CARO - New Issues Requiring Reporting

Disposal of Fixed Assets:

Following new requirements are added.
"If a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern."
This clause requires the auditor to comment:

• On the disposal of substantial part of fixed assets.
• Effect of such disposal on going concern assumption

Maintaining of proper Inventory Records:

Following new requirements are added:
"Whether the company is maintaining proper records of inventory."
This clause requires the auditor to comment whether the company is maintaining proper records of inventory, however, what is meant by "Proper Records" is not defined.

Internal Control:

Following new requirements are added:
"Whether there is a continuing failure to correct major weakness in the internal control system."
This clause requires the auditor to comment, whether he has observed any major weakness in system and the same has been corrected or not, in spite of many reminders to the management.

Statutory Dues:

Following new requirements are added:
"Is the company regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income-tax, Sales-tax, Wealth Tax,. Service Tax, Custom Duty, Excise Duty, 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 and also involves the amount and the forum where dispute is pending shall be mentioned."
This clause requires auditors to comment

• on the regularity of depositing undisputed statutory dues
• If not, the amount involved and the forum of the pending disputes.

Reporting of losses :

Following new requirements are added
"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."
This clause requires auditor to report

• whether the accumulated losses at the end of the financial year are not less than 50% of its net worth; and
• whether the company has incurred cash losses during the period covered by the report and in the immediately preceding financial year covered by the report.

For this the auditor should compute the accumulated losses and the net worth to verify whether they are more than 50% at the end of the year.

Default in repayment of dues :

Following new requirements are added:
"Whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holder? If yes, the period and amount of default to be reported"
Under this clause the auditor is required to report

• On default in repayment of dues to the financial institutions, banks
• The period and amount involved.

Guarantee for loan given by companies:
Following new requirements are added :
"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."
The clause requires the auditor to comment on the guarantee given by the company on loans taken by others including condition, of the guarantee and whether they are prejudicial to the interest of the company.

Report on the maintenance of adequate documents in granting the loans and advances :

Following new requirements are added:
"Whether adequate documents and records are maintained in case where the company has granted loans and advances on the basis of the security by way of pledge of shares, debentures and other securities if not the deficiencies to be pointed out."
Under this clause the auditor has to comment

• On the maintenance of the documents and records
• Verification of security, received against loans and advances.

Utilization of Loan Amount:

Following new requirements are added:
"Whether the term loans were applied for the purpose for which the loans were obtained"

Under this clause the auditor is to examine whether the term loans were used for the purpose for which they are obtained.

Procurement and application of funds:
Following new requirements are added:
"Whether the funds raised on short term basis have been used for long term investment ' if yes, the nature and amount is to be indicated."
Under this clause the auditor has to comment:

• On the source of funds, i.e. raised on short term basis
• Utilization of the funds on long-term investment.

Preferential allotment of shares:

Following new requirements are added:
"Whether the company has made any preferential allotment of shares to the 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."
This clause requires the auditor to report on preferential allotment of shares to the parties covered under section 301 of the act made by the companies and also the rice at which the hares have been issued, whether such issue prejudicial to the interest of the company.

Security/charge in respect of debentures:
Following new requirements are added:
"Whether the security or charge has been created in respect of debentures issued?"
Under this clause the auditor is required to comment:

• Whether the proper security or charge is created in respect of debentures issued.

End use of money:

Following new requirements are added:
"Whether the management has disclosed on the end use of money raised by the public issue and same has been verified".
Under this clause the auditor is required to report on the disclosure of the end use of the money by the management in the financial statements and also to verify it.

Fraud on or by the company:

Following new requirements are added:.
"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."
Under this clause the auditor is required to report

• On the fraud made on or by the company during the year.
• The amount and nature of the fraud.