ADVANCED AUDITING

A PROJECT ON

Company Audit & Standard on Auditing (SA)

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF THE
M.COM DEGREE OF ACCOUNTANCY

MASTER IN COMMERCE
(ACCOUNTANCY) PART II
SEMESTER 4 (2015 2016)

SUBMITTED TO
UNIVERSITY OF MUMBAI,
LALA LAJPATRAI COLLEGE,MAHALAXMI,MUMBAI - 400034
SUBMITTED BY
SHAIKH ZEENAT NASIR HUSAIN
ROLL NO. 14150542

SUPERVISED BY
PROF . KISHORE MEHTA
MARCH 2016

DECLARATION
I MS.SHAIKH ZEENAT NASIR HUSAIN the student of
M.COM (ACCOUNTANCY)
4th(2015 2016), hereby
declare that I have complete the project on Company
Audit & Standard on Auditing (SA).
The information submitted is true & original to the
best of my knowledge.

SHAIKH ZEENAT NASIR HUSAIN

(SINGNATURE)

ACKNOWLEDGEMENT
I would like to place on record my deep sense of gratitude to Prof. KISHORE MEHTA Dept.
of for his generous guidance, help and useful suggestions.
I express my since gratitude to Prof. KISHORE MEHTA, for his stimulating guidance,
continuous encouragement and supervision throughout the course of present work.
I also wish to extend my thank to Prof. KISHORE MEHTA and other colleagues for
attending my seminars and for their insightful comments and constructive suggestions to
improve the quality of this project work.
I am extremely thankful toDR.PROF. S. V . LASUNEandPROF. NEELAM ARORA , for
providing me infrastructural facilities to work in, without which this work would not have
been possible.

Signature(s) of students

CERTIFICATE
3

I hereby certify that Ms.SHAIKH ZEENAT NASIR HUSAINof M.Com (Accountancy)

Semester 4th (2015 2016) has work which is being presented in the M.Com Internal
entitled Company Audit & Standard on Auditing (SA), in partial fulfillment
of the requirement for the award of the Master of Commerce in Accountancy and submitted
to the Lala Lajpatrai College of Commerce and Economics, Mahalaxmi, Mumbai 400034
is an authentic record of my own work carried out under the supervision of Prof. kishore
mehta . The matter presented in this project Report has not been submitted by me for the
award of any other degree elsewhere.

Signature of Student :
Signature of Supervisor(s) :
Internal Examinar :
External Examinar :

PROF. NEELAM ARORA

College Stamp

Principal

Index
4

SR.No
1
2
3
4
5
6
7
8

Particulars
Provision relating to the account of company as per Companies
Act
Balance Sheet Format
Profit and loss format
Auditor Report included SA 700
CARO 2015
SA 500 Audit Evidence
SA 505 External Confirmation
Bibliography

Page No
6
26
27
35
41
44
47
51

Provisions Relating to Accounts of Companies: The Companies Act, 2013

Comparative Study of the Companies Act, 2013 and 1956
Books of Accounts
5

Section 2(13) of the Companies Act, 2013 (CA, 2013) has given an inclusive definition. Books of
account
includes records maintained in respect of
(i) all sums of money received and expended by a company and matters in relation to which the
receipts and expenditure take place;
(ii) all sales and purchases of goods and services by the company;
(iii) the assets and liabilities of the company; and
(iv) the items of cost as may be prescribed under Section 148 in the case of a company which
belongs to any class of companies specified under that Section;
In the Companies Act, 1956 (CA, 1956), though there was no separate definition of Books of
Account but Section 209 of the Act required every company to keep proper books of account with
respect to (a) all sums of money received and expended by the company and the matters in respect of which
the receipt and expenditure take place;
(b) all sales and purchases of goods by the company ;
(c) the assets and liabilities of the company;
(d) in the case of a company pertaining to any class of companies engaged in production,
processing, manufacturing or mining activities, such particulars relating to utilization of material
or labor or to other items of cost as may be prescribed, if such class of companies is required by
the Central Government to include such particulars in the books of account.
The CA, 2013 has covered sale and purchase of services in the scope of books of account.

Proper Books of Accounts

Section 128(1) of CA,2013 requires every company to prepare and keep at its registered office,
books of account and other relevant books and papers and financial statements for every financial
year which give a true and fair view of the state of the affairs of the company, including that of its
branch office or offices, if any, and explain the transactions effected both at the registered office
6

and its branches and to keep such books on accrual basis and according to the double entry system
of accounting.
Section 209(3) of the CA, 1956 provided that proper books of account would not be deemed to be
kept with respect to the matters specified therein if (a) there are not such books kept as are
necessary to give a true and fair view of the state of affairs of the company or branch office, as the
case may be, and to explain its transactions or (b) such books are not kept on accrual basis and
according to the double entry system of accounting.

