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Tuesday, Jun 17, 2003

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Auditors to be more accountable under new order

Richa Mishra
K.R. Srivats

An auditor in a report made under CARO would now be required to answer questions such as whether the company has defaulted in repayment of dues to a FIs or bank or debenture holders.

NEW DELHI, June 16

TIGHTENING the noose around India Inc and statutory auditors, the Centre has come up with a revamped auditor's report that paves the way for greater corporate disclosures and places larger responsibility on the auditing community.

Come July 1, the Companies (Auditor's Report) Order (CARO), 2003, as the new Order is called, would replace the Manufacturing and Other Companies (Auditor's Report) Order (Maocaro).

The latest order, which is more broad-based in the class of companies that are covered, would, however, not be applicable for banking companies, insurance companies, and private limited companies with a turnover of less than Rs 5 crore. Foreign companies, investment companies, trading companies, chit funds, service companies, processing companies, mining companies and manufacturing companies would now come under the ambit of CARO.

Auditors would henceforth be required to specify the reasons for any unfavourable or qualified answers to any of the questions referred to in the CARO. In cases where an auditor is unable to express any opinion in answer to a particular question, the report should indicate such a fact together with the reasons why it is not possible for the auditor to give an answer.

An auditor in a report made under CARO would now be required to answer questions such as whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holders, and whether the company is regular in depositing undisputed statutory dues pertaining to Investor Education & Protection Fund (IE&PF). Already the statutory auditor is required to certify whether the company is regularly depositing provident fund, income tax, customs and excise duty and other related dues.

Further the auditor report should certify whether the management has disclosed on the end-use of money raised by public issues and the same has been verified. It should also take a call on whether any fraud on or by the company has been noticed or reported during the year.

CARO requires an auditor to comment whether a company, which has been registered for a period not less than five years, has accumulated losses at the end of the financial year that are not less than 50 per cent of its net worth and whether it has incurred cash losses in such financial year and in the financial year immediately preceding such financial year.

The auditor has to also certify whether a company has made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956. If so, whether the price at which shares have been issued is prejudicial to the interest of the company.

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