1. CA MV KALI PRASAD FCA C HARTERED A CCOUNTANT S ENIOR P ARTNER, KALI & C O., CHARTERED A CCOUNTANTS HYDERABAD PRESENTS COMPLIMENTS AND WELCOMES YOU TO A PRESENTATION ON REPORTING UNDER CARO 2015

2. CARO 2015 ANNEXURE TO AUDIT REPORT

3. COMPANIES ACT 2013 S. 143 (11) of the Companies Act 2013 Effective date 10 April 2015 May be a part of the report or an annexure to it

4. A PPLICABILITY : It shall apply to every company including a foreign company as defined in clause (42) of section 2 of the Companies Act, 2013, except – (i) A banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) An insurance company as defined under the Insurance Act,1938 (4 of 1938); (iii) A company licensed to operate under section 8 of the Companies Act;

5. (iv) A One Person Company as defined under clause (62) of section 2 of the Companies Act and a small company as defined under clause (85) of section 2 of the Companies Act; and (v) A private limited company i) with a paid up capital and reserves not more than rupees fifty lakhs and ii) which does not have loan outstanding exceeding rupees twenty five lakhs from any bank or financial institution and iii) does not have a turnover exceeding rupees five crores at any point of time during the financial year. All the three clauses are cumulative.

6. M ATTERS TO BE INCLUDED IN THE REPORT : Clause (i) (a) Whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets: Full particulars Quantitative details Situation

7. F ULL PARTICULARS Asset classification: Plant and Machinery Vehicles Passenger Cars Furniture and fittings Computers and software ……….. Freehold or leasehold Assets acquired on deferred payment guarantee Assets bought on hire purchase

8. S OURCES OF FUNDS Whether purchased for cash or for consideration other than cash: If purchased for consideration other than cash, the value of consideration paid If the asset is bought in exchange for another asset, the details of the asset swapped, the basis of arriving at the value of the new asset Assets received as a donation to be recorded in the fixed asset register at zero value indicating the name of the donor

9. P ROBLEM AREAS Assets on finance lease: Particulars of the lessor, terms of lease, Firm lease period, optional term, Lease rentals, etc. To be disclosed as a separate item under non current assets. Impaired Assets or Assets held for disposal, Assets retired: To be recorded as such. Self constructed Assets: To be disclosed as such. To be certified by the management. Seek independent valuation

10. Assets jointly held: State the name of the other joint holder, share of the asset, Capital work in progress converted in to a fixed asset: Date of such conversion, management representation for such conversion, both with regard to the date and the value adopted for the fixed asset.

11. Verify fixed assets registers for quantitative details and situation of fixed assets See if additions and deletions during the year are properly recorded. Document the physical verification of Fixed Assets Obtain management representation that the assets are existing at the situation stated.

12. Q UANTITATIVE DETAILS Plant would consist of all the accessories attached to it. For example, the Voltage stabilizer shall form part of the Air conditioner. A car would also include the spare wheel A computer would mean the CPU and the monitor and the keyboard and the mouse. The details of the accessories shall be recorded for transparency of information. In case of different categories of the same asset, quantitative details of each of the category need to be stated. Such as Executive tables, computer tables, center tables, corner tables etc.

13. S ITUATION OF THE ASSET Movable assets such as Aircraft, Trucks, Cars, buses, etc., situation of the asset would be where the asset is normally parked. Suffice it to note the broad category of the situation of the fixed assets such as Office, Plant, Guest house residences of the employees etc. In case of multiple facilities, plant and Machinery at each of the facility shall be disclosed in detail. Simply saying located in India and outside India will not be compliance

14. Clause (i) (b) Whether these fixed assets have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of account; What is a reasonable interval is to be decided on a case to case basis. Materiality is to be considered for the discrepancies.

15. Seek a confirmation as to when physical verification was conducted and by whom. Seek a copy of the verification report. Obtain management representation. Check if the discrepancies (if any) are noticed and the manner of dealing with such discrepancies. Items lost are to be written off.

16. Clause (ii) (a) Whether physical verification of inventory has been conducted at reasonable intervals by the management; Reasonable interval is a matter of judgment Classification of inventory Raw materials Work in progress Finished goods Location wise Stocks out on consignments, for job works, on approvals, etc.

17. Check inventory reports. Seek Verification report. Obtain scrap report from the costing department

18. Clause (ii) (b) Are the procedures of physical verification of inventory followed by the management reasonable and adequate in relation to the size of the company and the nature of its business if not, the inadequacies in such procedures should be reported;

19. Should have knowledge of business for the valuation of inventories, such as pharma, mining companies, software, livestock, etc Understand the internal control for inventories Obtain policy of the management for valuation of the inventories. Obtain management representation Seek a confirmation as to when physical verification was conducted and by whom. Seek a copy of the verification report

20. Clause (ii) (c) Whether the company is maintaining proper records of inventory and whether any material discrepancies were noticed on physical verification and if so, whether the same have been properly dealt with in the books of account; What are proper records of inventory is a management decision and general understanding