Books and Papers

Section 2 (12) of the CA, 2013 defines book and paper and book or paper to include books of
account, deeds, vouchers, writings, documents, minutes and registers maintained on paper or in
electronic form. Whereas, Section 2 (8) of the CA, 1956 defines "book and paper" and "book or
paper" to include accounts, deeds, vouchers, writings, and documents. So, minutes and registers
are now part of Book and Paper. Section 128(1) of the CA, 2013 requires every company to
prepare and keep at its registered office other relevant books and papers along with books of
account, whereas in the CA, 1956, Books and Papers have a reference only in Section 209A which
deals with inspection of companies.

Maintenance of Books of Accounts in Electronic Mode

Second proviso to Section 128 of the CA, 2013 permits the company to keep such books of
account or other relevant papers in electronic mode in such manner as may be prescribed. Rule 3
of the Companies (Accounts) Rules, 2014 prescribes the manner of books of account to be kept in
an electronic mode.
As per the Rule:
(1) The books of account and other relevant books and papers maintained in an electronic mode
shall remain accessible in India so as to be usable for subsequent reference.
(2) The books of account and other relevant books and papers referred to in sub-Rule (1) shall be
retained completely in the format in which they were originally generated, sent or received, or in a
format which shall present accurately the information generated, sent or received and the
information contained in the electronic records shall remain complete and unaltered.
(3) The information received from the branch offices shall not be altered and shall be kept in a
manner where it shall depict what was originally received from the branches.
(4) The information in the electronic record of the document shall be capable of being displayed in
a legible form.
7

(5) There shall be a proper system for storage, retrieval, display or printout of the electronic
records as the Audit Committee, if any, or the Board may deem appropriate and such records shall
not be disposed of or rendered unusable, unless permitted by law, provided that the backup of the
books of account and other books and papers of the company maintained in an electronic mode,
including at a place outside India, if any, shall be kept in servers physically located in India on a
periodic basis.
(6) The company shall intimate to the Registrar on an annual basis at the time of filing of the
financial statement:
(a) the name of the service provider;
(b) the internet protocol address of service provider;
(c) the location of the service provider (wherever applicable);
(d) where the books of account and other books and papers are maintained on cloud, such address
as provided by the service provider.
There was no specific provision in the CA, 1956 regarding the maintenance of books of accounts
on electronic mode. However, there was provision for filing of electronic record, including
financial statement in an electronic mode to the Registrar of Companies. Section 610E provided
that all the provisions of the Information Technology Act, 2000 relating to the electronic records
(including the manner and format in which the electronic records to be filed), in so far as they
were not inconsistent with this Act, would apply, or in relation, to the records in electronic form
under Section 610B.

Financial Statement
As per Section 2(40) of the CA, 2013 financial statement in relation to a company, includes
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an
income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i)
to sub-clause (iv):
Provided that the financial statement, with respect to One Person Company, small company and
dormant company, may not include the cash flow statement.
8

Such definition of Financial statement neither was available under the CA, 1956 nor was the term
used in any sections in that Act. As per the definition, all the companies, except for One Person
Company, small company and dormant company is required to prepare a cash flow statement.
Earlier, the Companies (Accounting Standards) Rules, 2006 exempted SMCs from preparing the
cash flow statement. Since no format is prescribed in Schedule III to the CA, 2013, the cash flow
statement shall be prepared in the format prescribed in the AS-3 Cash Flow Statement only.

