REPORT &CARO

AUDITORS’ REPORT &CARO
EAST DELHI CPE STUDY CIRCLE OF NIRC OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, TUESDAY , APRIL 28, 2015 AUDITORS’ REPORT &CARO -IMPACTS OF COMPANIES ACT 2013 CA GOPAL JI AGRAWAL B.COM FCA LLB DISA IFRS (ICAI) For any query, discussion or suggestion, please mail at

AN OPEN SECRET PUZZLE It is the only final delivery in the audit process? It is only mouthpiece of the Auditors? It is the only communication between the auditors and the stakeholders? BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

AN OPEN SECRET PUZZLE It is hardly drafted and read by qualified CA?
It was seldom read by regulators or stakeholders? It can ONLY save or sink an auditor/audit firm? BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Independent Auditor’s report
No Addressee Addressed to BOD Reporting P&L for yr ending > 12 M AS issued by ICAI M.No. and firm Regn Number missing Un-dated Place of Signature not given Branch Audit report not dealt with BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Report date prior to FSs date Membership number with prefix F Examined the FSs Report made subject to A/policies Qualification not in thick/italic Non-Compliance of several standards still clean report BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

AUDITORS’ REPORT (Positive Assertions)
We conducted our audit in accordance with SA specified u/s 143(10) of the Companies Act, 2013? [HOW MANY] The financial statements are free from material misstatements?? The balance sheet, the statement of profit and loss and the cash flow statement comply with the Accounting Standards referred to in sub-section 133 read with Rule 7 of Companies (Accounts) Rules 2014 {to the extent applicable}. [HOW MANY] We have taken into account of the provisions of the Companies Act 2013. These financial statements represent a true and fair view. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

PARENTS Standards governing Reporting
1.SA-700 Forming an opinion and reporting on FSs 2. SA 705 Modifications to the opinion in IARs-qualified, adverse, disclaimer SA-706 Emphasis of Matter paragraphs and Other matter paragraphs in Independent Auditors’ Report BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SA-705- Modifications to the opinion in Independent Auditors Report
Nature of matter giving rise to modification Auditor’s judgment about the Materiality and Pervasiveness of the Effects or Possible Effects on the financial statements Material but Not Pervasive Material and Pervasive FS are materially misstated Inability to obtain sufficient appropriate audit evidence Qualified opinion Adverse opinion Disclaimer of opinion BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Meaning of Material? Information is material if its omission or misstatement (individually or collectively) could influence the economic decisions of the users taken on the basis of financial information. Materiality depends on the size or nature or a combination of both. It is entity specific. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Meaning of misstatement? A “misstatement” of the financial statements occurs when there is a difference between how each of these aspects is reported by the management in the financial statements and how it should be as per the applicable financial reporting framework. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

When misstatement is pervasive? (A)Where it pertains to an amount(s) in the financial statements, it is not confined to specific components, accounts or items of the financial statements. If it is so confined, it represents or could represent a substantial portion of the financial statements; or (B)Where it pertains to disclosures, such disclosures or the matter(s) therein are/ could be fundamental to the user’s understanding of the financial statements. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SA-706- Emphasis of Matter Paragraphs and Other Matter Paragraphs In IARs
Differentiate between MP & OMP? Moreover there are following difference: In MP, matters are appropriately presented and disclosed in FSs but OMP are not presented or disclosed in FSs. MP is fundamental with reference to understanding of FSs while OMP is relevant to users’ understanding in respect of 3 matters only(a)audit,(b)the auditor’s responsibilities or (c ) the auditor’s report.” BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Title [IAR] Addressee [Members] REPORT ON FINANCIAL STATEMENTS Introductory paragraph Management’s responsibility paragraph Auditor’s responsibility paragraph Auditor’s opinion paragraph Other responsibilities paragraph Matter Paragraph Other Matter Paragraph REPORT ON OTHER LEGAL & REGULATORY REQUIREMENTS Signature Date of the auditor’s report (after approval) Place of signature FRN and Membership Number BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

143 VS. 227 BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Right of access to books of account -no change
SECTION 227 VS. 143 227 (1) (1) Right of access to books of account -no change 227(1A) (a) to (f) 143(1) (a) to (f) ```` BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (1) (a) – (f) (a) 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; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (1) (a) – (f) (b) whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (1) (a) – (f) (c)Where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company whether loans and advances made by the company have been shown as deposits; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (1) (a) – (f) (d) whether loans and advances made by the company have been shown as deposits; Section 2(31) “deposit” includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (1) (a) – (f) (e) whether personal expenses have been charged to revenue account; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (1) (a) – (f) (f) 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. Provided that the auditor of a company which is a holding company shall also have the right of access to the records of all its subsidiaries insofar as it relates to the consolidation of its financial statements [2(40)] with that of its subsidiaries. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (2) vs. 227(2) The auditor shall make a report to the members of the company on the accounts examined by him and on every financial statements {balance sheet and profit and loss account and on every other document declared by this Act to be part of or annexed to the balance sheet or profit and loss account} which are required by or under this Act to be laid before the company in general meeting {during his tenure of office} BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (2) vs. 227(2) and the report shall after taking into account the provisions of this Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of this Act or any rules made there under or under any order made under sub-section (11) and to the best of his information and {and according to explanations given to him} knowledge, the said accounts, financial statements give a true and fair view of the state of the company’s affairs as at the end of its financial year and profit or loss and cash flow for the year and such other matters as may be prescribed. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (3) (a) vs. 227(3) (a) Whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (3) (b) vs. 227(3) (b) Whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (3) (c) vs. 227(3) (bb)
(c)Whether the report on the accounts of any branch office of the company audited under sub-section (8) {Section 228}by a person other than the company's auditor has been sent to him {as required by clause (c) of sub section (3) of that section} of under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (3) (d) vs. 227(3) (c) Whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (3) (e) vs. 227(3) (d) Whether, in his opinion, the financial statements {P/L A/c and balance sheet} comply with the accounting standards; {referred to in sub-section (3C) of section 211} BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (3) (f) vs. 227(3) (e) {in thick type or in italics} the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company; GN- 705, 706 Exp. GC, litigation BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION 143 (3) (g) vs. 227(3) (f) whether any director is disqualified from being appointed as a director under {clause (g) of sub-section (1) of section 274} sub-section (2) of section 164; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SECTION >> Vs. 227(3) (g)
Whether the cess payable under section 441A has been paid and if not the details of amount of cess not so paid. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

