1. Companies (Auditor’s Report) Order 2015 CARO 2015 Presented by : CA Kusai Goawala 30th May 2015 Pune Branch of ICAI, Pune

2. APPLICABILITY OF CARO  Applicable to every company including foreign company - place of Business in India – even through agent – electronic mode – conducts business in India. Exceptions from Applicability of CARO 2015 1) Banking Companies 2) Insurance Companies as defined under Insurance Act 3) Not for Profit Companies ( Section 8 Companies) 4) One Person Companies 5) Small Company – Capital < 50 lacs and Turnover < 2 crore – holding and subsidiary not covered 6) A private limited companies with a) paid up capital and reserves not more than Rs. fifty Lakhs and; b) doesn’t have outstanding loan Rs. 25 Lakhs from any bank or financial institution and; c) Doesn’t have turnover exceeding Rs five crore at any point during FY CA KUSAI GOAWALA

3. DELETED CLAUSES  Clause 1. (c) if a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern  Clause 3 (e) (f) and (g) (a) Loan taken from parties listed in Register u/s 301 (b) Terms and Conditions not prejudicial © Repayment of principle and interest is regular In respect of loans given, the details of number of parties and maximum amount involved need not be given. Further, clause regarding terms and conditions and interest rates prejudicial has been deleted.  Clause 5 (a) Recording of transactions in Register u/s 301; (b Transactions at prices which are reasonable and at market price;  Clause 7. Existence of Internal Audit CA KUSAI GOAWALA

4. DELETED CLAUSES  Clause 12. Documentation regarding loans granted against pledge of shares, debentures or other security  Clause 13 Compliance with provisions of special statutes wherever applicable to chit funds. Further regarding Nidhi/Mutual benefit fund/societies – information relating to certain financial parameters, compliance with prudential norms, procedures for credit appraisals and guidelines for granting of loans.  Clause 14 In respect of trading of shares, maintenance of records and timely entries in the books of account Further, whether the investment is held in the name of the Company CA KUSAI GOAWALA

5.  Clause 17. Short term funds used for long term purposes  Clause 18. In case of preferential allotment to parties listed in 301 register – price is not prejudicial to the interest of the company  Clause 19. whether securities have been created in respect of debentures issued?  Clause 20. whether the management has disclosed on the end use of money raised by public issues and the same has been verified DELETED CLAUSES CA KUSAI GOAWALA

6. FIXED ASSETS  Fixed Asset Register to be maintained giving particulars of quantitative and situation of fixed assets  Physical verification by management at reasonable intervals  Discrepancies – how dealt with.  Audit W/P  Verification list of assets by the management  Discrepancies  Tallying the Fixed Asset Register with carrying amount as per Financial Records CA KUSAI GOAWALA

7.  Physical verification by management at reasonable intervals  Procedure for conducting physical verification – reasonable and adequate – inadequacies to be reported  Proper stock records maintained – any discrepancies on verification – proper adjustment in books of accounts  Audit W/P  Stock Verification sheet and discrepancies  Reconciliation with Stock Ledger  Note in relation to procedure for physical verification INVENTORY CA KUSAI GOAWALA

8.  Loans granted to parties listed in Register maintained u/s 189  Principle and interest receipts are regular  Overdue of more than Rs. 1 lacs – steps taken to recover the same.  Provisions relating to reporting number of parties and maximum amount deleted.  No need to report on the terms and conditions and interest rates whether they are prejudicial to the Company  Audit W/P  Parties required to be listed in Register u/s 189  Provisions of Section 185/186 to be kept in mind.  Letter for granting of loan LOANS TO PARTIES COVERED U/S 189 CA KUSAI GOAWALA

9. DIRECTORS INTERESTED - DISCLOSURES  Section 189 refers to a disclosure of Register for parties as per Section 184(2) and 188  As per Section 184 (2) following parties are covered :  Director in relation to other Body Corporate  – 2% shareholding (including with other directors)  Promoter  Manager  CEO  Director in relation to any other entities  Partner  Owner  Member CA KUSAI GOAWALA

10. LOANS TO RELATED PARTIES Related parties as per Section 188 Who are RTP  Director/Relatives  KMP/Relatives  Firm – Director, Manager, Relative partner  Pvt Co – Director – member or director  Pub Co – Director – Director – or holds with Relatives 2% shares  Co – where Director directs the Board  Any person – where Director directs  Holding, Subsidiary or their associates  Fellow Subsidiaries CA KUSAI GOAWALA

11.  Adequate Internal Control System –  commensurate to  Size of the Company  Nature of its business  In relation to  Purchase of inventory  Fixed Assets  Sale of Goods and Services  Continuing failure to correct major weaknesses in internal control system  Audit W/P  ICQ  Testing of Internal Control process with sample data INTERNAL CONTROL SYSTEM CA KUSAI GOAWALA