Financial Year
As per Section 2(41) of the CA, 2013, financial year in relation to any company or body
corporate, means the period ending on the 31st day of March every year, and where it has been
incorporated on or after the 1st day of January of a year, the period ending on the 31st day of
March of the following year, in respect whereof the financial statement of the company or body
corporate is made up:
Provided that on an application made by a company or body corporate, which is a holding
company or a subsidiary of a company incorporated outside India and is required to follow a
different financial year for consolidation of its accounts outside India, the Tribunal may, if it is
satisfied, allow any period as its financial year, whether or not that period is a year:
Provided further that a company or body corporate, existing on the commencement of this Act,
shall, within a period of two years from such commencement, align its financial year as per the
provisions of this clause.
Under the CA, 1956, Section 2(17) and section 210(3) and (4) were dealing with the financial
year. As per Section 2(17) of the CA,1956 "financial year" means, in relation to anybody
corporate, the period in respect of which any profit and loss account of the body corporate laid
before it in the annual general meeting is made up, whether that period is a year or not. Provided
that, in relation to an insurance company, "financial year" shall mean the calendar year referred to
in sub-Section of Section 11 of the Insurance Act, 1938.
Section 210 (3) of the CA, 1956 provided that the profit and loss account shall relate:
(a) in the case of the first annual general meeting of the company, to the period beginning with the
incorporation of the company and ending with a day which shall not precede the day of the
meeting by more than nine months ; and
(b) in the case of any subsequent annual general meeting of the company, to the period beginning
with the day immediately after the period for which the account was last submitted and ending
with a day which shall not precede the day of the meeting by more than six months, or in cases
where an extension of time has been granted for holding the meeting under the second proviso to
sub-Section (1) of Section 166, by more than six months and the extension so granted.
9

Section 210(4) of the CA, 1956 provided that the period to which the aforesaid account relates, is
referred to in this Act as a "financial year" ; and it may be less or more than a calendar year, but it
shall not exceed 15 months. Provided that it may extend to 18 months where special permission
has been granted on that behalf by the Registrar.
Now, under the CA, 2013, all companies have to have their financial year as period ending on
31st March every year. Exemption is available only to holding/subsidiary companies of foreign
companies with Government approval. All existing companies, not having their financial year
closing on 31st March have to align latest by 31st March, 2016. The period of the first accounting
year of a company is also defined in the Section and there shall be no options available.

Form and Content of Financial Statement

Section 129 (1) of the CA, 2013 requires that the financial statements of a company shall
(i) give a true and fair view of the state of affairs of the company,
(ii) comply with the accounting standards notified under Section 133 and
(iii) be in the form or forms as may be provided for different class or classes of companies in
Schedule III.
This sub-Section shall not apply to any insurance or banking company or any company engaged in
the generation or supply of electricity, or to any other class of company for which a form of
financial statement has been specified in or under the Act governing such class of company.
Sub-Section (5) of Section 129 further provides that without prejudice to sub-Section (1), where
the financial statements of a company do not comply with the accounting standards referred to in
subSection (1), the company shall disclose in its financial statements, the deviation from the
accounting standards, the reasons for such deviation and the financial effects, if any, arising out of
such deviation.
Sub-section (6) of Section 129 provides that the Central Government may, on its own or on an
application by a class or classes of companies, by notification, exempt any class or classes of
companies from complying with any of the requirements of this Section or the rules made there
under, if it is considered necessary to grant such exemption in the public interest and any such
exemption may be granted either unconditionally or subject to such conditions as may be specified
in the notification.
10

Similar provisions were there in the CA, 1956. Section 211(1) provided that every balance sheet of
a company shall give a true and fair view of the state of affairs of the company as at the end of the
financial year and shall, subject to the provisions of this section, be in the form set out in Part I of
Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved
by the Central Government either generally or in any particular case ; and in preparing the balance
sheet due regard shall be had, as far as may be, to the general instructions for preparation of the
balance sheet under the heading "Notes" at the end of that Part :
Sub-Section (2) provided that every profit and loss account of a company shall give a true and fair
view of the profit or loss of the company for the financial year and shall, subject as aforesaid,
comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto :
Nothing contained in this sub-Sections (1) and (2) applied to any insurance or banking company or
any company engaged in the generation or supply of electricity, or to any other class of company
for which a form of balance sheet and profit and loss account have been specified in or under the
Act governing such class of company.
Sub-Section (3) permitted the Central Government to, by notification in the Official Gazette,
exempt any class of companies from compliance with any of the requirements in Schedule VI if, in
its opinion, it is necessary to grant the exemption in the public interest, either unconditionally or
subject to such conditions as may be specified in the notification.
Sub-Section (3A) required every profit and loss account and balance sheet of the company to
comply with the accounting standards and where the profit and loss account and the balance sheet
of the company did not comply with the accounting standards, such companies were to disclose in
its profit and loss account and balance sheet, the deviation from the accounting standards, the
reasons for such deviation and the financial effect, if any, arising due to such deviation.
Sub-Section (4) empowered the Central Government to, on the application, or with the consent of
the Board of directors of the company, by order, modify in relation to that company any of the
requirements of this Act as to the matters to be stated in the company's balance sheet or profit and
loss account for the purpose of adapting them to the circumstances of the company.

