1. Auditors Report and CARO 2015 HYDERABAD BRANCH OF SIRC OF ICAI 12-05-2015 CA.G.GANESH – PARTNER SEKHAR & CO SECUNDERABAD CA.G.GANESH – PARTNER SEKHAR & CO SECUNDERABAD

2. Auditor’s Report a Communication Tool Communication Tool - not a compliance exercise Communication Tool - not a compliance exercise Increased expectation from Stake holders Increased expectation from Stake holders Enhanced responsibility Enhanced responsibility Requirement to comply with Requirement to comply with Auditing Standards Auditing Standards Professional and Ethical Standards Professional and Ethical Standards Other Legal requirement Other Legal requirement CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

3. IAASB – The organization behind the format of Audit Reports IAASB – Lays down the format of Audit reports and all the member organizations follow it. IAASB – Lays down the format of Audit reports and all the member organizations follow it. International Auditing and Assurance Standard International Auditing and Assurance Standard is an independent standard-setting body that serves the public interest by setting high-quality international standards for auditing, assurance, and other related standards, and by facilitating the convergence of international and national auditing and assurance standards. In doing so, the IAASB enhances the quality and consistency of practice throughout the world and strengthens public confidence in the global auditing assurance profession. CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

4. Indian Scenario ICAI being a member body of IAASB follows the guidance issued by IAASB with a time lag. ICAI being a member body of IAASB follows the guidance issued by IAASB with a time lag. The present format which was issued by ICAI 2 years back was issued by IAASB much earlier The present format which was issued by ICAI 2 years back was issued by IAASB much earlier All the Standards on Auditing (SA) including the numbering series are as issued by IAASB are adopted by ICAI All the Standards on Auditing (SA) including the numbering series are as issued by IAASB are adopted by ICAI We can say if IFRS is for Accounting - International Auditing Standards IAS is for Auditing We can say if IFRS is for Accounting - International Auditing Standards IAS is for Auditing CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

5. Auditors Reporting Under CA 2013 Enhanced Responsibility Enhanced Responsibility More Rights to Stakeholders which include More Rights to Stakeholders which include Government and Statutory Authorities Government and Statutory Authorities Bankers Bankers Lenders and Creditors Lenders and Creditors Shareholders Shareholders Employees - ? Employees - ? Severe Penalties including prosecution. Severe Penalties including prosecution. CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

6. Companies Act 2013 - Auditors 139 – Appointment 139 – Appointment 140- Removal & Resignation 140- Removal & Resignation 141 – Eligibility, qualifications and disqualifications 141 – Eligibility, qualifications and disqualifications 142 – Remuneration 143 – Powers & duties of Auditors & Auditing Standards 142 – Remuneration 143 – Powers & duties of Auditors & Auditing Standards 144 – Restriction on certain services 145 – Signing of Audit Report 144 – Restriction on certain services 145 – Signing of Audit Report 146 – To attend General Meeting 146 – To attend General Meeting 147 – Punishment & Prosecution 147 – Punishment & Prosecution CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

7. Two Reports - Under C A 2013 Reporting on Financial Statements Reporting on Financial Statements Reporting on Other Legal Requirements – Including CARO 2015 Reporting on Other Legal Requirements – Including CARO 2015 Reporting on Internal Financial Controls – Deferred to Financial years beginning 01-04-2015 - Not applicable for the current professional reporting period Reporting on Internal Financial Controls – Deferred to Financial years beginning 01-04-2015 - Not applicable for the current professional reporting period CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

8. Main Report - Important changes Report on Financial Statements Report on Financial Statements Managements Responsibility Managements Responsibility Auditors Responsibility Auditors Responsibility Opinion Opinion Emphasis of Matter Emphasis of Matter Other Matters Other Matters Report on other Legal and Regulatory Requirments Report on other Legal and Regulatory Requirments CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

9. Main Report Stress on Independence in Title Stress on Independence in Title Clear Mention on what the report is Clear Mention on what the report is Standalone Standalone Consolidated Consolidated Report on Consolidated Financial Statements to be addressed to Members – change from to that of Directors Report on Consolidated Financial Statements to be addressed to Members – change from to that of Directors Management Responsibility Management Responsibility Auditors Responsibility Auditors Responsibility CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

10. Managements Responsibility Compliance with applicable Accounting Standards – Sec 133 Compliance with applicable Accounting Standards – Sec 133 Consistent Accounting Policy Consistent Accounting Policy Preparation on Going Concern Basis Preparation on Going Concern Basis Laying down of Internal Financial Controls and its effective operations Laying down of Internal Financial Controls and its effective operations Compliance with applicable laws and regulations applicable to the entity Compliance with applicable laws and regulations applicable to the entity Directors Responsibility statement. Directors Responsibility statement. CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