NEW CLAUSE 143 (3) (h) Any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith. GN Modified Vs. MP or OMP BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Like improper cost records, inventory records etc.
NEW CLAUSE 143 (3) (h) Section 143 (b)- whether proper books of account as required by law have been kept by the company – if modified Like improper cost records, inventory records etc. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

BASIS OF QUALIFIED OPINION
The Company’s inventories are carried in the Balance Sheet at Rs. XXX (As at 31st March 20YY: Rs. YYY). The Management has not stated the inventories at the lower of cost and net realisable value but has stated them solely at cost, which constitutes a departure from the Accounting Standard - 2 “Valuation of Inventories”. The Company’s records indicate that had the Management stated the inventories at the lower of cost and net realisable value, an amount of Rs. XXX (As at 31st March 20YY: Rs. YYY) would have been required to write the inventories down to their net realisable value. Accordingly, cost of sales would have been increased by Rs. XXX (Previous year ended 31st March, 20YY: Rs.YYY), and income tax, profit for the year and shareholders’ funds would have been reduced by Rs. X, Rs. XX and Rs. XXX, respectively (Previous year ended 31st March, 20YY: Rs.Y, Rs.YY and Rs.YYY, respectively). This matter was also qualified in our report/ the report of the predecessor auditors on the financial statements for the year ended 31st March 20YY. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

143 (3) (f) & (h) EXP. INVENTORIES CASE: -QUALIFIED
NPA case study – Adverse, disclaimer (f) The matter described in the Basis for Qualified Opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the Company. …………………………… (h) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above.” BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

(j) such other matters as may be prescribed
NEW CLAUSE 143 (3) (i) & (j) (i) whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls (j) such other matters as may be prescribed BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

NEW CLAUSE 143 (3) (i) R-10A 10A. For the purposes of clause (i) of sub-section (3) of section 143, for the financial years commencing on or after 1st April, 2015, the report of the auditor shall state about existence of adequate internal financial controls system and its operating effectiveness Provided that auditor of a company may voluntarily include the statement referred to in this rule for the financial year commencing on or after 1st April, 2014 and ending on or before 31st March, 2015 BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

NEW CLAUSE 143 (3) ( j ) –Rule 11 The auditor’s report shall also include their views and comments: Whether Co. has disclosed the impact, if any, of pending litigation Whether the co. has made provision as required under any law or AS, for material foreseeable losses, on LT contracts including derivatives Delay in transferring amounts to IE&PF BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

NEW CLAUSE 143 (4) vs. 227(4) Where any of the matters {referred in clause (i) and (ii) of sub-section (2) or in clause (a), (b) , (bb), (c) and (d) of sub-section (3)} required to be included in the audit report under this section is answered in the negative or with a qualification, the report shall state the reasons therefore. (scope enlarged) BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CLAUSE 143 (5-7) vs. 619 (1-5) These sub-clauses are related to Government Companies’ auditors appointment, reports, special reports etc. as covered u/s 619 earlier. Definition changed of Govt. company (51% paid up vs. owned or controlled. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Related to Appointment, powers & duties of Branch auditors.
NEW CLAUSE 143 (8) vs. 228(1-4) Related to Appointment, powers & duties of Branch auditors. Central Govt. power to exempt any branch audit has been abolished. The office designated as branch has to be audited. Rule (1 to 4, 12) applicable & report to company auditor. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Every auditor shall comply with the auditing standards.
NEW CLAUSE 143 (9) Every auditor shall comply with the auditing standards. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

NEW CLAUSE 143 (10) The Central Government may prescribe the standards of auditing or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949, in consultation with and after examination of the recommendations made by the National Financial Reporting Authority. Provided that until any auditing standards are notified, any standard or standards of auditing specified by the Institute of Chartered Accountants of India shall be deemed to be the auditing standards. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

NEW CLAUSE 143 (11) The Central Government may, in consultation with the National Financial Reporting Authority, by general or special order, direct, in respect of such class or description of companies, as may be specified in the order, that the auditor’s report shall also include a statement on such matters as may be specified therein. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

NEW CLAUSE 143 (12) FRAUD Notwithstanding anything contained in this section, if an 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, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed. Rule days (45+15days) –Secretary MCA by speed post with (ADT-4) BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

NEW CLAUSE 143 (13) FRAUD No duty to which an auditor of a company may be subject to shall be regarded as having been contravened by reason of his reporting the matter referred to in sub- section (12) if it is done in good faith. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

The provisions of this section shall mutatis mutandis apply to:-
NEW CLAUSE 143 (14) FRAUD The provisions of this section shall mutatis mutandis apply to:- (a)the Cost Accountant in practice conducting cost audit under section 148; or (b) the Company Secretary in practice conducting Secretarial Audit under section 204. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

NEW CLAUSE 143 (15) FRAUD If any auditor, cost accountant or Company Secretary in practice do not comply with the provisions of sub-section (12), he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty five lakh rupees. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CONSECUTIVE 3RD YEAR OF CHANGES IN IAR
BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

REVISED AUDIT REPORT INDEPENDENT AUDITOR’S REPORT
TO THE ________ OF ABC COMPANY LIMITED REPORT ON THE STANDALONE FINANCIAL STATEMENTS We have audited the accompanying standalone financial statements of ABC COMPANY LIMITED (“the company”) which comprise the Balance Sheet as at 31st March 20XX, the Statement of Profit and Loss, the Cash Flow Statement and a summary of the significant accounting policies and other explanatory information for the year then ended [in which are incorporated the Returns for the year ended on that date audited by the branch auditors of the company’s branches at (location of the branches)]. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