Accounting Standards
Section 129 of the CA, 2013 requires that the financial statements shall comply with the
accounting standards notified under Section 133 and Section 133 provides that the Central
Government may prescribe the standards of accounting or any addendum thereto, as recommended
by the Institute of Chartered Accountants of India, in consultation with and after examination of
the recommendations made by the National Financial Reporting Authority.

11

Rule 7 of the Companies (Accounts) Rules, 2014 provides that as a transition provision, the
standards of accounting as specified under the Companies Act, 1956 (i.e. the Companies
(Accounting Standards) Rules, 2006) shall be deemed to be the accounting standards until
accounting standards are specified by the Central Government under Section 133.
Similar provisions were provided in sub-Sections (3A), (3B) and (3C) of Section 211 of CA,
1956.

Formats for Financial Statements

Section 129 of the CA, 2013 requires that the financial statements shall be in the form or forms as
may be provided for different class or classes of companies in Schedule III.
Sub-Section (6) of Section 129 provides that the Central Government may, on its own or on an
application by a class or classes of companies, by notification, exempt any class or classes of
companies from complying with any of the requirements of this Section or the Rules made
thereunder, if it is considered necessary to grant such exemption in the public interest and any such
exemption may be granted either unconditionally or subject to such conditions as may be specified
in the notification.
Schedule III to the CA, 2013 provides that the disclosure requirements specified in this Schedule
are in addition to and not in substitution of the disclosure requirements specified in the Accounting
Standards prescribed under the Companies Act, 2013. Additional disclosures specified in the
Accounting Standards shall be made in the notes to accounts or by way of additional statements
unless required to be disclosed on the face of the Financial Statements. Similarly, all other
disclosures as required by the Companies Act shall be made in the notes to accounts in addition to
the requirements set out in this Schedule. Such provisions were also there in Section 211 and
Schedule VI of the Companies Act, 1956.
However, Schedule III to the Companies Act, 2013 also contains general instructions for the
preparation of consolidated financial statements which provides that where a company is required
to prepare Consolidated Financial Statements, i.e., consolidated balance sheet and consolidated
statement of profit and loss, the company shall mutatis mutandis follow the requirements of this
Schedule as applicable to a company in the preparation of balance sheet and statement of profit
and loss. In addition, the consolidated financial statements shall disclose the information as per the
requirements specified in the applicable Accounting Standards. It also requires certain additional
information to be disclosed in the Consolidated Financial Statements.

Consolidated Financial Statement

12

Sub-Section (3) of Section 129 of the CA, 2013 provides that where a company has one or more
subsidiaries, it shall, in addition to financial statements provided under sub-Section (2), prepare a
consolidated financial statement of the company and of all the subsidiaries in the same form and
manner as that of its own which shall also be laid before the annual general meeting of the
company along with the laying of its financial statement under sub-Section (2) provided that the
company shall also attach along with its financial statement, a separate statement containing the
salient features of the financial statement of its subsidiary or subsidiaries in such form as may be
prescribed. The Central Government may provide for the consolidation of accounts of the
companies in such manner as may be prescribed. An Explanation to the sub-Section provides that
for the purposes of this sub-Section, the word subsidiary shall include associate company and
joint venture.
Sub-Section (4) of Section 129 provides that the provisions of this Act applicable to the
preparation, adoption and audit of the financial statements of a holding company shall, mutatis
mutandis, apply to the consolidated financial statements referred to in sub-Section (3).
Rule 5 of the Companies (Accounts) Rules, 2014 provides the form of the statement containing the
salient features of the financial statement of a companys subsidiary or subsidiaries, associate
company or companies and joint venture or ventures under the first proviso to sub-Section (3) of
Section 129 shall be in Form AOC-1.
Rule 6 provides the manner of consolidation of accounts and it requires that the consolidation of
financial statements of the company shall be made in accordance with the provisions of Schedule
III of the Act and the applicable accounting standards.
There was no such provision in the the CA, 1956 which mandated the mandatory consolidation of
the financial statement by a company having a subsidiary company. However, Section 212
required the Balance
Sheet of the Holding Company to include certain particulars as to its subsidiary company(s) and to
attach to the balance sheet of a holding company
(a) a copy of the balance sheet of the subsidiary,
(b) a copy of its profit and loss account,
(c) a copy of the report of its Board of directors,
(d) a copy of the report of its auditors and
(e) a statement of the holding company's interest in the subsidiary as specified in sub-Section (3
However, sub-Section (2) (a) required the balance sheet, profit and loss account, auditors report
and directors report of the subsidiary company to be made out in accordance with the
requirements of that The CA, 2013 requires mandatory preparation of the consolidated financial
statement in case a company has a subsidiary, associate and joint venture. It is worthwhile to
13

mention here that the CA, 2013 contains definitions of Subsidiary company as well as that of
associate company.

