1. STUDY CIRCLE MEETING ORGANISED BY MALAD-GOREGAON CPE STUDY CIRCLE 11 August 2013CA PRANAY MARFATIA

2. HISTORY * SECTION 227 4A * MAOCARO 1975 * Central Government issued the Manufacturing and Other Companies (Auditor’s report) order, 1975 * Applied to all manufacturing, service, trading and finance companies. (1975-1987) * Auditor to Report on 22 items * MAOCARO 1988 (Between 1988 to 30-6-2003) * Auditor to report on 27 items * CARO 2003 * Issued originally on 12 th June 2003 & Amended on 25 th November 2004 from 1-7-2003 * Paragraph 4 has 21 sub paragraphs and 37 questions 11 August 2013CA PRANAY MARFATIA 2

3. 11 August 2013CA PRANAY MARFATIA 3 MAJOR CHANGES BROUGHT IN BY CARO 2003 * a) Changes towards more corporate disclosures and investor protection * b) Changes which increase the protection of interest of the depositors/lenders * c) Changes which Enhance certain limits/ coverage of reporting * d) Procedural/ consequential changes

4. 11 August 2013CA PRANAY MARFATIA 4 APPLICABILITY OF CARO 2003 * Applicable to every company including a foreign company except the following: * Banking Company * Insurance Company * Section 25 Company * Private Company * paid up capital and reserves upto fifty lakh rupees * Loan outstanding from bank or FI upto 25 lakhs and * Turnover upto 5 crores * All the three conditions are cumulative

5. 11 August 2013CA PRANAY MARFATIA 5 CERTAIN ISSUES ON APPLICABILITY OF ORDER * Whether applicable to a liaison office of a foreign company * Point of Time of the applicability to private limited company * Turnover * Private Company accepting deposit * Deposits existing in a company on conversion through route Part IX

6. 11 August 2013CA PRANAY MARFATIA 6 CLAUSE 4 (i) (a) * Whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets. Issues * What constitutes proper records ? CLAUSE 4 (i) (b) Physical verification of fixed assets at reasonable intervals * How to determine period of reasonability

7. 11 August 2013CA PRANAY MARFATIA 7 CLAUSE 4 (i) (c) If a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern * What constitutes substantial part ? * What is meant by going concern ? AS-1

8. 11 August 2013CA PRANAY MARFATIA 8 CLAUSE 4 (ii) (a),(b),(c) / Regarding Inventory * The term ‘Inventory’ should be construed to have same meaning as assigned to it in AS 2, “valuation of inventories” * Would this clause be applicable to the construction companies governed by AS 7/ AS 9

9. 11 August 2013CA PRANAY MARFATIA 9 CLAUSE 4 (iii) (a) to (g) * Has the Company granted/taken any loans secured or unsecured to parties covered u/s 301 * Loans given and taken both to be reported separately * Loans given or taken to other parties not covered * Auditor to look into all terms and conditions such as rate of interest, repayment etc. and to ascertain whether prima facie prejudicial to the interest of the company or not

10. 11 August 2013CA PRANAY MARFATIA 10 * CLAUSE 4 (iv) * Adequate internal control system commensurate with size of the company and nature of its business for the purchase of inventory and fixes assets and for the sale of goods and services * Auditor required to verify internal control system and to comment on major weaknesses * What constitutes major weakness depends on facts and circumstances

11. 11 August 2013CA PRANAY MARFATIA 11 * CLAUSE 4 (v) (a) & (b) * Particulars of contracts or arrangements referred to in section 301 of the act * Clause more on compliance part * Auditor to verify contracts or arrangements to which section 297 and 299 apply * Information required only in case of transactions exceeding 5 lacs * Auditors to ascertain that price is comparable to prevailing market price at relevant time

12. 11 August 2013CA PRANAY MARFATIA 12 * CLAUSE 4 (vi) * Acceptance of deposits are within the directives issued by the R.B.I and provision of section 58A and 58AA and rules framed thereunder * Auditor to report nature of contravention, if any

13. 11 August 2013CA PRANAY MARFATIA 13 * CLAUSE 4 (vii) * Report on internal audit system commensurate with the size and nature of its business * Applicable to company who's paid up capital and reserve exceed 50 lacs at the commencement of the financial year or average annual turnover exceeding 5 crores for 3 consecutive preceding financial years

14. 11 August 2013CA PRANAY MARFATIA 14 CLAUSE 4 ( viii)- Maintenance of Cost Records * Section 209 (1)(d) – Applicability of Cost Accounting Records Rules * Vide notification dated 3 rd June 2011, this rule applies to every company engaged in the Production, Processing, Manufacturing or Mining activities and fulfilling any one of the conditions as on 31.3.2011 * Aggregate Value of net worth exceeding 5 crores Or * Aggregate Value of turnover exceeding 20 crores Or * Listed Company

15. 11 August 2013CA PRANAY MARFATIA 15 * CLAUSE 4 ( ix)- Regularity in depositing undisputed statutory dues in time – if not, extent of arrears to be disclosed for more than six months from the date payable * For the disputed dues to disclose the amount involved and stage at which dispute is pending

16. 11 August 2013CA PRANAY MARFATIA 16 * CLAUSE 4 (x)- To report cash loss incurred during the year and immediately preceding financial year * To report if accumulated losses exceeds 50% of its net worth

17. 11 August 2013CA PRANAY MARFATIA 17 CLAUSES 4 (xi) to (xv) * Are more of disclosure and compliance nature

18. 11 August 2013CA PRANAY MARFATIA 18 CLAUSE 4 (xi) and (xvii) * Term Loans and Funds raised * Auditors to verify that loans and funds raised are used for the same purpose and not diverted

19. 11 August 2013CA PRANAY MARFATIA 19 CLAUSE 4 (xviii) to (xx) * Relates to disclosure CLAUSE 4 (xxi) * Whether any fraud on or by the company has been noticed or reported during the year. If yes than nature and amount involved is to be indicated * Auditor should examine as he would do in an normal audit. Also to comply with AAS * Materiality to be looked into

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