Companies (Auditor'S Report) ORDER, 2003 (CARO)

COMPANIES
(AUDITOR’S REPORT)
ORDER, 2003
(CARO)
 CARO 2003 issued originally on 12th June 2003 &
Amended on 25th November 2004
 paragraph 4 has 21 sub paragraphs.
 Issues in Corporate governance
 Streamlining of reporting,deleting Redundant
Paragraphs
 Emphasis on Internal control,Internal Audit
 Reporting on fraud
 Widening the scope of reporting
3
 Banking company
 Insurance company
 Section 25 company
 Private company
 paid up capital and reserves upto fifty lakh
rupees and
Loan outstanding from bank or FI upto 25 lakhs and
 Turnover upto 5 crores
4
• Auditor to respond to 21 items relating to
(i)Fixed Assets
(ii)Inventories
(iii)Terms, conditions of loans and
advances(granted & taken)
(iv)Adequacy of internal control system
(v)Particulars of contracts or arrangements
referred in section 301
(vi)Compliance of 58A,58AA
(vii)Internal Audit System in listed
companies/certain specified companies
(viii)Maintenance of Cost Records
5
– (ix)Depositing undisputed statutory dues
– PF,IEPF,IES,IT,Sales T,WT,Service
T,Customs,Excise,Cess & other statutory dues
– (x) Sick Companies
– (xi)Default in repayment of dues
FI/Bank/Debenture holders
– (xii)Documents for loans and advances granted
– (xiii)Compliance of Chit fund act
• Nidhi/Mutual benefit fund/societies
– (xiv)Dealing or trading in shares & securities
– (xv) Guarantee for loans taken by others
– (xvi)Application of Term Loan
6
 xvii) Application of term loan fund raised for
short term basis
 xviii)Preferential Allotment to parties &
companies covered by section 301
 xix)Securities & charge on debenture issues
 xx)Disclosure on the end use of money raised by
the public issue
 xxi)Reporting on fraud on or by the company
Noticed or reported
7
 Applicability of CARO, 2003
Clause I : Fixed Assets
 Proper Record
 Physical Verification at reasonable intervals
 Material discrepancies properly dealt
 Substantial part of fixed assets disposed
Clause II : Inventories
 Physical verification at Reasonable intervals
 Procedure of physical verification is Reasonable
 Proper records maintained
 material discrepancies properly dealt
Clause III : Loans Granted
 Number of parties and amount involved
 Terms and conditions are prejudicial
 Reasonable steps taken to recover in case
overdue amount is more than Rs. one lac.
Clause III : Loans Taken
 Number of parties and amount involved
 Terms and Conditions Prejudicial
Clause IV : Internal Control System

 Commensurate with the size of the company and
nature of its business – Identify major weaknesses,
if any.
 Continuing failure to correct major weakness
Clause V : Section 301 Contracts or Arrangement
 Completion of entries in Register
 Transaction >Rs. 5 lacs are Reasonable
Clause VI : Public Deposits

 Compliance with RBI Directives-Examination of
System
Clause VII : Internal Audit
 Commensurate with nature & size of business
Clause VIII : Cost Records

 Proper cost records as prescribed
Clause IX : Undisputed Statutory Dues

 Statutory dues to be deposited regularly
 Identification of undisputed amount
Clause X : Sick Company
 Computation of Accumulated Losses
 Computation of Net Worth & Adjust Qualification
Clause XI : Default in repayment of dues

 What constitutes Default
Clause XII : Adequacy of Documents

 Maintaining adequate records
Clause XIII : Chit Fund Companies
Clause XIV : Companies dealing in shares, etc.
 Proper records
Clause XV : Guarantees for loans taken by others

 All guarantees are recorded properly
 Terms and conditions are prejudicial to interests of
company
Clause XVI : Application of Term Loans
 Purpose of term loans
 Actual utilisation of term loans
Clause XVII : Application of Funds – Short-Term

 Preparing movement of funds – Source and Application
Clause XVIII : Preferential Allotment
 Valuation in case of unlisted companies
Clause XIX : Debentures

 Proper Security or charge has been created in
favour of Debenture Trust
Clause XX : Disclosure of End-use of funds – Public
Issue
 Raising of funds through public issue
Clause XXI: Frauds
 Audit Plan to conform
 Reports of Internal Audit
 Enquiries made to management
Exemptions
MAOCARO CARO
Banking companies Banking companies