Authentication of Accounts
Section 134 (1) of the CA,2013 requires that the financial statement, including consolidated
financial statement, if any, shall be approved by the Board of Directors before they are signed on
behalf of the Board at least by the chairperson of the company where he is authorized by the Board
or by two directors out of which one shall be managing director and the Chief Executive Officer, if
he is a director in the company, the Chief Financial Officer and the company secretary of the
company, wherever they are appointed, or in the case of a One Person Company, only by one
director, for submission to the auditor for his report thereon.
Section 215 of the CA, 1956 provided that the balance sheet and the profit and loss account would
be approved by the Board of directors before they are signed on behalf of the Board in accordance
with the provisions of this Section and before they are submitted to the auditors for their report
thereon.
Every balance sheet and every profit and loss account of a company shall be signed on behalf of
the Board of directors:
(i) in the case of a banking company, by the persons specified in clause (a) or clause (b), as the
case may be, of sub-Section (2) of Section 29 of the Banking Companies Act, 1949 (10 of 1949) ;
(ii) in the case of any other company, by its manager or secretary if any, and by not less than two
directors of the company one of whom shall be a managing director, where there is one.
In the case of a company not being a banking company, when only one of its directors is for the
time being in India, the balance sheet and the profit and loss account shall be signed by such
director; but in such a case there shall be attached to the balance sheet and the profit and loss
account, a statement signed by him explaining the reason for non compliance with the provisions
of sub-Section (1).
The authentication of the financial statement by the Chairman (if authorized by the Board) along
with CFO and company secretary (if so appointed) is a new provision.

Circulation of Accounts
Section 134(7) of CA, 2013 requires a signed copy of every financial statement, including the
consolidated financial statement, if any, to be issued, circulated or published along with a copy
14

each of (a) any notes annexed to or forming part of such financial statement, (b) the auditors
report and (c) the Boards report referred to in sub-Section (3).
Section 210(1) of CA, 1956 also required that at every annual general meeting of a company held
in pursuance of Section 166, the Board of directors of the company would lay before the company
(a) a balance sheet as at the end of the period specified in sub-Section (3) and
(b) a profit and loss account/Income and Expenditure Account for that period.
Section 216 of CA, 1956 required the auditors' report (including the auditors' separate, special or
supplementary report, if any) to be attached thereto and Section 217 (1) required a report by its
Board of directors to be attached to every balance sheet laid before a company in a general
meeting. So, there is no change in the two Acts with regard to the circulation of accounts.

Revision of Accounts
In the CA, 2013, Section 130 provides that a company shall not re-open its books of account and
not recast
its financial statements, unless an application in this regard is made by the Central Government,
the Income-tax authorities, the Securities and Exchange Board, any other statutory regulatory body
or authority or any person concerned and an order is made by a court of competent jurisdiction or
the Tribunal to the effect that
(i) The relevant earlier accounts were prepared in a fraudulent manner; or
(ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the
reliability of financial statements. Sub-Section (2) provides that without prejudice to the provisions
contained in this Act the accounts so revised or recast under sub-Section (1) shall be final.
Another Section 131 of the CA, 2013 provides that, If it appears to the directors of a company that
(a) the financial statement of the company; or (b) the report of the Board do not comply with the
provisions of Section 129 (The financial statements do not give a true and fair view of the state of
affairs of the company or companies, or do not comply with the accounting standards notified
under Section 133 or are not in the form or forms as may be provided for different class or classes
of companies in Schedule III) or Section 134 (financial statements not properly signed or auditors
report is not attached or Directors Report containing required disclosures is not attached), they
may prepare a revised financial statement or a revised report in respect of any of the three
preceding financial years after obtaining the approval of the Tribunal on an application made by
the company in such form and manner as may be prescribed. The Tribunal shall give notice to the
Central Government and the Income tax authorities and shall take into consideration the
representations, if any, made by that Government or the authorities before passing any order under
this section. This revision of account shall be subject to the conditions that such a revised financial
statement or report shall not be prepared or filed more than once in a financial year and the
15