…..REVISED AUDIT REPORT…...
INDEPENDENT AUDITOR’S REPORT – Continue …. Management’s Responsibility for the Standalone Financial Statements The Company’s Board of Directors [Management] is responsible for the matters stated in section 134(5) of the Companies Act’ 203 (“the Act”) with respect to the preparation of these standalone Financial Statements that give a true and fair view of the financial position, financial performance and cash flow of the company in accordance with the accounting principles generally accepted in India including the accounting standards specified under section 133 [211(3C)] of the Act, read with Rule 7 of the Companies (accounts) Rules, 2014. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INDEPENDENT AUDITOR’S REPORT – Continue …. This responsibility [includes the design, implementation and maintenance of internal controls] also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies ; judgments and estimate that are reasonable and prudent: and design implementation of adequate financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true view and free from material misstatement, whether due to fraud or error. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INDEPENDENT AUDITOR’S REPORT – Continue …. AUDITOR’S RESPONSIBILITY Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INDEPENDENT AUDITOR’S REPORT – Continue …. AUDITOR’S RESPONSIBILITY We conducted our audit in accordance with the Standards on Auditing [issued by the Institute of Chartered Accountants of India] specified under Section 143(10) of the Act. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain assurance about whether the financial statements are free from material misstatement. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INDEPENDENT AUDITOR’S REPORT – Continue …. AUDITOR’S RESPONSIBILITY An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INDEPENDENT AUDITOR’S REPORT – Continue …. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls[but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control]. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the financial statements. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INDEPENDENT AUDITOR’S REPORT – Continue …. INTERNAL FINANCIAL CONTROL Section 143(3) (i) requires that auditors to state in audit report (IN ALL COMPANIES] Whether the company has adequate internal financial controls system in place and operating effectiveness of such controls? BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INTERNAL FINANCIAL CONTROL -DEFINED Section 134 (5) (e) -LISTED COMPANY- DRS Explanation.—For the purposes of this clause, the term "internal financial controls" means policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company's policies, safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INDEPENDENT AUDITOR’S REPORT – Continue …. INTERNAL FINANCIAL CONTROL CARO inquired about the adequacy of internal control over purchase of inventory and fixed assets and sale of goods and services. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INTERNAL FINANCIAL CONTROL Section 134 (5) (e) requires in DRS in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INTERNAL FINANCIAL CONTROL Rule 8 (5) (viii) of (Account) Rules 2014 Directors report of all companies to state the details in respect of adequacy of IFC with reference to financial statements. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

OPINION– In our opinion and to the best of our information and according to the explanations to the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

OPINION– In the case of Balance Sheet, of the affairs of the company as at March 31, 20xx and its In the case of Profit and Loss account of the profit/loss for the year ended on that date and In the case of CFS, of the cash flows for the year ended on that date. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS COMMENTS ON CARO 2015 As required by the Companies (Auditor’s Report) Order, 2015 (“the Order”), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Companies Act, 2015, we give in the Annexure a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable. As required by Section 143 (3) of the Act, we report that BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS COMMENTS ON CARO 2015 This report does not include a statement on the matters specified in para 3 & 4 of the Companies (Auditor’s Report) Order,2015, issued by the CG, in terms of section 143(11) of the Companies Act, 2013, since in our opinion and according to the information and explanation given to us, the said Order is not applicable to the company. As required by Section 143 (3) of the Act, we report that BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS (2) As required by section 143(3) [227(3] of the Act: 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; Proper books of accounts clause SAME the report on the accounts of the branch office of the Company audited under section 143(8) of the Act by branch auditors have been sent to us and have been properly dealt with by us in preparing this report. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS (2) As required by section 143(3) [227(3] of the Act: (d) Agreement of FSs with Books of Accounts (SAME) (e) Compliance with regard to AS 133 [211(3C)] (f) Directors disqualification 164(2) [274(1)(g)] (g) With respect to adequacy of internal financial controls over financial reporting of the company and operating effectiveness of such controls, refer to our separate report in Annexure “A” BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS Rule 11 of the Companies (Audit & Auditors) Rules 2014 With respect to the other matters to be included in the Auditor’s report in accordance with Rule 11 of the Companies (Audit and Auditors) Rule, 2014, in our opinion and to the best of our information and according to the explanations given to us. (i) 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] BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

(ii) The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts for including derivative contracts –Refer Notes XX to the financial statements;[or the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.] (iii)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 were required to be transferred to the investor Education and Protection Fund by the Company ]. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

OTHER MATTER [ ] The Ministry of Corporate Affairs had on 01st April, 2014, vide its General Circular No. 07/2014, Dissemination of Information with Regards to the Provisions of the Companies Act, 2013 as Notified Till date vis a vis Corresponding Provisions of the Companies Act, 1956, identified such sections of the Companies Act, 1956 that would cease/ continue to have effect from 01st April 2014. Accordingly, in terms of the aforesaid Circular, our reporting in respect of section 227(3)(f) of the Companies Act, 1956, and clauses (iii), (v)(a) and (b), (vi), (viii), (xiv), (xviii) of the Companies (Auditor’s Report) Order, 2003 (dealing with sections 49, 58A, 58AA, 209(1)(d) and 301 of the Companies Act, 1956) is only for the period beginning from ie (date) till 31st March 2014 since as per the aforementioned MCA Circular these sections have ceased to have effect from 01st April, 2014.” BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

An humble appeal Gopal Ji Agrawal
I will acknowledge your critical comments and suggestions for making our Coming Deliberations more effective and copious Gopal Ji Agrawal B.COM LLB DISA IFRS (ICAI) For any query, discussion or suggestion, please mail at

THE COMPANIES (AUDITOR’S REPORT) ORDER 2015

CARO 2015 HISTORY OF CARO 2015 227(4A) introduced in 1965 w.e.f No general or special order till 1975 MAOCARO 1975 1988 – MAOCARO 1988 CARO 2003 01/04/ CARO 2015 BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 NOT APPLICABLE: Banking Company Insurance Company
U/s 8 Company One Person Company Small Company (paid up to 50 l, turnover 200 l) Private Company paid up capital & reserves L Loans from banks & Fis L Turnover L BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – NEW ADDITIONS (v) In case, the company has accepted deposits, whether the directives issued by RBI and the provisions of section 73 to 76 or any relevant provisions of the Companies Act and the rules made there-under, where applicable, have been complied with? If 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? BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – NEW ADDITIONS Vii(c) 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. Section 143(3)(j) R-11 BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – DELETION (S) (i)(c) if a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern; (iii)(a) Has the co. taken any loans, secured or unsecured from parties u/s 189 {301}. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – DELETION (S) In case of loans granted:
If so, give the number of parties and amount involved in the transactions. whether the rate of interest and other terms and conditions of loans given by the company, secured or unsecured, are prima facie prejudicial to the interest of the company; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – DELETION (S) V (a) whether the particulars of contracts or arrangements referred to in section 301 of the Act have been entered in the register required to be maintained under that section; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – DELETION (S) V (b) whether transactions made in pursuance of such contracts or arrangements have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time; (This information is required only in case of transactions exceeding the value of five lakh rupees in respect of any party and in any one financial year). BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – DELETION (S) vii) in the case of listed companies and/or other companies having a paid-up capital and reserves exceeding Rs.50 lakhs as at the commencement of the financial year concerned, or having an average annual turnover exceeding five crore rupees for a period of three consecutive financial years immediately preceding the financial year concerned, whether the company has an internal audit system commensurate with its size and nature of its business; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – DELETION (S) xii) whether adequate documents and records are maintained in cases where the company has granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities; If not, the deficiencies to be pointed out. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – DELETION (S) xiii) whether the provisions of any special statute applicable to chit fund have been duly complied with? In respect of nidhi/ mutual benefit fund/societies; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – DELETION (S) xiv) if the company is dealing or trading in shares, securities, debentures and other investments, whether proper records have been maintained of the transactions and contracts and whether timely entries have been made therein; also whether the shares, securities, debentures and other securities have been held by the company, in its own name except to the extent of the exemption, if any, granted under section 49 of the Act; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – DELETION (S) xvii) whether the funds raised on short-term basis have been used for long term investments; If yes, the nature and amount is to be indicated; xviii) whether the company has made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act and if so whether the price at which shares have been issued is prejudicial to the interest of the company; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CARO 2015 – DELETION (S) xix) whether securities or charge have been created in respect of debentures issued? xx) whether the management has disclosed on the end use of money raised by public issues and the same has been verified; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INDEPENDENT AUDITOR’S REPORT

