PUBLISHED IN THE GAZETTE OF INDIA EXTRAORDINARY PART II,
SECTION 3 — SUB-SECTION (I) BY THE MINISTRY OF FINANCE (DEPARTMENT OF COMPANY
AFFAIRS) ON 12TH JUNE, 2003 (and as amended by Notification No. GSR 766(E) dt.
25-11-2004)
G.S.R. 480(E).— In exercise of the powers conferred by
sub-section (4A) of section 227 of the Companies Act, 1956 (1 of 1956), read
with the Notification of the Government of India in the Department of Company
Affairs, number G.S.R. 443(E), dated 18th October, 1972, as amended from time to
time and in supersession of order number G.S.R. 909(E), dated 7th September,
1988, published in the Gazette of India, Part II, section 3, sub-section (i),
except as respects things done or omitted to be done before the supersession,
and after consultation with the Institute of Chartered Accountants of India
[constituted under the Chartered Accountants Act, 1949 (38 of 1949)], in regard
to class of companies to which this order applies and other ancillary matters,
the Central Government hereby makes the following Order, namely:-—
1. Short title, application and commencement
1. This order may be called the Companies (Auditor’s
Report) Order, 2003.
2. It shall apply to every company including a foreign
company as defined in section 591 of the Act, except the following :—
(i) a Banking company as defined in clause (c) of section
5 of the Banking Regulation Act, 1949 (10 of 1949);
(ii) an insurance company as defined in clause (21) of
section 2 of the Act;
(iii) a company licensed to operate under section 25 of
the Act; and
(iv) a private limited company with a paid-up capital
and reserves not more than fifty lakh rupees and does not have loan
outstanding exceeding Rupees Twenty Five lakhs from any bank
or financial institution and does not have a turnover exceeding five crores
rupees at any point of time during the financial year
3. It shall come into force on the 1st day of July, 2003.
2. Definitions
In this Order, unless the context otherwise requires:
(a) "Act" means the Companies Act, 1956 (1 of 1956);
(b) "chit fund company", "nidhi company" or "mutual
benefit company" means a company engaged in the business of managing,
conducting or supervising as a foreman or agent of any transaction or
arrangement by which it enters into an agreement with a number of
subscribers that every one of them shall subscribe to a certain sum of
installments for a definite period and that each subscriber, in his turn, as
determined by lot or by auction or by tender or in such other manner as may
be provided for in the agreement, shall be entitled to a prize amount, and
includes companies whose principal business is accepting fixed deposits
from, and lending money to members.
3. Auditor’s report to contain matters specified in
paragraphs 4 and 5
Every report made by the auditor under section 227 of Act,
on the accounts of every company examined by him to which this Order applies
for every financial year ending on any day on or after the commencement of
this Order, shall contain the matters specified in paragraphs 4 and 5.
4. Matters to be included in the Auditor’s Report
The auditor’s report on the account of a company to which
this Order applies shall include a statement on the following matters,
namely:—
(i) (a) whether the company is maintaining proper records
showing full particulars, including quantitative details and situation of
fixed assets;
(b) whether these fixed assets have been physically
verified by the management at reasonable intervals; whether any material
discrepancies were noticed on such verification and if so, whether the same
have been properly dealt with in the books of account;
(c) if a substantial part of fixed assets have been
disposed of during the year, whether it has affected the going concern;
(ii) (a) whether physical verification of inventory has
been conducted at reasonable intervals by the management;
(b) are the procedures of physical verification of
inventory followed by the management reasonable and adequate in relation to
the size of the company and the nature of its business. If not, the
inadequacies in such procedures should be reported;
(c) whether the company is maintaining proper records of
inventory and whether any material discrepancies were noticed on physical
verification and if so, whether the same have been properly dealt with in
the books of account;
(iii) (a) has the company granted any loans, secured
or unsecured to companies, firms or other parties covered in the register
maintained under section 301 of the Act. If so, give the number of parties
and amount involved in the transactions, and
(b) whether the rate of interest and other terms and
conditions of loans given by the company, secured or unsecured, are
prima facie prejudicial to the interest of the company; and
(c) whether receipt of the principal amount and
interest 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;
(e) has the company taken any loans, secured or
unsecured from companies, firms or other parties covered in the register
maintained under section 301 of the Act. If so, give the number of parties
and amount involved in the transactions. And
(f) whether the rate of interest and other terms and
conditions of loans taken by the company, secured or unsecured, are
prima facie prejudicial to the interest of the company; and
(g) whether payment of the principal amount and
interest are also regular; and
(iv)
(v) (a) whether particulars of contracts or
arrangements referred to in section 301 of the Act have been entered in the
register required to be maintained under that section; and
(b) whether transactions made in pursuance of such
contracts or arrangements have been made at prices which are reasonable
having regard to the prevailing market prices at the relevant time;
(This information is required only in case of
transactions exceeding the value of five lakh rupees in respect of any party
and in any one financial year)
(vi) in case the company has accepted deposits from the
public, whether the directives issued by the Reserve Bank of India and the
provisions of sections 58A, 58AA or any relevant provisions of the Act
and the rules framed thereunder, where applicable, have been complied
with. If not, the nature of contraventions should be stated; If an order has
been passed by Company Law Board or National Company Law Tribunal or
Reserve Bank of India or any Court or any other Tribunal, whether the
same has been complied with or not?