detailed reasons for the revision of such financial statement or report shall also be disclosed in the
Board's report in the relevant financial year in which such revision is being made.
Sub-Section (2) of Section 131 provides that where copies of the previous financial statement or
report have been sent out to members or delivered to the Registrar or laid before the company in
the general meeting, the revisions must be confined to (a) the correction in respect of which the
previous financial statement or report do not comply with the provisions of Section 129 or Section
134 and (b) the making of any necessary consequential alternation.
Under the Companies Act, 1956, there was no specific provision permitting revision of account.
Neither was there any provision prohibiting the revision of accounts once they were adopted. The
Ministry of Corporate Affairs (then Department of Company Affairs) vide its Circular
No.17/75/2002CL-V dated 13th January, 2003 clarified that a company could reopen and revise its
accounts even after their adoption in the annual general meeting and filing with the Registrar of
Companies in order to comply with the technical requirements of any other law to achieve the
object of exhibiting a true and fair view. The revised annual accounts would be required to be
adopted either in the extraordinary general meeting or in the subsequent annual general meeting
and filed with the Registrar of Companies. The matter was further clarified by the Ministry vide its
General Circular no. 5/2010 dated 22nd November, 2010 that keeping in view the provisions of
Section 220 of the Act read with the Ministrys General Circular No. 1/2003, a company cannot
lay more than one set of annual accounts for a particular financial year unless it has reopened/
revised such annual accounts after their adoption in the Annual General Meeting on the grounds
specified in the Ministrys Circular No. 1/2003. So far as the auditors report on revision of
accounts is concerned, the same has been dealt with by SA 560 (Revised) Subsequent Events.
The Standard has visualized two situations in this regard. One, when Facts which become known
to the Auditor after the date of the Auditors Report but before the date the financial statements are
issued and second, when the facts which become known to the Auditor after the financial
statements have been issued. The Standard mandates auditors to take appropriate steps in both the
situations in case the management decides to revise the accounts or not.

Person Responsible to Maintain Books of Accounts and Penalties for

Contravention
Section 128(6) of the CA, 2013 provides that the managing director, the whole-time director in
charge of finance, the Chief Financial Officer or any other person of a company charged by the
Board with the duty of complying with the provisions of this Section, contravenes such provisions,
such person of the company shall be punishable with imprisonment for a term which may extend
to one year or with a fine which shall not be less than R 50,000 but which may extend to R 5 laky
or with both. Section 209(6) and (7) of CA, 1956 made the following persons responsible to
maintain books of account:
16

(a) where the company has a managing director or manager, such managing director or manager
and all officers and other employees of company,
(b) where the company has neither a managing director nor a manager, every director of the
company,
(c) Any person having been charged by the managing director, manager or Board of directors, as
the case may be, with the duty of seeing that the requirements of this Section are complied with.
Section 209(5) of CA, 1956 provided that, if any of the persons referred to in sub-Section (6) fails
to take all reasonable steps to secure compliance by the company with the requirements of this
Section, or has by his own wilful act been the cause of any default by the company there under, he
shall, in respect of each offence, be punishable with imprisonment for a term which may extend to
six months, or with a fine which may extend to R 10,000, or with both provided that no person
shall be sentenced to imprisonment for any such offence unless it was committed willfully.
Thus, the CA, 2013 brings in responsibility to maintain books of accounts on whole-time director
(in charge of finance) and Chief Financial Officer also.

Filing of Accounts
Section 137 of the CA, 2013 requires that a copy of the financial statements, including the
consolidated financial statement, if any, along with all the documents which are required to be or
attached to such financial statements under this Act, duly adopted at the annual general meeting of
the company, to be filed with the Registrar within 30 days of the date of the annual general
meeting in such manner, with such fees or additional fees as may be prescribed within the time
specified under Section 403.
The Section also provides that if the financial statements are not adopted at the annual general
meeting or adjourned annual general meeting, such unadopted financial statements along with the
required documents under sub-Section (1) shall be filed with the Registrar within 30 days of the
date of the annual general meeting and the Registrar shall take them in his records as provisional
till the financial statements are filed with him after their adoption in the adjourned annual general
meeting for that purpose. The Section further provides that the financial statements adopted in the
adjourned annual general meeting shall be filed with the Registrar within 30 days of the date of
such adjourned annual general meeting with such fees or such additional fees as may be prescribed
within the time specified under Section 403.
It further provides that a One Person Company shall file a copy of the financial statements duly
adopted by its member, along with all the documents which are required to be attached to such
17