SA-700- Forming an opinion and reporting on Financial Statements
Differentiate between general purpose FR framework and a special purpose FR framework? A general purpose financial reporting framework is a framework designed to meet the needs of a wide range of users. Special purpose financial reporting framework is a framework designed to meet the needs of a specific set of users. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

A general purpose framework includes ‘a fair presentation framework and a compliance framework. Differentiate the two. A fair presentation framework is where the auditor gives a “true and fair” report, whereas a compliance framework is one where the auditor reports on whether the financial statements comply with the requirements of the applicable laws, or rules and regulations, or a set of contractual terms and conditions. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

A general purpose framework includes ‘a fair presentation framework and a compliance framework. Differentiate the two. In fair presentation framework, management has freedom to provide additional disclosure or (ii) to depart with requirements of framework in rare conditions to meet out the requirement of true and fair FR. In Compliance, it do not have such freedom. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

INDEPENDENT AUDITORS’ REPORT
HOW MANY STANDARDS, RULES AND REGULATIONS GOVERN INDEPENDENT AUDITORS’ REPORT OR REPORING BY PRACTITIONERS IN INDIA? BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Standards Governing Reporting
How many Standards govern reporting? SA-700 Forming an opinion and reporting on FSs 2. SA 705 Modifications to the opinion in IARs SA-706 Emphasis of Matter paragraphs and other matter paragraphs in Independent Auditors’ Report SA-710 Comparative Information-Corresponding figures and comparative FSs SA -720 Auditors Responsibilities in relation to other information in documents containing AFSs SA 800- Special Considerations- Audit of FSs prepared in accordance with special purpose framework BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

How many Standards govern reporting-continue>>>> 7. SA-805 Special Considerations- Audit of Single FS and specific elements, accounts or items of a FS SA-810 Engagement to report on Summary FSs SRE Engagement to Review FSs SRE Review of Interim Financial Information performed by the Independent Auditor of the entity SAE The examination of prospective financial information SAE-3402 – Assurance Reports on controls at a service organization BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

How many Standards govern reporting-continue>>>> 13. SRS Engagement to perform agreed upon procedures regarding Financial Information 14. SRS Engagement to compile Financial Information BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Statements/Guidance Notes governing Reporting
Statement on Reporting u/s 227(1A) of the Companies Act, 1956 Statement on CARO 2003 u/s 227(4A) Guidance Note on Independence of Auditors Guidance note on certificate issued under Acceptance of deposit Rules 1975 Guidance note on Auditor report and certificates for special purpose GN on Reports in Prospectus GN on certificate on Corporate Governance GN on section 227(3)(e) (f) of Companies Act GN on reports on Abridged FS BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Title [IAR] Addressee [Members] REPORT ON FINANCIAL STATEMENTS Introductory paragraph Management’s responsibility paragraph Auditor’s responsibility paragraph Auditor’s opinion paragraph Other responsibilities paragraph Matter Paragraph Other Matter Paragraph REPORT ON OTHER LEGAL & REGULATORY REQUIREMENTS Signature Date of the auditor’s report (after approval) Place of signature FRN and Membership Number BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CORPORATE LAW OR IPC???? 147 (2) If an auditor of a company contravenes any of the provisions of section 139 (Appointment), section 143 (powers and duties and AS & SA), section 144 (not to render certain services) or section 145 (sign), the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees: BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CORPORATE LAW OR IPC???? Provided that if an auditor has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than ONE LAC rupees but which may extend to 25 LAC rupees. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CORPORATE LAW OR IPC???? 147(3) Where an auditor has been convicted under sub-section (2), he shall be liable to— (i) refund the remuneration received by him to the company; and (ii) pay for damages to the company, statutory bodies or authorities or to any other person for loss arising out of incorrect or misleading statements of particulars made in his audit report. Indeterminate amount, people and time??? BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CORPORATE LAW OR IPC???? 147(5) FIRM IS LIABLE Where, audit being conducted by an audit firm, it is proved that the partner (s) has acted in a fraudulent manner or abetted or in any fraud by, or in relation to or by the company or its directors or officers, the liability whether civil or criminal as provided in the Act or any other law for such act shall be of the concerned partner and of firm jointly and severally. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CORPORATE LAW OR IPC???? 140 (5) WINDING UP AUDIT FIRM
The NCLT either suo motu or on an application made to it by the Central Government or by any person concerned, if it is satisfied that the auditor of a company has, whether directly or indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its directors or officers, it may, by order, direct the company to change its auditors. Such an auditor shall not be eligible to be appointed as an auditor of any company for a period of 5 years from the date of passing of the order and the auditor shall also be liable for action under section 447. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CORPORATE LAW OR IPC???? 143(12)FAILURE TO DISCLOSE FRAUD
if in the course of the performance of his duties as auditor, he 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, auditor shall immediately report the matter to the Central Government. In case of any failure on his part to comply with this duty, he shall be punishable with a fine which shall not be less than Rs. 1,00,000 but which may extend to Rs. 25,00,000. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CORPORATE LAW OR IPC???? 245- CLASS ACTION SUIT- AUDITORS/FIRM
Minimum 100 or 10 % of the total members/deposit holders Claim damages or compensation of demand any suitable action For any improper or misleading statement of particulars made in the AUDIT REPORT or any fraudulent, unlawful or wrongful act or conduct. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