11. Auditors Responsibility Ensure compliance with Accounting Standards Ensure compliance with Accounting Standards Conduct Audit in compliance with applicable Auditing Standards Conduct Audit in compliance with applicable Auditing Standards Documentation holds the Key Documentation holds the Key Auditing Standards prescribed for first time under the Act – Sec 143 Auditing Standards prescribed for first time under the Act – Sec 143 Comply with Ethical Requirements – Professional Ethics Comply with Ethical Requirements – Professional Ethics Plan and Perform Plan and Perform Reasonable assurance – Free from material Misstatement Reasonable assurance – Free from material Misstatement Evaluate the Internal Control relevant to preparation of FS laid down by Company Evaluate the Internal Control relevant to preparation of FS laid down by Company CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

12. Section 143 - Powers & Duties – matters to enquire into Loans & Advances given on basis of security are properly secured Loans & Advances given on basis of security are properly secured Transactions by way of book entries are prejudicial to the interest of the company. Transactions by way of book entries are prejudicial to the interest of the company. Sale of debentures, shares and securities by banking or investment company at less than cost price Sale of debentures, shares and securities by banking or investment company at less than cost price Disclosure of Loans as deposits Disclosure of Loans as deposits Personal expenses charged to revenue Personal expenses charged to revenue Shares allotted for cash – receipt of money Shares allotted for cash – receipt of money CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

13. Contents prescribed U/s 143 Whether he has sought and obtained all information required Whether he has sought and obtained all information required Maintenance of proper books of accounts as prescribed by law. Maintenance of proper books of accounts as prescribed by law. Receipt of returns from branches not visited. Receipt of returns from branches not visited. Agreement of financials with underlying books. Agreement of financials with underlying books. Transactions having adverse effect on functioning of the company. Transactions having adverse effect on functioning of the company. Director not being disqualified for appointment 164(2) Director not being disqualified for appointment 164(2) Adequacy of Internal Financial Controls Adequacy of Internal Financial Controls As May be prescribed ……….. CARO As May be prescribed ……….. CARO CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

14. Contents Prescribed by Rules Whether the company has disclosed the impact if any, of pending litigation on the financial position in its financial statements Whether the company has disclosed the impact if any, of pending litigation on the financial position in its financial statements No requirement Under Schedule III ? No requirement Under Schedule III ? Disclosure under head Contingent Liabilities does not give clear picture. Disclosure under head Contingent Liabilities does not give clear picture. Difficulty to impose on Auditee – No clarity how to bring out as emphasis of matter. Difficulty to impose on Auditee – No clarity how to bring out as emphasis of matter. CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

15. Requirement by Rules ….. Whether the company has made provision, as required under any law Standard, for material foreseeable losses, if any, on long term derivative contracts. Whether the company has made provision, as required under any law Standard, for material foreseeable losses, if any, on long term derivative contracts. Whether there has been any delay in transferring amounts, required to be transferred, to Investor Education and Protection fund by the Company. Whether there has been any delay in transferring amounts, required to be transferred, to Investor Education and Protection fund by the Company. CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

16. Negative or Remarks with qualification Where any of the matters required to be included in the audit report under section 143 is answered in negative or with qualification, the report shall state the reasons therefor. Where any of the matters required to be included in the audit report under section 143 is answered in negative or with qualification, the report shall state the reasons therefor. Will it require an impact analysis Will it require an impact analysis Caro – Cash losses is it a negative remark Caro – Cash losses is it a negative remark CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

17. Other Issues Standard on Auditing 720 - The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements Standard on Auditing 720 - The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements The above standard has significant importance especially for the matters contained in The above standard has significant importance especially for the matters contained in Directors Report Directors Report Management Analysis Management Analysis Risk Assessment Risk Assessment etc etc CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

18. Opinion Clean - to include Emphasis of Matter – As pre revised SA 700 Clean - to include Emphasis of Matter – As pre revised SA 700 Modified Opinion - 705 Modified Opinion - 705 Emphasis of Matter - 706 Emphasis of Matter - 706 These are separate Standards for each type of report and the report has to be made accordingly. These are separate Standards for each type of report and the report has to be made accordingly. CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

19. CARO 2013 Applicability Applicability All Listed Companies & Its subsidiaries whether Private or Public irrespective of other Factors All Listed Companies & Its subsidiaries whether Private or Public irrespective of other Factors Public Limited Companies Public Limited Companies Private Limited Companies Private Limited Companies Paid up Capital of Rs. 50 Lacs or More Paid up Capital of Rs. 50 Lacs or More Share Holders funds of Rs. 50 Lacs or More - includes accumulated profits Share Holders funds of Rs. 50 Lacs or More - includes accumulated profits Turnover exceeding Rs. 5 Crore at any point of time during the financial years Turnover exceeding Rs. 5 Crore at any point of time during the financial years Borrowings from Financial Institutions in excess of 25 Lacs Borrowings from Financial Institutions in excess of 25 Lacs Criteria if satisfied at any point in financial year Criteria if satisfied at any point in financial year Once applied to be continued Once applied to be continued CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

