i) fixed assets have been re-valued during the year;

ii) the valuation of stocks is fair and proper and in accordance with normally accepted accounting practice and on the same basis as the preceding year;

iii) any unserviceable or damaged stores, raw materials or finished goods are determined and whether provision for the loss, if any, has been made in the accounts;

iv) the company is maintaining reasonable records for the sale and disposal of realisable by-products and scrap, where applicable;

v) personal expenses have been charged to profit and loss (P&L) account;

vi) the company is a sick industrial company;

vii) the company, as regarding service activities, has a reasonable system of recording receipts, the issue and consumption of materials and stores and allocating materials consumed to the relative jobs commensurate with its size and nature of business as well as a reasonable system of allocating

man-hours utilised to the relative jobs together with reasonable system of authorisation and internal control.

viii) in the company's trading activities, there is an efficient system to determine damaged goods and provision for the loss if the value of such goods is significant.

Reporting requirement

The following are now required to be reported by the auditor:

a) In respect of loans given/taken if theamount due is more than Rs 1 lakh, whether reasonable steps have been taken for recovery/payment of the principal and interest;

b) Whether the company has defaulted in repayment of dues to a financial institution, bank or debenture-holder; if yes, the period and amount of default to be reported;

c) Whether adequate documents and records are maintained in cases where the company has granted loans and advances on the security of pledge of shares, debentures and other securities; if not, the deficiencies are to be stated;

d) If the company is dealing or trading in shares, securities, debentures and other investments, whether proper records of the transactions and contracts have been maintained and timely entries made therein. Also, whether the shares, securities, debentures and other securities have been held by the company in its own name, except to the extent of exemption, if any, granted under Section 49 of the Act.

e) Whether in case of a company, which has been registered not less than five years, its accumulated losses at the end of the financial year 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 also.

f) Whether the company has given any guarantee for loans taken by others from banks or financial institutions, the terms and conditions whereof are prejudicial to the interests of the company.

g) Whether term loans were applied for the purpose for which the loans were obtained.

h) Whether the funds raised on short-term basis have been used for long-term investment and vice versa; if yes, the nature and amount to be indicated.

i) 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 interests of the company.

j) Whether securities have been created in respect of debentures issued.

k) Whether the management has disclosed on the end-use of the money raised by public issues and the same has been verified.

l) Whether any fraud on, or by the company, has been noticed or reported during the year. If yes, the nature and the amount involved need to be indicated.

In addition to these, where, in the auditors' report, the answer to any of the issues referred in CARO is unfavourable or qualified, the report shall also state the reasons thereof. If the auditor is unable to express an opinion, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such question.

In respect of chit fund/nidhi/mutual benefit fund/societies, the existing requirements have been replaced by the following:

i) Whether the provisions of any special statute applicable to chit fund have been duly complied with.

ii) Whether: a) the net owned funds to deposit liability ratio is more than 1:20 on the date of balance sheet; b) the company has complied with prudential norms on income recognition and provisioning against sub-standard/default/loss assets; c) the company has adequate procedures for appraisal of credit proposals/requests, assessment of credit needs and repayment capacity of the borrowers; and d) the repayment schedule of various loans granted by nidhi is based on repayment capacity of the borrower and would be conducive to the recovery of the loan amount.

Modified clauses

Some of the existing clauses of MAOCARO have been retained with certain modifications:

i) If a substantial part of the fixed assets have been disposed of during the year, whether it has affected the going concern concept;

ii) In respect of loans granted or taken, to/from companies, firms or other parties covered in the register maintained under Section 301 of the Act, the number of parties and the amount involved will also have to be reported now.

iii) In respect of internal control procedure, it will now be necessary to also report whether there is a continuing failure to correct major weaknesses in internal control.

iv) Reporting on transactions to be entered in the Register of Contracts, which was hitherto limited to Rs 50,000 or more, will now be reckoned with reference to Rs 5 lakh or more.

v) In respect of public deposits, it will now be necessary to also report if an order has been passed by the Company Law Board and whether the same has been complied with.

vi) Requirement of adequate internal audit system was hitherto reckoned with reference to paid-up capital exceeding Rs 25 lakh or average turnover exceeding Rs 2 crore in the last three years will now be reckoned with reference to paid-up capital and reserves exceeding Rs 50 lakh or average annual turnover exceeding Rs 5 crore.

vii) In addition to deposit of provident fund, ESI, taxes, and so on, as hitherto reported, it will now be necessary to also report on deposit of money into the Investor Education and Protection Fund, cess and other statutory dues. The auditor will also have to report the amount involved and the forum where dispute is pending in cases where sales tax, income-tax, Customs duty, wealth tax, excise duty, cess have not been deposited on account of any dispute.

The other provisions of CARO are same as those under MAOCARO.

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