CORPORATE LAW OR IPC???? Punishment for false statement.
448. Save as otherwise provided in this Act, if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made there-under, any person makes a statement,— (a) which is false in any material particulars, knowing it to be false; or (b) which omits any material fact, knowing it to be material, he shall be liable under section 447 [Fraud). BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

COMPANIES ACT 1956 SECTION 233 OF THE COMPANIES ACT, 1956 [Penalty for non-compliance by auditor with sections 227 and 229] If any auditor's report is made, or any document of the company is signed or authenticated, otherwise than in conformity with the requirements of sections 227 [Powers and duties of auditors] and 229 [Signature of audit report, etc] the auditor concerned, and the person, if any, other than the auditor who signs the report or signs or authenticates the document, shall, if the default is willful, be punishable with fine which may extend to [ten thousand rupees]. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Objectives of the ‘ Reports’
A reasonable assurance that FSs are free from material misstatements whether due to fraud or error & adding credibility to the FSs Opinion as to compliance of applicable financial reporting framework Educates the user about the responsibility of the management for the preparation of the FSs and Auditors responsibility of expressing the opinion about its true and fair view Addition of the word “Independent” distinguishes Auditors from management Make it clear the difference between IAR, CA certificate, Review report, compliance report, compilation report, or agreed upon procedure report(s). BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Materiality -revised Information is material if its omission or misstatement (individually or collectively) could influence the economic decisions of the users taken on the basis of financial information. Materiality depends on the SIZE or NATURE or a combination of both. (Entity specific). BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Misstatement A difference between the amounts, classification, presentation, or disclosure of a reported financial statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

How Credibility is ensured?
Overall presentation, structure and content of the FSs in accordance with the Financial Reporting Framework FSs including notes represent the underlying transactions, circumstances and events in a true and fair manner Adequate consistent application and disclosure of significant accounting policies Use of reasonable accounting estimates Relevant, reliable, comparable and understandable information Usage of appropriate title and terminology Adequate disclosures even though not required by reporting framework to make these statements meaningful and faithful. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

How does an auditor decide when a clean or unmodified report may be issued? Sufficient appropriate audit evidence has been obtained in accordance with SA 330; (b) Uncorrected misstatements are, individually or in the aggregate, not material in accordance with SA 450; (c) Requirements of the reporting framework (eg., the Accounting Standards) have been materially complied with; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

(d) Management’s judgments in preparing the FSs are free from ‘bias’ (refer SA 260 and SA 540); (e) The FSs adequately disclose the accounting policies selected and applied; (f) Those accounting policies are (a) appropriate, and (b) consistent with the financial reporting framework; (g) The accounting estimates made by management are reasonable; (h) The information presented in the financial statements is relevant, reliable, comparable and understandable; (i) There are adequate disclosures for users to understand the effect of material transactions and events on the information conveyed in the financial statements; (j) The terminology used in the financial statements is appropriate, and the financial reporting framework is adequately referred to or described; BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

When an auditor can not issue clean report? (i) The Auditor is unable to obtain sufficient appropriate audit evidence in respect of any five elements of the financial statements viz. Assets, Liabilities, Income, Expense and Equity and other reporting requirements as per governing financial reporting framework Or (ii) Obtains sufficient appropriate audit evidence which signifies that any of these elements or disclosures has materially been misstated in the financial statements. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Is it necessary that an auditor’s report should follow a particular form and style? Consistency in auditors’ reports (as required under this SA) Promotes credibility globally. Promote the users’ understanding, Easy to identify unusual circumstances. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Discussion on different situations
When an auditor has compliance framework also in addition to fair presentation framework? The report is divided into two parts with headings namely: Report on the Financial Matters Report on Other Legal and Regulatory Requirements BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

To whom report should be addressed? Members in case of companies Partners in case of firm. President of India in case of PSU Governing Body as the case may be BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

If the format or wordings of auditors report is prescribed under any law or regulation?? SA 210 requires an auditor to evaluate: •Whether users might misunderstand the assurance obtained from the audit, and if so •Whether providing additional explanation in the auditor’s report can mitigate such misunderstanding. If not then Auditor should not include any reference to the audit conducted in accordance with the SAs. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Differentiate between qualified and modified audit report? No report can be called as qualified or modified as a whole. It is the opinion paragraph which happens so. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Situation causes modifications in opinion? A. There is a matter for which the auditor has sufficient appropriate audit evidence to determine that due to such matter the financial statements are materially misstated, and (b) There is a matter for which the auditor is unable to obtain sufficient appropriate audit evidence to determine whether due to it the financial statements may be materially misstated. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Nature of matter giving rise to modification Auditor’s judgment about the Materiality and Pervasiveness of the Effects or Possible Effects on the financial statements Material but Not Pervasive Material and Pervasive FS are materially misstated Inability to obtain sufficient appropriate audit evidence Qualified opinion Adverse opinion Disclaimer of opinion BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Whether pervasiveness is to be seen individually of each qualification or aggregate of all qualifications taken together? discuss Can an auditor express adverse opinion on some statement and adverse opinion in other matters? If there are number of qualifications but taken together are though material but not pervasive to the FSs as a while, what kind of opinion would be expressed? Q35 BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Misstatements may arise in what situations? Per SA 450- Evaluation of misstatements identified during audit (a)The appropriateness of the selected accounting policies; (b)The application of the selected accounting policies, or (c) The appropriateness or adequacy of disclosures in the financial statements. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Are the auditors required to discuss the matters giving rise to modifications to the management? Can an auditor express modified opinion under one framework and clean opinion under another framework of the same FSs? iGAAP V. IFRS Is there a difference in the way an opinion is modified under new SAs? SA-706, heading, customized title. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