(vii) in the case of listed companies and/or other
companies having a paid-up capital and reserves exceeding Rs. 50 lakhs as at
the commencement of the financial year concerned, or having an average
annual turnover exceeding five crores rupees for a period of three
consecutive financial years immediately preceding the financial year
concerned, whether the company has an internal audit system commensurate
with its size and nature of its business;
(viii) where maintenance of cost records has been
prescribed by the Central Government under clause (d) of sub-section (1) of
section 209 of the Act, whether such accounts and records have been made and
maintained;
(ix) (a) is the company regular in depositing undisputed
statutory dues including Provident Fund, Investor Education and Protection
Fund, Employees’ State Insurance, Income-tax, Sales-tax, Wealth Tax,
Service Tax, Custom Duty, Excise Duty, cess and any other statutory dues
with the appropriate authorities and if not, the extent of the arrears of
outstanding statutory dues as at the last day of the financial year
concerned for a period of more than six months from the date they became
payable, shall be indicated by the auditor.
(b) in case dues of income tax/sales tax/wealth
tax/service tax/ customs duty/ excise duty/cess have not been deposited on
account of any dispute, then the amounts involved and the forum where
dispute is pending shall be mentioned. (A mere representation to the
Department shall not constitute the dispute).
(x) whether in case of a company which has been
registered for a period not less than five years, its accumulated losses at
the end of the financial year are not less than fifty per cent of its net
worth and whether it has incurred cash losses in such financial year and
in the immediately preceding financial year;
(xi) whether the company has defaulted in repayment of
dues to a financial institution or bank or debenture holders? If yes, the
period and amount of default to be reported;
(xii) 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; If not, the deficiencies to be pointed out;
(xiii) whether the provisions of any special statute
applicable to chit fund have been duly complied with? In respect of nidhi/mutual
benefit fund/societies;
(a) whether the net-owned funds to deposit liability
ratio is more than 1:20 as on the date of balance sheet;
(b) whether the company has complied with the
prudential norms on income recognition and provisioning against
sub-standard / doubtful / loss assets;
(c) whether the company has adequate procedures for
appraisal of credit proposals/requests, assessment of credit needs and
repayment capacity of the borrowers;
(d) whether the repayment schedule of various loans
granted by the nidhi is based on the repayment capacity of the borrower;
(xiv) if the company is dealing or trading in shares,
securities, debentures and other investments, whether proper records
have been maintained of the transactions and contracts and whether timely
entries have been made therein; also whether the shares, securities,
debentures and other investments have been held by the company, in
its own name except to the extent of the exemption, if any, granted under
section 49 of the Act;
(xv) whether the company has given any guarantee for
loans taken by others from bank or financial institutions, the terms and
conditions whereof are prejudicial to the interest of the company;
(xvi) whether term loans were applied for the purpose for
which the loans were obtained;
(xvii) 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;
(xviii) whether the company has made any preferential
allotment of shares to parties and companies covered in the Register
maintained under section 301 of the Act and if so whether the price at which
shares have been issued is prejudicial to the interest of the company;
(xix) whether security or charges has been created
in respect of debentures issued?
(xx) whether the management has disclosed on the end use
of money raised by public issues and the same has been verified;
(xxi) 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.
5. Reasons to be stated for unfavourable or qualified answers
Where, in the auditor’s report, the answer to any of the
questions referred to in paragraph 4 is unfavourable or qualified, the
auditor’s report shall also state the reasons for such unfavourable or
qualified answer, as the case may be. Where the auditor is unable to express
any opinion in answer to a particular question, his report shall indicate such
fact together with the reasons why it is not possible for him to give an
answer to such question.
(Note : The amendments made by Notification GSR
766(E) dated 25-11-2004 have been incorporated in the original Order. The said
amendments are included above in italics and are effective w.e.f. publication
thereof in the Gazette.)