Insurance companies Insurance companies
Section 25 companies Section 25 companies
Certain Private companies
Fixed assets - Clause (i)
MAOCARO CARO
Maintenance of proper records Same
Physical verification & reporting of Same

material discrepancies
Revaluation of fixed assets & basis Deleted
thereof [4(A)(ii)]
If substantial part of fixed
assets have been disposed off,
whether it has affected the
going concern
Inventory - Clause (ii)
MAOCARO CARO
Physical verification of finished Words ‘finished goods, stores,
goods, stores, spare parts and spare parts and raw material’
raw material at regular intervals. replaced with the word
‘Inventory’.
Adequacy of procedures Same
followed for physical
verification
Material discrepancies on Same, except Whether proper
verification inventory records being
maintained.
Loans - Clause (iii)
MAOCARO CARO
Loans granted/ taken from Same, clauses combined

parties u/s 301
[4(A)(VII) & (VIII)]
Number of parties and
amount involved, to be stated
in Report.
Rate of interest and other terms Same
– whether prejudicial
Loans - Clause (iii)….contd.
MAOCARO CARO
Regularity of payment of Regularity of payment of

Principal + Interest (only for Principal + Interest (for loan
loan given) given/ taken)
Whether reasonable steps Whether reasonable steps
taken for loan recovery. taken for recovery/ payment
(P+I) where overdue amount
exceed 1 lac.
Internal Control - Clause
(iv) MAOCARO CARO
Adequacy of Internal Control ‘Stores, raw material including
procedure for purchase of components, plant and
stores, raw material, plant & machinery, equipment and
machinery, equipment, etc. and other assets’ replaced with
sale of goods. ‘inventory and fixed assets’
Whether there is continuing

failure to correct major
weaknesses in internal control.
Related Party Transactions - Clause (v)
MAOCARO CARO
transactions entered in 301 transactions covered u/s 301
register aggregating Rs.50,000 need to be entered in register so
or more entered
Public Deposits - Clause
(Vi) MAOCARO CARO
In case of acceptance of public Section 58AA inserted.
deposits, whether RBI directives,
Sec 58A & Rules complied.
Internal Audit - Clause (vii)
MAOCARO CARO
Whether company has internal Whether internal audit system
audit system commensurate with commensurate with size & nature
size & nature of business, where: of business exists in all listed
companies, and other companies
where:
PUC > Rs.25 lacs O PUC & Reserves>Rs.50lacs
Statutory Dues/Liabilities - Clause (ix
a)
MAOCARO CARO
Whether undisputed amounts Whether regular in

payable under income tax, depositing undisputed
wealth tax, statutory dues including PF...
and other statutory dues.
Sick Company - Clause (x)
MAOCARO CARO
Where company is sick Whether a company, registered for not
company under SICA, less than 5 years, has accumulated
whether reference made losses > 50% of net worth at end of
under BIFR. any FY.
.
Repayment of dues to FIs - Clause (xi)
MAOCARO CARO
- Whether company has defaulted
in repayment of dues to
FI/bank/debenture holder.
If yes, period and amount of
default.
Special Statute applicable to Chit Fund, etc. -Clause
(xiii)
MAOCARO CARO
Compliance of Compliance of special statute applicable on Chit Fund.

special statute
applicable on Chit In respect of nidhi/mutual benefit fund/societies
Fund , nidhi or
mutual benefit
society.
Dealing in securities - Clause (xiv)
MAOCARO CARO
Where finance/investment/chit Same,
fund/nidhi/ mutual benefit company
deals in securities, whether records
regarding transactions and contracts
maintained and timely updated.
Guarantee - Clause (xv)
MAOCARO CARO
- Where company has given any

guarantee for loans taken by others from
bank/FI, whether terms and conditions
are prejudicial to company interest.
Term Loans - Clause (xvi)
MAOCARO CARO
- Whether term loans applied

towards the purpose for which
obtained.
Investments - Clause (xvii)
MAOCARO CARO
- Whether funds raised on short-term

basis used for long term investments and
vice versa.
Preferential Allotment - Clause (xviii)
MAOCARO CARO
- Whether preferential allotment made to

parties/companies covered u/s 301.
Debenture Security - Clause (xix)
MAOCARO CARO
- Whether security created for debentures
issued.
(Creation of reserve prescribed u/s 117A

and SEBI Guidelines)
Fraud on/by Company - Clause (xxi)
MAOCARO CARO
- Whether fraud on/by the
company been noticed during the
year.
If so, nature and amount to be
indicated.

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COMPANIES

Clause IV : Internal Control System

Clause VI : Public Deposits

Clause VIII : Cost Records

Clause IX : Undisputed Statutory Dues

Clause XI : Default in repayment of dues

Clause XII : Adequacy of Documents

Clause XV : Guarantees for loans taken by others

Clause XVII : Application of Funds – Short-Term

Clause XIX : Debentures

Banking companies Banking companies

Physical verification & reporting of Same

Loans granted/ taken from Same, clauses combined

Regularity of payment of Regularity of payment of

Whether there is continuing

Whether undisputed amounts Whether regular in

Compliance of Compliance of special statute applicable on Chit Fund.

- Where company has given any

- Whether term loans applied

- Whether funds raised on short-term

- Whether preferential allotment made to

(Creation of reserve prescribed u/s 117A

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