How the modified paragraphs to be given? Title as Qualified Opinion, Adverse Opinion or Disclaimer of opinion The word except for is to be used instead of Subject to Change in the Auditors responsibility paragraph BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Whether MP in the report make opinion modified? It was so in the erstwhile AAS 28 but not now? Is not part of audit opinion but just an additional communication. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Whether MP in the report is required to be given? “A paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements.” BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Exp giving MP in audit opinion? An uncertainty relating to the future outcome of an exceptional litigation or regulatory action. Early application (where permitted) of a new Accounting Standard that has a pervasive effect on the financial statements in advance of its effective date. A major catastrophe that has had, or continues to have, a significant effect on the entity’s financial position. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Whether all significant matters should be placed in MP? “Widespread use of emphasis of matter paragraphs diminishes the importance of the auditor’s communication of such matters”. “An Emphasis of Matter paragraph is not a substitute for disclosures in the financial statements that the applicable financial reporting framework requires management to make.” BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Differentiate between MP & OMP? An Other Matter Paragraph is defined as “A paragraph included in the auditor’s report that refers to matters other than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report.” BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Examples for OMP Branch audit conducted by other auditors Expression of opinion under 2 framework separately. AS V IFRS The FSs are special purpose FS but prepared as GPFSs hence can say that it is meant only for addressee. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Differentiate between MP & OMP? Moreover there are following difference: In MP, matters are appropriately presented and disclosed in FSs but OMP are not presented or disclosed in FSs. MP is fundamental with reference to understanding of FSs while OMP is relevant to users’ understanding in respect of 3 matters only(a)audit,(b)the auditor’s responsibilities or (c ) the auditor’s report.” BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

If any fact is resulting in modification of report, can it be a subject of Matter paragraph? Emphasis of Matter is given only in respect of matters that are “appropriately presented or disclosed. These are not the alternate of modifications. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Requirement as to MP given in IAR? 4 Emphasis of matter paragraph is given immediately after the opinion paragraph; It has a heading “Emphasis of Matter” (to make its nature very clear to the users); The paragraph must provide a reference to the matter being emphasized and where, in the financial statements, that matter in its elaborated form is to be found; and The paragraph contains a declaration that the auditor’s opinion is not modified in respect of the matter emphasized. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Where an OMP is placed in the IARs? If the other matter pertains to the audit, the auditor’s responsibility or the auditor’s report insofar as expressing an opinion on the financial statements is concerned, the other matter paragraph is placed immediately below the opinion paragraph. If there is also an Emphasis of Matter paragraph following the opinion paragraph, then the Other Matter paragraph is placed immediately below the Emphasis of Matter paragraph. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Where an OMP is placed in the IARs? If the Other Matter pertains to audit, the auditor’s responsibility or the auditor’s report insofar as other reporting responsibilities of the auditor are concerned (eg., reporting responsibilities under CARO, 2003), an other matter paragraph is included in the section of the auditor’s report titled: “Report on Other Legal and Regulatory Requirements”. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

When an auditor has compliance framework also in addition to fair presentation framework? The report is divided into two parts with headings namely: Report on the Financial Matters Report on Other Legal and Regulatory Requirements BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Inventories are misstated resulting in qualified report as the impact is material but not pervasive: The Company’s inventories are carried in the Balance Sheet at Rs. XXX. Management has not stated the inventories at the lower of cost and net realisable value but has stated them solely at cost, which constitutes a departure from the Accounting Standards referred to in sub-section (3C) of section 211 of the Act. The Company’s records indicate that had management stated the inventories at the lower of cost and net realisable value, an amount of Rs. XXX would have been required to write the inventories down to their net realisable value. Accordingly, cost of sales would have been increased by Rs. XXX, and income tax, net profit and shareholders’ funds would have been reduced by Rs. XXX, Rs. XXX and Rs. XXX, respectively. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

The financial statements are materially misstated due to the non-consolidation of a subsidiary. The material misstatement is deemed to be pervasive to the financial statements. The effects of the misstatement on the financial statements have not been determined because it was not practicable to do so. An adverse audit opinion is given under the circumstances. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

The auditor was unable to obtain sufficient appropriate audit evidence regarding an investment in a foreign affiliate accounted for under equity method. The possible effects of the inability to obtain sufficient appropriate audit evidence are deemed to be material but not pervasive to the financial statement. The audit opinion is qualified for the misstatement. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

The auditor was unable to obtain sufficient appropriate audit evidence about a single element of the financial statements. That is, the auditor was unable to obtain audit evidence about the financial information of a joint venture investment that represents over 90% of the Company’s net assets. The possible effects of this inability to obtain sufficient appropriate audit evidence are deemed to be both material and pervasive to the financial statements. A disclaimer of audit opinion is given in the circumstances. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

The auditor was unable to obtain sufficient appropriate audit evidence about multiple elements of the financial statements. That is, the auditor was unable to obtain audit evidence about the entity’s inventories and accounts receivable. The possible effects of this inability to obtain sufficient appropriate audit evidence are deemed to be both material and pervasive to the financial statements. A disclaimer of audit opinion is given in the circumstances. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Discussion on different situations-MP and OMP
MATTER PARAGRAPH We draw attention to Note X to the financial statements which describes the uncertainty related to the outcome of the lawsuit filed against the Company by XYZ Company. Our opinion is not qualified in respect of this matter. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Discussion on different situations-MP and OMP
OTHER MATTER PARAGRAPH We did not audit the financial statements of certain subsidiaries, whose financial statements reflect total assets (net) of Rs. XXXX as at March 31, 20XX, total revenues of Rs. XXXX and net cash outflows amounting to Rs. XXXX for the year then ended. These financial statements have been audited by other auditors whose reports have been furnished to us by the Management, and our opinion is based solely on the reports of the other auditors. Our opinion is not qualified in respect of this matter. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Basis for Qualified Opinion As more fully explained in the note X of Schedule XX to the financial statements, the Company has not accrued interest in respect of outstanding inter corporate deposits of Rs xxx million which as at March 31, 20XX amounts to Rs. xx million. Had this interest been accrued the net loss for the year would have been Rs xx million as against the reported net loss of Rs xx million), accumulated losses as at March 31, 20XX would have been Rs xx million as against the reported figure of Rs xx million, and current liabilities as at March 31, 20XX would have been Rs xx million as against the reported figure of Rs xx million. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Basis for Qualified Opinion As detailed in Note XXX to the financial statements, pursuant to the Scheme of Arrangement, PQR Inc., USA, a wholly owned subsidiary of the Company whose financial statements reflect total assets of Rs xx cr (US$ xx converted at US$ 1 = Rs 45) as at March 31, 20XX was merged with the Company on the basis of unaudited financial statements which have not been verified by us. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Basis for Qualified Opinion The confirmation from Head Office for the balance of Rs XXX as at March 31, 20X1 (Rs XXX as at March 31, 20XX) was not available for our verification. Accordingly, we are unable to comment on the balance in Head Office Account as at the year-end and the consequential effect, if any, on the expenses incurred for the year and/or on the assets/ liabilities of the Liaison Office. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Basis for Qualified Opinion We draw attention to note X of schedule XX of the financial statements wherein the management has explained its reasons for preparing the financial statements on a going concern basis. As at 30 September 20XX, the current liabilities exceed its current assets by Rs. XXX and the entity has incurred cash loss amounting to Rs. XXX during the period. These factors raise substantial doubt as to the Company’s ability to continue as going concern and therefore, may not be able to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern.. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