financial statements, within 180 days from the closure of the financial year.
The Section further provides that where the annual general meeting of a company for any year has
not been held, the financial statements along with the documents required to be attached under
sub- Section (1), duly signed along with the statement of facts and reasons for not holding the
annual general meeting shall be filed with the Registrar within 30 days of the last date before
which the annual general meeting should have been held and in such manner, with such fees or
additional fees as may be prescribed within the time specified, under Section 403.
Section 220 (1) of the CA, 1956 provided that after the balance sheet and the profit and loss
account have been laid before a company at an annual general meeting as aforesaid, these would
be filed with the Registrar within 30 days from the date on which the balance sheet and the profit
and loss account were so laid, or where the annual general meeting of a company for any year has
not been held, there shall be filed with the Registrar within thirty days from the latest day on or
before which that meeting should have been held in accordance with the provisions of this Act
provided that in the case of a private company, a copy of the balance sheet and copy of the profit
and loss account shall be filed with the Registrar separately .
The Section also provided that if the annual general meeting of a company before which a balance
sheet was laid as aforesaid did not adopt the balance sheet, or was adjourned without adopting the
balance sheet, or, if the annual general meeting of a company for any year had not been held, a
statement of that fact and of the reasons therefore, would be annexed to the balance sheet required
to be filed with the Registrar.
The provisions relating to filing of financial statements are the same except separate filing of the
Profit and Loss Account by private limited companies under the provisions of the CA, 1956 did
not find a place in the CA, 2013.

Period ofRetention of Books of Accounts

Section 128(5) of the CA, 2013 requires that the books of account of every company relating to a
period of not less than eight financial years immediately preceding a financial year, or where the
company had been in existence for a period of less than eight years, in respect of all the preceding
years together with the vouchers relevant to any entry in such books of account shall be kept in
good order:
Provided that where an investigation has been ordered in respect of the company under Chapter
XIV, the Central Government may direct that the books of account may be kept for such longer
period as it may deem fit.
Section 209(4A) of the CA, 1956 have the similar provisions.

Inspection of the Books of Account

18

Section 209A of the CA, 1956 provided that the books of account and other books and papers of
every company shall be open to inspection during business hours
(i) by the Registrar or
[(ii) by such officer of the Government as may be authorized by the Central Government in its
behalf or
(iii) by such officers of the Securities and Exchange Board of India as may be authorized by it.
Such inspection could have been made without giving any previous notice to the company or any
officer thereof. In the CA, 2013, such provisions are contained in Sections 206 to 209 under
Chapter XIV Inspection, Enquiry and Investigation. Section 206 of the Act provides the power to
call for information, inspect books and conduct inquiries. Sub-Section (3) of Section 206 provides
that if no information or explanation is furnished to the Registrar within the time specified under
sub-section (1) or if the Registrar on an examination of the documents furnished is of the opinion
that the information or explanation furnished is inadequate or if the Registrar is satisfied on a
scrutiny of the documents furnished that an unsatisfactory state of affairs exists in the company
and does not disclose a full and fair statement of the information required, he may, by another
written notice, call on the company to produce for his inspection such further books of account,
books, papers and explanations as he may require at such place and at such time as he may specify
in the notice: Provided that before any notice is served under this sub-Section, the Registrar shall
record his reasons in writing for issuing such notice.
Sub-Section (5) of Section 206 provides that the Central Government may, if it is satisfied that the
circumstances so warrant, direct inspection of books and papers of a company by an inspector
appointed by it for the purpose. And under sub- Section (6) the Central Government may, having
regard to the circumstances by general or special order, authorize any statutory authority to carry
out the inspection of books of account of a company or class of companies.

19

Independent Auditors Report

TO,
THE MEMBERS OF .PRIVATE LIMITED
Report on the Financial Statements
We have audited the accompanying financial statements of .PVT LIMITED, which
comprise the Balance Sheet as at 31 March 2015, the Statement of Profit and Loss, the Cash Flow
Statement for the year then ended, and a summary of significant accounting policies and other
explanatory information.
Managements Responsibility for the Financial Statements
The Companys Board of Directors is responsible for the matters in section 134(5) of the
Companies Act, 2013 (the Act) with respect to the preparation of these financial statements that
give a true and fair view of the financial position, financial performance and cash flows of the
Company in accordance with the accounting principles generally accepted in India, including the
Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies
20