Specimen AUDITORS
REPORT (WHERE CARO APPLICABLE)
The Members of (name of the Company)1
1. We have audited the attached balance sheet of (name of
the company), as at 31st March, 20XX, the profit and loss account and also
the (cash flow statement)2 for the year ended on that date annexed
thereto. These financial statements are the responsibility of the company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
2. We conducted our audit in accordance with the auditing
standards generally accepted in India. Those Standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
3. As required by the Companies (Auditor’s Report) Order,
20033 issued by the Central Government of India in terms of sub-section
(4A) of section 227 of the Companies Act, 1956. we enclose in the Annexure4
a statement on the matters specified in paragraphs 4 and 5 of the said Order.
4. Further to our comments in the Annexure referred to above,
we report that:
(i) We have obtained all the information and explanations,
which to the best of our knowledge and belief were necessary for the purposes
of our audit;
(ii) In our opinion. proper books of account as required by
law have been kept by the company so far as appears from our examination of
those books (and proper returns adequate for the purposes of our audit have
been received from the branches not visited by us. The Branch Auditor’s
Report(s) have been forwarded to us and have been appropriately dealt with)5;
(iii) The balance sheet, profit and loss account and (cash
flow statement)6 dealt with by this report are in agreement with the
books of account (and with the audited returns from the branches)7;
(iv) In our opinion, the balance sheet, profit and loss
account and (cash flow statement)8 dealt with by this report comply
with the accounting standards referred to in sub-section (3C) of section 211
of the Companies Act, 1956;
(v) On the basis of written representations received from
the directors, as on 31st March, 20XX and taken on record by the Board of
Directors, we report that none of the directors is disqualified as on 31st
March, 20XX from being appointed as a director in terms of clause (g) of
sub-section (1) of section 274 of the Companies Act, 1956;
(vi) In our opinion, and to the best of our information and
according to the explanations given to us, the said accounts give the
information required by the Companies Act, 1956 in the manner so required and
give a true and fair view in conformity with the accounting principles
generally accepted in India:
(a) in the case of the balance sheet, of the state of
affairs of the company as at 31st March, 20XX;
(b) in the case of the profit & loss account, of the
profit/loss9 for the year ended on that date; and
(c) (in the case of the cash flow statement, of the cash
flows for the year ended on that date)10
For ABC and Co.
Chartered
Accountants
Signature
(Name of the Member Signing the Audit Report)
(Designation)11
Membership Number
Place of Signature:
Date:
ANNEXURE
Re ___________________________________Limited
Referred to in paragraph 3 of our report of even date,
(i) (a) The company is maintaining proper records showing
full particulars, including quantitative details and situation of fixed
assets.
(b) All the assets have not been physically verified by the
management during the year but there is a regular programme of verification
which, in our opinion, is reasonable having regard to the size of the company
and the nature of its assets. No material discrepancies were noticed on such
verification.
(c) During the year, the company has disposed of a
substantial part of the plant and machinery. According to the information and
explanations given to us, we are of the opinion that the sale of the said part
of plant and machinery has not affected the going concern status of the
company.
(ii) (a) The inventory has been physically verified during
the year by the management. In our opinion, the frequency of verification is
reasonable.
(b) The procedures of physical verification of inventory
followed by the management are reasonable and adequate in relation to the size
of the company and the nature of its business.
(c) The company is maintaining proper records of inventory.
The discrepancies noticed on verification between the physical stocks and the
book records were not material.
(iii) (a) The company has granted loans to two companies
covered in the register maintained under section 301 of the Companies Act,
1956. The maximum amount involved during the year was Rs. 20 crores and the
year-end balance of loans granted to such parties was Rs. 20 crores.
(b) In our opinion, the rate of interest and other terms
and conditions of such loans are not, prima facie, prejudicial to the
interest of the company.
(c) The parties have repaid the principal amounts as
stipulated and have also been regular in the payment of interest to the
company.
(d) There is no overdue amount in excess of Rs. 1 lakh in
respect of loans granted to companies, firms or other parties listed in the
register maintained under section 301 of the Companies Act, 1956.
(e) The company had taken loan from five companies covered
in the register maintained under section 301 of the Companies Act, 1956. The
maximum amount involved during the year was Rs. 50 crores and the year-end
balance of loans taken from such parties was Rs. NIL.
(f) In our opinion, the rate of interest and other terms
and conditions on which loans have been taken from companies, firms or other
parties listed in the register maintained under section 301 of the Companies
Act, 1956 are not, prima facie, prejudicial to the interest of the
company.