MATTER PARAGRAPH We draw attention to Note XX in Schedule XX of the financial statements relating to exercise of option by the Company to recognize gains and losses arising on fluctuation of foreign exchange rates on long term monetary items, to assets or to a reserve as detailed in the Note, consequent to the amendment to Accounting Standard 11, “The Effects of Changes in Foreign Exchange Rates”, resulting in the profits for the year being higher by Rs xxx million and its consequential impact on the reserves and surplus and carrying cost of assets as detailed therein. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

MATTER PARAGRAPH We invite attention to Note No. X of Schedule XX – Notes to the Financial Statements, regarding impairment of fixed assets wherein, due to the highly technical nature of the plant and machinery, we have relied on the estimates and assumptions made by the Company’s internal technical department which we prima facie found to be reasonable in arriving at the recoverable value of the fixed assets at the Kaushambi cash generating unit of the Company. Our opinion is not qualified in respect of this matter. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

MATTER PARAGRAPH We draw attention to Note XX of Schedule XXB to the financial statements regarding non-disclosure of the impact of fair value method of accounting on net results and Earnings Per Share as required by the Guidance Note on accounting for employee share- based payments issued by the Institute of Chartered Accountants of India. Our opinion is not qualified in respect of this matter. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

MATTER PARAGRAPH We draw attention to Note 6 to the Consolidated Financial Statements regarding investments in certain subsidiaries aggregating Rs. XXX lacs which are yet to break even. At reporting date, the Company’s share of cumulative losses in these subsidiaries is Rs.XXX lacs against which provision for diminution of Rs. XXX lacs is considered as adequate by the management, based on business plans. Our opinion is not qualified in respect of this matter. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Bases for Disclaimer of Opinion We have not been able to obtain sufficient appropriate audit evidence with regard to the recoverability of Sundry Debtors, particularly having regard to: (i) the aggregate amount of debtors outstanding for a period exceeding six months being Rs. XXX (ii) debtors in respect of sales during the period aggregating Rs. XXX being fully unrecovered, and (iii) the debtors outstanding at the commencement of the financial year aggregating Rs. XXX being yet to be recovered to the extent of Rs. XXX. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

REPORTING FRAMEWORK Special Purpose Reporting Framework
General Purpose Reporting Framework It is Fair Presentation Framework or True & Fair View reporting framework Special Purpose Reporting Framework A financial reporting framework designed to meet the financial information needs of specific users. The financial reporting framework may be a fair presentation framework or a compliance framework. [SA b) BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

ACCOUNTING STANDARDS & ENGAGEMENT STANDARDS Backbone of AUDITORS’ REPORT

COMPANIES ACT 2013 Accounting Standards [22] Auditing Standards [8]
Section 2, 52(3), 55(2), 66(3), 129(1), 139(5), 143(3), 230(7), 232(2), Schedule II & III Auditing Standards [8] Section 2, 132(1), 132(2), 143(2), 143(9), 143(10), BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

SAP [1982] AAS [2002] ES & SQC-1 [01/04/2008]

Categories of Engagement Standards [AAS / SAP]

Accounting Standards Whether AS are applicable only on corporate Entities? Whether AS are applicable to charitable institutions like trust, society or club etc? How many Accounting Standards Interpretations are in existence? Are the applicability criteria for Corporate and non corporate entities are alike? BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Accounting Standards Criteria for Small Medium sized company (SMC) Equities or Debts are NOT listed or in the process of listing NOT a bank, financial institution or insurance company Turnover NOT exceeding 50 crore Borrowings NOT exceeding 10 Crore (any time during the year) NOT a Holding or Subsidiary of Non SMC BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Accounting Standards Reporting by Small Medium sized company (SMC) “The Company is a Small and Medium Sized Company (SMC) as defined in the General Instructions in respect of Accounting Standards notified under the Companies Act, Accordingly, the Company has complied with the Accounting Standards as applicable to a Small and Medium Sized Company.” BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Accounting Standards Criteria for Level – I Entity –Commercial, Industrial, Business Reporting Entities Equities or Debts are listed or in the process of listing Banks, Co-op banks, financial institutions or insurance company Turnover exceeding 50 crore Borrowings exceeding 10 Crore (any time during the year) Holding or Subsidiary of Non SME BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Accounting Standards Criteria for Level – II Entity Turnover exceeding 100(40) lacs but not exceeding 50 crore Borrowings exceeding 1Crore but not exceeding 10 crore (any time during the year) Holding or Subsidiary of any above BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Accounting Standards Turnover NOT exceeding 100 (40) lacs
Criteria for Level – III Entity Turnover NOT exceeding 100 (40) lacs Borrowings NOT exceeding 1Crore BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Accounting Standards Reporting by Small Medium sized Entity (SME) “The entity is a Level II or Level III SME as per announcement by ICAI in respect of applicability of the Accounting Standards hence has not disclosed certain information pursuant to the exemptions or relaxations given to it and has complied with the Accounting Standards insofar as they are applicable to entities falling in Level II or Level III (as the case may be).” BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Whether we are reporting this clause in TAX AUDITS?
Accounting Standards Whether we are reporting this clause in TAX AUDITS? What aspects are covered in Accounting Standards or the pillars of Accounting Standards? BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