21. Normal records Stock registers Cost sheets Indents, GRN Gate passes, ……..

22. Examine the verification report and observe any discrepancies commented upon Seek action taken report by the management Understand management perception Examine how the discrepancies were disposed off: Reconciliations Misplaced stocks in bins Wrong measurement/ counting If the discrepancies persist, write off the stocks In case of theft/ pilferages, action taken on erring employees

23. Clause (iii) Whether the company has granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act. If so, Clause (iii) (a) Whether receipt or the principal amount and interest are also regular; and Clause (iii) (b) If overdue amount is more than rupees one lakh, whether reasonable steps have been taken by the company for recovery of the principal and interest;

24. Examine the register u/s. 189 Seek management representation about completeness of the records Make an online search to establish related parties. Check loan agreements Nature of loan : secured or unsecured Purpose for which loan is granted Terms of repayment such as rate of interest, EMI or principal plus interest, etc. Check bank statements to verify receipt of principal amount and interest. In case of a single payment, appropriation towards principal and interest. Obtain management representation for steps taken for recovery of principal and interest.

25. Clause (iv) Is there an adequate internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. Whether there is a continuing failure to correct major weaknesses in internal control system

26. Purchase of inventory: Check for indent registers Obtain management policy for the purchase of inventories. Scrutinize the purchase procedures, with particular reference to : Tender committees Vendor Selection and management At random cross check the purchase orders with invoices.

27. Fixed Assets: As discussed above in clause 1 Purchase, maintenance, disposal, usage Security of assets Procedures Valuation Records

28. Sale of goods and services: Order books Compare sale bills with orders Diaries for sales Delivery schedules Gate passes Credibility of debtors Industry norms for credit period

29. Clause (v) In case the company has accepted deposits, whether the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act and the rules framed 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?

30. Check the bank statements for any such deposits accepted by the Company If the Company has accepted deposits examine the compliance Pvt Companies can accept only from restricted people check the register to see persons from whom it was accepted and ensure that there is no violation In case of a public limited company, check the credit rating, compliance with SEBI andRBI Check the compliance with SLR deposits and the custody of the documents

31. Clause (vi) Where maintenance of cost records has been specified by the Central Government under sub- section (1) of section 148 of the Companies Act, whether such accounts and records have been made and maintained Check if the company is liable to maintain cost records as per sub-section (1) of section 148 of the Companies Act. If yes, verify the records If not required, obtain a management representation to that effect

32. Clause (vii) (a) Is the company regular in depositing undisputed statutory dues including provident fund, employees' state insurance, income-tax, sales- tax, wealth tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor

33. This clause refers to the dues in the normal course and not any demands raised in the course of assessments. Scrutinize the ledger to check the payments made to various statutory authorities Insist upon proof of payment and the period to which it belongs. The nature of payment for example Advance Tax and TDS are paid to the same department but under different heads. Installment of advance tax due for June and September need to be reported if they remain unpaid as on 31 march.

34. Since the clause says about the arrears outstanding as on the last day of the financial year, if the June and September installments of advance tax are paid by 31 March, it need not be reported.

35. Clause (vii) (b) In case dues of income tax or sales tax or wealth tax or service tax or duty of customs or duty of excise or value added tax or cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned. (A mere representation to the concerned Department shall not constitute a dispute).

36. The time period of six months does not apply here. Examine the assessment orders and the demands raised. Check for applicability of statutory dues. Discuss with the management the quantum and nature of dispute. Examine the dispute raised with the departments both with regard to the nature and the amount Ensure that the dispute has been filed with the departments

37. Filing of application u/s 154 shall not constitute a dispute since it is a mere representation and not a dispute. Provision need to be created for the amount of the disputed tax pending disposal.

38. Clause (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. Check the transaction of such transfer and quantify the same with reference to the respective year Check the period in which the fund is transferred. Seek a management representation

39. Clause (Viii) Whether in case of a company which has been registered for a period not less than five years, its accumulated losses at the end of the financial year are not less than fifty per cent of its net worth and whether it has incurred cash losses in such financial year and in the immediately preceding financial year; Go through the financials and check for accumulated losses and cash losses

40. Clause (ix) Whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holders? If yes, the period and amount of default to be reported; Examine the terms of repayments with reference to both the interest and the principle. Apportionment of single payments towards principle and interest need to be checked. Cross check with the account copy of the financial institution to ensure that the outstanding is less than the DP.

41. Clause (x) Whether the company has given any guarantee for loans taken by others from bank or financial institutions, the terms and conditions whereof are prejudicial to the interest of the company; Verify the minutes book for any such authorization. Check for legal documents. Obtain management representation regarding guarantees given.

42. Clause (xi) Whether term loans were applied for the purpose for which the loans were obtained; Examine the sanction letter for the purpose of loan. Check the purpose application of loans. Examine the application with reference to the DPR and the invoices and sanctions Verify if short term loans are applied for long term and vice versa.

43. Clause (xii) Whether any fraud on or by the company has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated. Fraud is to be detected during the course of audit. In case of fraud, nature and amount is to be indicated. Obtain management representation

44. THANK YOU