CA Kshitiz Pathania (Chartered Accountant) (72 Points)
17 November 2011Hi friends. My Query is:
What are the duties of auditor in the following cases:-
1. IF a company is not making provision for gratuity and also not mentioning the fact in its notes to accounts.
2. If a company is not making provision for gratuity and mentioning the fact in its notes to accounts.
3. If a company is not making provision for gratuity and mentioning in its notes to accounts that 'gratuity liability is accounted on cash basis'.
Please clarify on each case seperately.
Giridhar S Karandikar
(Team Lead)
(7543 Points)
Replied 02 December 2011
1]. A company is required to assess it’s provision of gratuity each year on the basis of the employees strength & make the provision accordingly. So in this case the Company Auditor will have to qualify his Auditor’s Report by stating that ‘No Provision has been made in the accounts for gratuity for the year under consideration. Also the co has not mentioned the facts in its Notes to Accounts
2]. In this case the co is mentioning the fact about the non-provison of gratuity in its accounts. Hence the auditor will have to interact with the management that why the provision is not being made in the accounts & should analyse the base for this fact. If the auditor is satisfied with the managements explanation then he may not qualify his report else he may qualify the report.
3]. If the co is following the ‘Pay as you Go’ method as per AS15 Employee Retirement benefits then the auditor has to verify if the procedure as laid down in the said AS is correctly followed. Else he may qualify his Audit Report.
Kolluru Krishna Murty
(Partner)
(315 Points)
Replied 29 December 2011
I am not able to agree with Mr Giridhar .
As per As-15,read with Sec 209 of Companies Act,1956,you ahve to follow accrual method of accounting.
So in all the cases it is a departure from Statute,hence should come in CARO.
kkm
Gaurav Mishra
(Management Trainee)
(40 Points)
Replied 17 October 2013
Hello everyone,
We are Private Limited Company and did not make any provision for Gratuity and consequently, Auditors have qualified in their report mentioning "No Provision has been made in the accounts for gratuity for the year under consideration"
Please guide me how to reply to Auditors qualification in Directors' Report ?
Kindly reply soon.
Kind Regards
Gaurav Mishra
09963647609
Chinmay
(Accounts Professional)
(356 Points)
Replied 22 October 2013
My question is how to make this provision i books:
as per my view I calculated actual liability of Gratuity as on 31st March & make provision for that is this correct or any other methods for that calculations???
Kolluru Krishna Murty
(Partner)
(315 Points)
Replied 25 October 2013
Accrual method of provision envisages that the company should get the gratuity liability be valued by an approved valuer for considering for provision in accounts.
kkm
Milind M. Kulkarni
(Practicing CA)
(580 Points)
Replied 12 November 2013
Gratuity liability should be valued as per actuarial method using Projected Unit Cost method as prescribed under Revised AS 15. No cash method/ non provision of gratuity should be permitted if gratuity is applicable to the company based on No. of employees working.
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