12.  A stringent and wide provisions for acceptance of deposit under Companies Act 2013  Loopholes plugged – Loan from shareholders/Advances for properties  Penalty for violation  Deposit as defined u/s 73 and 76  Not an exempt deposit  Compliance with directives of RBI and provisions of Section 73 and 76  Nature of Contravention  Order from RBI/CLB /Court complied with DEPOSITS CA KUSAI GOAWALA

13. DEPOSITS (CONTD)  Provisions of Section 73 and 76  All amounts received by Company considered as Deposits unless exempted  Exempted category  Inter Corporate Deposits/Commercial Paper  Loans from Banks/FI/Foreign Source as per FEMA  Amounts received from Government  Loans from Directors out of their own funds  Advances from customers unless remaining unadjusted beyond 365 days  Advances for property unless supported by Contract or Agreement  Promoters Contributions  Employee Security Deposit not in excess of one years salary  Secured Debentures or Convertible Debentures  Share Application money where shares are not allotted within 60 days and not refunded after 15 days CA KUSAI GOAWALA

14. DEPOSITS  If a receipt is considered as Deposit, compliance u/s 73 and 76 as under :  Only Public Companies having networth of Rs.100 crores or Sales turnover of Rs.500 cr can accept deposits  Deposit cannot exceed 25% of capital plus free reserves  Interest rates not exceeding rates prescribed by RBI  Maturity Period not to exceed 36 mths  15% of deposits due for renewal in next 12 months to be kept under liquid deposit  Advertisement or Circular to be published  Return of Deposit to be filed CA KUSAI GOAWALA

15.  Maintenance of Cost Records specified – Section 148  Prima facia maintained  Reconciliation of cost records with financial records  Section 148 and requirement for maintaining cost records COST RECORDS CA KUSAI GOAWALA

16. COST ACCOUNTING RULES  Application of Rules for maintenance of cost records:-  These rules shall apply to every company, including the foreign company as defined under section 591 of the Act., Which are engaged in production, processing, manufacturing or mining activities. SMC are exempt.  Wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds thirty five crores of rupees; or

17. COST RECORDS – WHAT CONSTITUTES RECORDS Cost Records which enable the Company to : Control over various operating cost. Optimum utilisation of resources It enables to compute per unit cost of production/operations/services It includes documents like GRN Material Issue Note Labour Hour utilisation Overhead allocations CA KUSAI GOAWALA

18. COST RECORD RULES  Separate Rules for  Cost Accounting Records (Bulk Drugs) Rules, 1974  Cost Accounting Records (Formulations) Rules, 1988  Cost Accounting Records (Fertilizer) Rules, 1993  Cost Accounting Records (Sugar) Rules, 1997  Cost Accounting Records (Industrial Alcohol) Rules, 1997  Cost Accounting Records (Electricity Industry) Rules, 2001  Cost Accounting Records (Petroleum Industry) Rules, 2002  Cost Accounting Records (Telecommunications) Rules, 2002 CA KUSAI GOAWALA

19.  Undisputed Statutory Dues outstanding for more than six months from the due date  Provident Fund / ESIC  Income tax including advance tax  Sales tax/VAT  Wealth Tax  Service Tax / Excise Duty  Cess – 441A Companies Act 1956 – no corresponding section under Companies Act 2013  Any other statutory liability  Disputed Statutory Dues  Amount due and disputed  At which forum (mere representation is not a dispute)  Transfer to Investor Education protection fund : - compliance for amount and timely transfer – reference to Companies Act 1956. Also reference of the same in main report STATUTORY DUES CA KUSAI GOAWALA

20.  Applicable to Companies that has completed five years after incorporation  Accumulated losses at the end of the financial year greater than or equal to fifty percent of its networth  Cash losses (Loss before depreciation and amortisation but after taxes)  in current financial year  Immediately preceding financial year  Cash losses – deferred tax ? ACCUMULATED LOSSES CA KUSAI GOAWALA

21.  Default in repayment and interest to  financial institution  bank  debenture holders  To be reported even if default made good  Period of Default – Number of months or days  Amount defaulted DEFAULT OF LOAN CA KUSAI GOAWALA

22.  Guarantee given for loan taken by others  From Bank  Financial Institutions  Terms and Conditions – whether prejudicial  Any guarantee given will be prejudicial unless there is a quid pro quo  Audit W/P  Refer and Reconcile with Contingent liabilities  Refer Sanction letters for guarantee given by the Company and loans availed by others  Assess Risk of Guarantee  Quid pro quo  Evaluate whether benefit to the Company higher than the risk involved GUARANTEE FOR LOAN CA KUSAI GOAWALA

23.  Term Loan availed during the year  Term loan availed in preceding year and utilised during the year  Purpose for which sanctioned/availed  End use of the loan  Money is fungible – Bridge finance  Repayment of liability for end use incurred earlier USAGE OF LOAN CA KUSAI GOAWALA

24.  Fraud noticed or reported :  On the Company  By the Company  Whistle Blower provisions under the Companies Act 2013 – 143(12)  Guidance note for fraud by ICAI  Nature of fraud  Amount involved FRAUD REPORTING CA KUSAI GOAWALA

25. ANY QUERIES? CA KUSAI GOAWALA