Regarding qualifying audit report
This query is : Resolved
23 May 2015
I seek your guidance in the following matter :
Para 1 of the Companies ( Auditors Report ) order 2015 excludes a Pvt. Ltd. Co. if its share capital & reserves are less than Rs. 50 Lakhs , has not taken a loan exceeding Rs. 25 Lakhs from Bank & does not have turnover more than Rs. 5 Crores .
I have a Pvt. Ltd. Company which fulfills all these conditions & hence excluded from the Report Rules .
However , the same Company has :
(a) Defaulted in payment of Service Tax & other statutory dues for more than 6 Months ,
(b) Accumulated loss which wiped out its Reserves & Surplus completely , & (c) Has incurred Cash loss in 2014-15 & 2013-14 .
In these circumstances , should I qualify my Report or Not ?
Please do enlighten me on the above matter
Para 1 of the Companies ( Auditors Report ) order 2015 excludes a Pvt. Ltd. Co. if its share capital & reserves are less than Rs. 50 Lakhs , has not taken a loan exceeding Rs. 25 Lakhs from Bank & does not have turnover more than Rs. 5 Crores .
I have a Pvt. Ltd. Company which fulfills all these conditions & hence excluded from the Report Rules .
However , the same Company has :
(a) Defaulted in payment of Service Tax & other statutory dues for more than 6 Months ,
(b) Accumulated loss which wiped out its Reserves & Surplus completely , & (c) Has incurred Cash loss in 2014-15 & 2013-14 .
In these circumstances , should I qualify my Report or Not ?
Please do enlighten me on the above matter
24 May 2015
Default of the statutory dues may be specified in the 'notes on accounts' and a passing reference may be made in the audit report. Need not qualify the report.
In the matter of accumulated loss and cash loss, specific mention has to be made in the notes as well as in the 'audit report' and how it affects the 'going concern concept' has also to be mentioned necessarily in the audit report.
Default of the statutory dues may be specified in the 'notes on accounts' and a passing reference may be made in the audit report. Need not qualify the report.
In the matter of accumulated loss and cash loss, specific mention has to be made in the notes as well as in the 'audit report' and how it affects the 'going concern concept' has also to be mentioned necessarily in the audit report.
20 July 2025
Here's a detailed perspective on your query about qualifying the auditor’s report when a Pvt. Ltd. company is excluded from the Companies (Auditor’s Report) Order, 2015 (CARO 2015) but has certain financial issues:
Background Recap:
CARO 2015 Applicability:
Your company is excluded from CARO 2015 because:
Share capital & reserves ₹25 Lakhs
Turnover 6 months
Accumulated losses wiping out reserves
Cash losses in last two financial years
Auditor’s Responsibility in This Scenario:
CARO 2015 Exclusion:
Since the company is excluded under Para 1 of CARO, the specific CARO reporting requirements do not apply.
So, you are not obligated to report under CARO.
Qualifying the Auditor’s Report:
CARO exclusions do not exempt you from your general duties as an auditor.
As an auditor, you must form an opinion on the financial statements in accordance with auditing standards and relevant laws (e.g., Companies Act, Accounting Standards).
If the statutory dues default is material and not disclosed adequately in the financial statements, you should consider qualifying your report.
Similarly, accumulated losses and cash losses may raise a ‘going concern’ issue. If management’s disclosures and accounting treatment are not adequate, or if you have doubts about the company’s ability to continue as a going concern, you must disclose these concerns in your auditor’s report.
Statutory Dues Default:
If defaulted statutory dues are material, auditor should report this as a qualification or emphasis of matter depending on materiality and pervasiveness.
Going Concern Issues:
Significant losses wiping out reserves and continued cash losses typically raise doubt about the company’s ability to continue.
You must evaluate management’s plans to mitigate this and disclose your audit findings.
If adequate disclosure and management representation are available, you may include an Emphasis of Matter paragraph.
Otherwise, it may result in a qualified or adverse opinion.
Summary / Recommendation:
Issue Reporting Requirement
CARO 2015 Applicability Not applicable, company excluded as per Para 1
Defaulted statutory dues Qualify or emphasize matter in auditor’s report if material
Accumulated & cash losses Evaluate going concern; report suitably (EOM or qualification)
Overall Auditor Opinion Based on adequacy of disclosure and materiality
Final Thought:
CARO 2015 exclusion does not mean you ignore significant financial or statutory issues. Your auditor’s report must reflect the true and fair view and compliance with auditing standards.
Background Recap:
CARO 2015 Applicability:
Your company is excluded from CARO 2015 because:
Share capital & reserves ₹25 Lakhs
Turnover 6 months
Accumulated losses wiping out reserves
Cash losses in last two financial years
Auditor’s Responsibility in This Scenario:
CARO 2015 Exclusion:
Since the company is excluded under Para 1 of CARO, the specific CARO reporting requirements do not apply.
So, you are not obligated to report under CARO.
Qualifying the Auditor’s Report:
CARO exclusions do not exempt you from your general duties as an auditor.
As an auditor, you must form an opinion on the financial statements in accordance with auditing standards and relevant laws (e.g., Companies Act, Accounting Standards).
If the statutory dues default is material and not disclosed adequately in the financial statements, you should consider qualifying your report.
Similarly, accumulated losses and cash losses may raise a ‘going concern’ issue. If management’s disclosures and accounting treatment are not adequate, or if you have doubts about the company’s ability to continue as a going concern, you must disclose these concerns in your auditor’s report.
Statutory Dues Default:
If defaulted statutory dues are material, auditor should report this as a qualification or emphasis of matter depending on materiality and pervasiveness.
Going Concern Issues:
Significant losses wiping out reserves and continued cash losses typically raise doubt about the company’s ability to continue.
You must evaluate management’s plans to mitigate this and disclose your audit findings.
If adequate disclosure and management representation are available, you may include an Emphasis of Matter paragraph.
Otherwise, it may result in a qualified or adverse opinion.
Summary / Recommendation:
Issue Reporting Requirement
CARO 2015 Applicability Not applicable, company excluded as per Para 1
Defaulted statutory dues Qualify or emphasize matter in auditor’s report if material
Accumulated & cash losses Evaluate going concern; report suitably (EOM or qualification)
Overall Auditor Opinion Based on adequacy of disclosure and materiality
Final Thought:
CARO 2015 exclusion does not mean you ignore significant financial or statutory issues. Your auditor’s report must reflect the true and fair view and compliance with auditing standards.
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