OBJECTIVE: In terms of the Companies (Auditor’s Report) Order, 2003 (CARO), we are required to comment specifically on the matters referred to in paragraphs 4 and 5 of the Order. This Checklist forms the basis of our reporting. It should, therefore, be properly and completely filled up by the Audit Manager/Senior Manager and should be accompanied by a draft report. Sufficient working papers must be attached (and cross-referenced) to the Checklist to demonstrate that our reporting is on the basis of checking considered necessary by us to report on the matters. Wherever there are adverse remarks, these must be brought to the attention of Senior Manager/Partner and discussed before a draft is prepared.

I.

FIXED ASSETS:

COMMENTS/W.P. REF.

1.

Do the records show the following particulars?

a.

Sufficient description of the asset for identification purposes

b.

Classification

c.

Location

d.

Quantity

e.

Year of purchase

f.

Original cost

h.

Particulars regarding retirement/disposal

i.

Rate of depreciation

j.

Accumulated depreciation to date

k.

Does the aggregate original cost and depreciation to date extracted from these records under individual heads   agree with the figures shown in the books of account?

Note 1: For assets whose location keeps changing for e.g. construction equipment, sufficient record of movement / custody thereof needs to be maintained.

Note 2:   Assets of small individual values for eg., chairs, tables, etc., may be conveniently grouped for the purposes of entry in the register. Similarly for assets having a common rate of depreciation, it may not be necessary to indicate the accumulated depreciation for each item; instead, depreciation for the group as a whole may be shown.

Note 3:   Quantitative details should preferably be mentioned on the following lines:

(a) for land:- based on survey numbers

(b) for leaseholds:- based on individual leases

(c) for buildings:- based on their usage; e.g. factory, office, service, township etc.

(d) for P&M:- based on fixed or movable

(e)  for electrical installations:- on the same basis as buildings

(f)  for F&F:- based on value, i.e. for high value on individual and for other items on group basis.

(g) for patents, trade marks and designs:- based on purchase agreements

(h) for vehicles:- based on registration books.

2.

For assets acquired prior to 1/4/56, where the original cost cannot be ascertained, the book value as on that date is considered as the cost.

3.

Assets, which have been fully depreciated, continue to appear in the records until sold, scrapped or retired.

4.

a.

Was physical verification of   assets done? If so, particulars of locations covered and types of asset verified to be documented.

b.

What was the date of the last verification?

c.

Is there adequate evidence of   this?

d.

Is there a regular programme for verification and if so, what is the frequency?

Note: It is advisable that a written policy is framed in respect thereof.

e.

Is the frequency reasonable in the context of the size of the Company and the nature of the assets?

Note: While annual verification is preferable, if impracticable, the verification programme should be such that all assets are verified at least once in three years.

f.

Did the physical verification bring to light any material discrepancies? The extent of the discrepancies needs to be documented.

g.

How have these been dealt with?

h.

If the discrepancies are material, are they properly dealt with in the accounts and/or disclosed?

i.

Obtain Management Representation confirming that the fixed assets were physically verified in accordance with the laid down policy, if any, indicating the details of the material discrepancies, if any, noticed. In case there is no written policy laid down, the representation should indicate the periodicity of verification.

5.

a.

Has a substantial part of fixed assets been disposed off during the year based on our review of the fixed assets schedule (including disclosure of “Assets held for disposal” in accordance with AS-10), minutes of the general meeting, Board or any committee or other documentary evidence obtained and discussions with the Management?

Note: Obtain minutes of the meetings of the General Body and the Board of Directors and review the same with regards to the disposal of fixed assets, which forms a substantial part in the business of the client.

b.

If answer to (a) is yes, has this affected the “going concern” assumption?

Answer the following questions to ascertain the same: 

i.

Is the part disposed off, integral to the business of the Company?

ii.

Is the amount material in relation to size of the asset block?

iii.

If the answer to (i) and (ii) above is yes, is the risk of going concern mitigated by factors such as the Management’s plan to adopt a more profitable line of business or for generating funds for fresh acquisitions of fixed assets based on a review of the Management’s plan to implement the same and its feasibility, the outcome of which would improve the Company’s operations and financial position?

iv.

Please fill up Form 2360 Model Audit Program- Going Concern and conclude

NOTE: The words “disposed off” would also include “scrapped”.

6.

IN THE LIGHT OF THE ANSWERS TO 1 TO 5 ABOVE, CAN AN UNQUALIFIED STATEMENT BE MADE BY US?

Yes/No

If no, why not?

II.

INVENTORIES :

1.

Has physical verification of all inventories been done during the year? Indicate the dates of verification.

2.

Are the procedures of physical verification of inventory reasonable and adequate in relation to the size of the Company and the nature of its business?  Obtain a detailed note from the client.

3.

If the procedures are not adequate, attach a note giving details of the inadequacies, which need to be reported.

4.

Did we observe the physical verification of inventory?  If yes, have the stock observation report and the cut‑off checklist been completed?

5.

Is the frequency of verification reasonable?

6.

If a perpetual inventory system is in operation, how often are different categories of inventory counted?

7.

Is the Company maintaining proper records of inventory in the form of stock ledger, bin cards, cardex etc. to show the following particulars: