Refresher Course on Bank Branch Audit Course

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The central government come out with these extra reporting requirements to ensure that the auditor should check and report on the matters mentioned in CARO for ensuring smooth working of company.

Companies not covered by the order:

I. A banking company

II. An insurance company

III. A company registered u/s 25

IV. A private company which has at any point of time during the financial year

A. a paid up capital and reserve not more than rupees fifty lakh +

B. and which does not have outstanding loan exceeding rupees twenty five lakhs from any bank or financial institution +

C. does not have a turnover exceeding rupees five crores

Paid-up capital

- it includes both equity and preference share capital.

- Amount of calls unpaid should be deducted

- Amount originally paid-up on forfeited shares is added

- Share application money received is not considered as part of the paid-up capital


- Both capital as well as revenue reserve are consideration.

- Revaluation reserve is also considered for the purpose of determining applicability of order.

- Credit balance in P&L is also considered as part of reserve. The debit balance of P&L should be reduced from the figure of revenue reserve only.

Loan outstanding

- Loan include term loan, demand loans, export credits, working capital limits ,cash credits overdraft facilities , bills discounted, outstanding dues in respect of credit cards.

- Loan may be long-term or short-term loan or it may be secured or unsecured loan.


It includes sale of goods and services rendered by the company.

- sales tax or excise duty is not to be taken into account.

- Trade discounts should be deducted from the figure of turnover.

- Sales returns is deducted even if they are from the sales made in earlier year.

CARO is alos applicable on foreign companies and branch audits.

Clauses of CARO which needs reporting:-

4(i) Fixed assets

a. Whether company is maintaining proper records showing full particulars, including situation of fixed assets.

b. Whether these fixed assets are physically verified by management at reasonable intervals

c. If a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern;

4 (ii) Inventory

a. Whether the physical verification of inventory has been conducted at reasonable intervals by management;

b. Are the procedure of physical verification reasonable with the size/nature of its business.

c. Whether the company is maintaining proper records of inventory and whether any difference noticed on physical verification have been properly dealt with in the books of accounts;

4 (iii) Loans to person covered u/s 301

a. Has the company granted any loan , to person covered u/s 301 of the act. If so, give the number of parties and amount involved in the transactions, and

b. Whether the rate of interests and other condition of loans , are prima facie harmful to the company; and

c. Whether the receipts of the principal amount and interests are also regular; and

d. If overdue amount is more than rupees one lakh, whether reasonable steps have been taken by the company for recovery/payment of the principal and interest.

4 (iv) Internal control system

Is there an internal control system adequate with size and nature of its business.

4(v) Contracts u/s 301

a. Whether details of contracts referred u/s 301 of the Act have been entered in the register required to be maintained under that section; and

b. Whether such transaction have been made at market price at that time;

4(vi) Deposits

In case the company has accepted deposits from public, whether RBI guidelines and provisions of companies act have been complied with. If not, the nature of  violations should be stated.

4(vii) Internal audit system

In the case of:

Listed companies (no limit) and

Other companies

Having a paid up capital and reserve more than Rs. 50 lakhs as at the commencement of the F/Y concerned OR

Having an average annual turnover of more than Rs 5 crores for a period of 3 consecutive FYs immediately preceding the financial year concerned,

Weather the company has an internal audit system adequate with size and nature of its business.

4 (viii)Cost record

Where maintenance of cost records has been prescribed by CG u/s 209(1)(d), whether such accounts and records have been made and maintained.

4(ix) Statutory Dues

a. Is the company regular in depositing undisputed statutory dues including PF, ESI, Income-tax, Sales Tax, etc.

b. In case dues of income tax,Sales tax, wealth tax , service tax, custom duty, excise duty, cess etc. have not been deposited on account of any dispute, then the amounts involved and forum where dispute is pending shall be mentioned.

4(x) Cash losses

Whether in case of company which is registered for a period not less than five years, its accumulated losses at the end of the financial year are not less than fifty percent of its net worth and weather it has incurred cash losses in such FY and in the immediately preceding FY.

4(xi) Repayment of Debt

Whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holders?

4(xii) Loans granted

Whether adequate documents and records are maintained in cases where the company has granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities;

4(xiii) Chit fund – whether the provision of any special statute applicable to chit fund have been duly complied with?

4(xiv) Dealing in shares

if the company is dealing in shares, security, debentures etc., weather proper records have been maintained; also weather the share, securities, debentures and other investment have been held by company, in its own name except the exemption u/s49 of the Act;

4(xv) Guarantee for loan

whether the company has given any guarantee for loans taken by other from bank/financial institutions, the terms and conditions whereof are harmful to the interest of the company;

4(xvi) Term loan

Whether terms loans were applied for the purpose for the loans were obtained .

4(xvii)  Short term loans used for long terms

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;

4(xviii) Preferential allotment of shares

Whether the company has made any preferential allotment of shares to parties covered u/s 301 and if so whether the price is harmful to the company;

4(xix) debenture

Whether security or charges has been created in respect of debenture Issued?

4(xx) use of money raised by public issues  

Whether the management has disclosed on the end use of money raised by public issues and the same has been verified;

4(xxi) Fraud

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.

If in AR, the answer to any of the question above is unfavourable, AR shall also state the reason for such unfavourable or qualified answer. Where the auditor is unable to express any opinion to a particular question , his report shall show such fact with reason why it is not possible for him.

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vipin verma
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