APPLICABILITY AS PER TYPE OF ENTITY
Accounting Standards AS DESCRIPTION OF AS CORPO-RATE Non –Corporate Level APPLICABILITY AS PER TYPE OF ENTITY SMC Non SMC III II I 1 Disclosure of Accounting Policies Y 2 Valuation of Inventories 3 Cash Flow Statement N 4 Contingencies and Events Occurring After the Balance Sheet Date 5 Net Profit Or Loss for the Period, Prior Period Items and Changes in Accounting Policies 6 Depreciation Accounting 7 Construction Contracts BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Accounting Standards AS DESCRIPTION OF AS CORPO-RATE Non –Corporate Level APPLICABILITY AS PER TYPE OF ENTITY SMC Non SMC III II 9 Revenue Recognition Y 10 Accounting for Fixed Assets 113 The Effect of Changes in Foreign Exchange Rates 12 Accounting for Government Grant 13 Accounting for Investments 14 Accounting for Amalgamation 15 Employee Benefits Y* Y* WITH SOME EXEMPTIONS & RELAXATIONS BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Accounting Standards AS DESCRIPTION OF AS CORPO-RATE Non –Corporate Level APPLICABILITY AS PER TYPE OF ENTITY SMC Non SMC I11 II I 16 Borrowing Costs Y 17 Segment Reporting N 18 Related Party Disclosure 19 Leases Y* 20 Earning Per Share 21 Consolidated Financial Statements 22 Accounting for taxes on Income Y* WITH SOME EXEMPTIONS & RELAXATIONS BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Accounting Standards AS DESCRIPTION OF AS CORPO-RATE Non –Corporate Level APPLICABILITY AS PER TYPE OF ENTITY SMC Non SMC I11 II I 23 Accounting for investment in Associates in Consolidated Financial Statements N Y 24 Discountinuing Operations 25 Interim Financial Reporting 26 Intangible Assets 27 Financial Reporting of Interest in Joint Ventures 28 Impairment of Assets Y* 29 Provisions, Contingent Liabilities and Contingent Assets Y* WITH SOME EXEMPTIONS & RELAXATIONS BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

TRUE & FAIR VIEW- FACTS Overall presentation, structure and content of the FSs in accordance with the FR Framework FSs including notes represent the underlying transactions, circumstances and events in a fair manner Adequate consistent application and disclosure of significant accounting policies Accounting estimates are reasonable Information is relevant, reliable, comparable and understandable (meets quality requirements) Appropriate title and terminology to be used Adequate disclosures though not required. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

AUDITORS’ REPORT- OLD Announcements of ICAI (December 2011) Section 227(3)(g) of CA 1956, requires the auditors to report “Whether the cess payable u/s 441A has been paid and if not the details of cess not so paid” “The auditor should report in his audit report under the clause the Govt. has not notified the rules u/s 441A, therefore we are unable to comment on the same.” BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

AUDITORS’ REPORT- NEW New Announcements of ICAI (January 3rd-4th 2014) Regarding change in reporting u/s 227 (3)(bb) in SA 700 illustrative report related to branch auditors as per sec 228(3)( c) Accounting Standard – 211 (3C) Vs. 133 (143) Auditors Responsibility Paragraph-opinion with regard to internal control for the PP of the FSs Profit & Loss Account Vs. Statement of Profit &loss Reporting under CARO 2003 (non applicable clauses) BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

AUDITORS’ REPORT-CHANGE 1
Section 227 (3) (bb) requires the auditor to report on branch audit u/s 228(3( c) – Inadvertent error- SA 700 The report on the accounts of the branch offices audited under section 228 by a person other than the company’s auditor has been forwarded to us as required by clause (c) of sub-section (3) of section 228 and have been dealt with in preparing our report in the manner considered necessary by us. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Auditors Responsibility Paragraph –IC An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

PROFIT & LOSS A/C Vs. STATEMENT OF PROFIT & LOSS Old Schedule VI used the term “Profit & Loss Account”. Revised Schedule VI (now III) used the term Statement of Profit & Loss Section 227 (still applicable) uses OLD term Section 143 (3) (d) used the term Profit & Loss A/c?? What is to be done now? BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

AUDITORS’ REPORT- 4 Whether IAR to be issued u/s 143 of the Companies Act, 2013 or Section 227 of the Companies Act, 1956? MCA circular no. 8 dated 04/08/2014 ICAI clarification dated 08/04/2014 All financial commencing on or after 01/04/2014 would be governed by new such provisions. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

AUDITORS’ REPORT- 5 Section 133 notified since 12/09/2013 (AS)- 211 (3C) GC 16/2013 dated 18/09/2013 states that the provisions of corresponding 98 sections 1956 (includes 211(3C) cease to have effect. BUT GC 15/2013 dated 13/09/2013 clarified that AS notified shall remain continue. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

AUDITORS’ REPORT- 5 The clause under Management responsibility & Report on legal and other regulatory matters MAY be changed: Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 (“the Act”) (which continue to be applicable in respect of Section 133 of the Companies Act, 2013 in terms of General Circular 15/2013 dated 13th September 2013 of the Ministry of Corporate Affairs) BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

AUDITORS’ REPORT- 6 Paragraph 80 of the Statement on CARO 2003 – addition The auditor MAY aggregate/ club the fact of non applicability of different clauses of CARO, 2003. BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

AUDITORS’ REPORT- 7 [10/02/2014]
Inclusion of financial statements (audited or unaudited) in CFS 1.Component is unaudited but not material II. Component is audited but not material The principal auditor may or may not disclose in report. If disclose, follow SA 706- OMP BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

AUDITORS’ REPORT- 7 [10/02/2014]
Inclusion of financial statements (audited or unaudited) in CFS III.Component is audited by others and material [follow 706 OMP] IV. Component is material but unaudited [Follow SA 705- Modification in report] BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

STATUTORY AUDITORS RESPONSIBILITY
Whether the Statutory Auditors of an Entity is responsible for the omissions or misstatements in the Financial Reporting of management i.e. MA &D or MC or MR which are stated separately in Annual Report? BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

Statutory Auditors’ Responsibility
SA 720 THE AUDITOR’S RESPONSIBILITY IN RELATION TO OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS deals with the auditor’s responsibility in relation to other information in documents containing audited FSs the auditor’s report thereon. In the absence of any separate requirement in the particular circumstances of the engagement, the auditor’s opinion does not cover other information and the auditor has no specific responsibility for determining whether or not other information is properly stated. However, the auditor reads the other information because the credibility of the audited financial statements may be undermined by material inconsistencies between the audited financial statements and other information. Ref: Para A1) BY- CA GOPAL JI AGRAWAL By-CA. GOPAL JI AGRWAL

An humble appeal Gopal Ji Agrawal
I will acknowledge your critical comments and suggestions for making our Coming Deliberations more effective and copious Gopal Ji Agrawal B.COM LLB DISA IFRS (ICAI) For any query, discussion or suggestion, please mail at

AUDITORS’ REPORT &CARO

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