20. CARO – 2015 - May not be the final Order Issued on 10 th April 2015 Order Issued on 10 th April 2015 Effective for reporting periods ending on 31 st March 2015 Effective for reporting periods ending on 31 st March 2015 One Person Company – Exempt One Person Company – Exempt Section 8 Company – Exempt Section 8 Company – Exempt Banking and Insurance Companies Exempt Banking and Insurance Companies Exempt CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

21. What is retained – What is dropped New order has 12 clauses in place of 21 in earlier order. New order has 12 clauses in place of 21 in earlier order. Clause 1 – Fixed Assets Clause 1 – Fixed Assets Sub-clause C relating to substantial disposal of fixed assets effecting going concern assumption in preparation of FS Dropped Sub-clause C relating to substantial disposal of fixed assets effecting going concern assumption in preparation of FS Dropped Clause 2 – Inventories Retained Clause 2 – Inventories Retained Clause 3 – Loan given and Taken by the Company Clause 3 – Loan given and Taken by the Company Comments on Loans taken dropped Comments on Loans taken dropped CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

22. CARO 2015 …. Clause 4(iv) -- Internal Control on purchase of inventory, fixed assets and sales of goods and services – retained Clause 4(iv) -- Internal Control on purchase of inventory, fixed assets and sales of goods and services – retained Clause 4(v) –Entries of contracts and arrangements in the register prescribed - DROPPED Clause 4(v) –Entries of contracts and arrangements in the register prescribed - DROPPED Clause 4(vi) – Acceptance of Deposits (Sections 73 to 76) Old (58A & 58AA) - retained Clause 4(vi) – Acceptance of Deposits (Sections 73 to 76) Old (58A & 58AA) - retained Clause 4(vii) – Adequacy of Internal Audit system – DROPPED Clause 4(vii) – Adequacy of Internal Audit system – DROPPED Clause 4(viii) – Cost records retained Clause 4(viii) – Cost records retained CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

23. CARO 2015…. Clause 4(ix) – Payments of Statutory Dues - Retained – Clause 4(ix) – Payments of Statutory Dues - Retained – Added Investor Protection and Education Fund Added Investor Protection and Education Fund Clause 4(x) – Comment on Cash Losses / Accumulated Losses for companies in existence for more than 5 years retained Clause 4(x) – Comment on Cash Losses / Accumulated Losses for companies in existence for more than 5 years retained Clause 4(xi) – Payment of dues to Financial Institution – retained Clause 4(xi) – Payment of dues to Financial Institution – retained Clause 4(xii) – Maintenance of documents where loans have been granted on basis of security of shares - DROPPED Clause 4(xii) – Maintenance of documents where loans have been granted on basis of security of shares - DROPPED CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

24. CARO 2015 …. Clause 4(xiii) - Comments on provisions applicable to Nidhi – Chit fund companies – DROPPED Clause 4(xiii) - Comments on provisions applicable to Nidhi – Chit fund companies – DROPPED Clause 4(xiv) – Companies dealing in Shares & Securities – DROPPED Clause 4(xiv) – Companies dealing in Shares & Securities – DROPPED Clause 4(xv) – Giving guarantee on loans taken by others – conditions thereof – retained Clause 4(xv) – Giving guarantee on loans taken by others – conditions thereof – retained Clause 4(xvi) – Application of loans for the purpose obtained – retained Clause 4(xvi) – Application of loans for the purpose obtained – retained Clause 4(xvii) – Usage of Short term loans for long term purpose - DROPPED Clause 4(xvii) – Usage of Short term loans for long term purpose - DROPPED CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

25. CARO 2015…. Clause 4(xviii) – Terms and conditions of preferential allotment of shares to related parties – DROPPED Clause 4(xviii) – Terms and conditions of preferential allotment of shares to related parties – DROPPED Clause 4(xix) – Creation of charge on debentures – DROPPED Clause 4(xix) – Creation of charge on debentures – DROPPED Clause 4(xx) – Disclosure of utilization of money for which it has been raised – DROPPED Clause 4(xx) – Disclosure of utilization of money for which it has been raised – DROPPED Clause 4(xxi) – Reporting on Fraud - Regained Clause 4(xxi) – Reporting on Fraud - Regained CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

26. Newton’s Law of Auditing For every auditor there is an equal and opposite auditor For every auditor there is an equal and opposite auditor Both of them are wrong. Both of them are wrong. CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

27. Those whose opinion you can rely on Those whose opinion you can’t CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877

28. It is a learning time CA.G.Ganesh - ca.g.ganesh@gmail.com - 8985746390 - 9391043877