(g) The company is regular in repaying the principal
amounts as stipulated and has been regular in the payment of interest.
(iv) In our opinion and according to the information and
explanations given to us, there exists an adequate internal control system
commensurate with the size of the company and the nature of its business, with
regard to purchase of inventory, fixed assets and with regard to the sale of
goods and services. During the course of our audit, we have not observed any
continuing failure to correct major weaknesses in internal control system of
the company.
(v) (a) According to the information and explanations
given to us, we are of the opinion that the particulars of all contracts or
arrangements that need to be entered into the register maintained under
section 301 of the Companies Act, 1956 have been so entered.
(b) In our opinion and according to the information and
explanations given to us, the transactions made in pursuance of contracts or
arrangements entered in the register maintained under section 301 of the
Companies Act, 1956 and exceeding the value of rupees five lakhs in respect
of any party during the year have been made at prices which are reasonable
having regard to prevailing market prices at the relevant time.
(vi) In our opinion and according to the information and
explanations given to us, the company has complied with the provisions of
sections 58A and 58AA and other relevant provisions of the Companies Act, 1956
and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the
deposits accepted from the public. No order has been passed by the Company Law
Board or National Company Law Tribunal or Reserve Bank of India or any Court
or any other Tribunal.
(vii) In our opinion, the company has an internal audit
system commensurate with the size and nature of its business.
(viii) We have broadly reviewed the books of account
relating to materials, labour and other items of cost maintained by the
company pursuant to the Rules made by the Central Government for the
maintenance of cost records under section 209(1)(d) of the Companies Act, 1956
and we are of the opinion that prima facie the prescribed accounts and
records have been made and maintained.
(ix) (a) The company is regular in depositing with
appropriate authorities undisputed statutory dues including provident fund,
investor education fund, employees’ state insurance, income tax, sales tax,
wealth tax, service tax, custom duty, excise duty and other material statutory
dues applicable to it.
Further, since the Central Government has till date not
prescribed the amount of cess payable under section 441A of the Companies Act,
1956, we are not in a position to comment upon the regularity or otherwise of
the company in depositing the same.
(b) According to the information and explanations given to
us, no undisputed amounts payables in respect of income tax, sales tax, wealth
tax, service tax, customs duty and excise duty were in arrears, as at ………. For
a period of more than six months from the date they became payable.
(c) According to the information and explanations given to
us, there are no dues of income tax, sales tax, service tax, customs duty and
excise duty which have not been deposited on account of any dispute.
(x) In our opinion, the accumulated losses of the company
are not more than fifty per cent of its net worth. Further, the company has
not incurred cash losses during the financial year covered by our audit and
the immediately preceding financial year.
(xi) In our opinion and according to the information and
explanations given to us, the company has not defaulted in repayment of dues
to a financial institution, bank or debentures holders.
(xii) We are of the opinion that the company has maintained
adequate records where the company has granted loans and advances on the basis
of security by way of pledge of shares, debentures and other securities.
(xiii) In our opinion, the company is not a chit fund or a
nidhi mutual benefit fund/society. Therefore, the provisions of clause 4(xiii)
of the Companies (Auditor’s Report) Order, 2003 are not applicable to the
company.
(xiv) In our opinion, the company is not dealing in or
trading in shares securities, debentures and other investments. Accordingly,
the provisions of clause 4(xiv) of the Companies (Auditor’s Report) Order,
2003 are not applicable to the company.
(xv) In our opinion, the terms and conditions on which the
company has given guarantees for loans taken by others from banks or financial
institutions are not prejudicial to the interest of the company.
(xvi) In our opinion, the term loans have been applied for
the purpose for which they were raised.
(xvii) According to the information and explanations given
to us and on an overall examination of the balance sheet of the company, we
report that the no funds raised on short-term basis have been used for
long-term investment.
(xviii) According to the information and explanations given
to us, the company has made preferential allotment of shares to parties and
companies covered in the register maintained under section 301 of the Act. In
our opinion, the price at which shares have been issued is not prejudicial to
the interest of the company.
(xix) According to the information and explanations given
to us during the period covered by our audit report, the company had issued
1,00,000 debentures of Rs. 100 each. The company has created security in
respect of debentures issued.
(xx) We have verified the end use of money raised by public
issue from the draft prospectus filed with SEBI, the offer document and as
disclosed in the notes to the financial statements.
(xxi) According to the information and explanations given
to us, no fraud on or by the company has been noticed or reported during the
course of our audit.
For ABC and Co.
Chartered Accountants
Signature
(Name of the Member Signing the Audit Report)
(Designation)