(Accounts) Rules, 2014. This responsibility also includes the maintenance of adequate accounting
records in accordance with the provision of the Act for safeguarding of the assets of the Company
and for preventing and detecting the frauds and other irregularities; selection and application of
appropriate accounting policies; making judgments and estimates that are reasonable and prudent;
and design, implementation and maintenance of internal financial control, that were operating
effectively for ensuring the accuracy and completeness of the accounting records, relevant to the
preparation and presentation of the financial statements that give a true and fair view and are free
from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We have taken into account the provisions of the Act, the accounting and auditing standards and
matters which are required to be included in the audit report under the provisions of the Act and
the Rules made thereunder.
We conducted our audit in accordance with the Standards on Auditing specified under section
143(10) of the Act. Those Standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the financial statements are
free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditors judgment,
including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal financial
control relevant to the Companys preparation of the financial statements that give true and fair
view in order to design audit procedures that are appropriate in the circumstances. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of the
accounting estimates made by Companys Directors, as well as evaluating the overall presentation
of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion on the financial statements.
21

Opinion
In our opinion and to the best of our information and according to the explanations given to us,
the aforesaid financial statements, give the information required by the Act 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 March 31, 2015;
b) in the case of the Statement of Profit and Loss, of the profit 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.
Emphasis of Matters
We draw attention to the following matters in the Notes to the financial statements:
a) Note to the financial statements which, describes the uncertainty related to the outcome
of the lawsuit filed against the Company by ABC Company.
b) Note in the financial statement which indicates that the Company has accumulated losses and its
Net worth has been fully/substantially eroded, the Company has incurred a net loss/net cash loss
during the current year and previous year(s) and, the Company current liabilities exceeded its
current assets as at the balance sheet date.
These conditions, along with other matters set forth in Note Y, indicate the existence of a material
uncertainty that cast significant doubt about the Companys ability to continue as a going concern.
However, the financial statements of the Company have been prepared on a going concern basis
for the reasons stated in the said Note.
Our opinion is not modified in respect of these matters.
Report on other Legal and Regulatory Requirements
As required by the Companies (Auditors Report) Order,2015, issued by the Central Government
of India in term of sub-section (11) of section 143 of the Companies Act,2013, we give in the
Annexure a statement on the matters specified in the paragraphs 3 and 4 of the Order, to the extent
applicable.
22

As required by section 143(3) of the Act, we report that:

a) We have sought and obtained all the information and explanations which to the best of
our knowledge and belief were necessary for the purposes of our audit.
b) 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)
c) [The reports on the accounts of the branch offices of the Company audited under Section
143(8) of the Act by branch auditors have been sent to us and have been properly dealt by
us in preparing this report]
d) the Balance Sheet, the Statement of Profit and Loss, and Cash Flow Statement dealt with by
this Report are i agreement with the books of account.[and the returns received from the
branches not visited by us]
e) In our opinion, the aforesaid financial statements comply with the Accounting
Standards specified under Section 133 of the Act, read with Rule 7 of the Companies
(Accounts) Rules, 2014.
f) The going concern matter described in sub-paragraph (b) under the Emphasis of Matters
paragraph above, in our opinion, may have an adverse effect on the functioning of the
Company.
g) On the basis of written representations received from the directors as on 31 March, 2015,
taken on record by the Board of Directors, none of the directors is disqualified as on 31
March, 2015, from being appointed as a director in terms of Section 164(2) of the Act.
h) With respect to the other matters included in the Auditors Report and to our best of
our information and according to the explanations given to us :
i. The Company has disclosed the impact of pending litigations on its financial position in its
financial statements Refer Note XX to the financial statements ;[or the Company does
not have any pending litigations which would impact its financial position]
ii. The Company has made provision, as required under the applicable law or accounting
23

standards, for material foreseeable losses, if any, on long term contracts including
derivative contracts Refer Note XX to the financial statements; [or the Company did not
have any long-term contracts including derivatives contracts for which there were any
material foreseeable losses]
iii. There has been no delay in transferring amounts, required to be transferred, to the Investor
Education and Protection Fund by the Company [or, following are the instances of delay in
transferring amounts, required to be transferred, to the Investor Education and Protection Fund by
the Company or there were no amounts which required to be transferred ]

For P.K Narula & CO.

(Charter
ed Accountants)
Firm Reg. No. 016470N
Place:
Dated:
(Partner)
Membership No

24

Balance Sheet Format

Name of company:
Balance Sheet as at
Figures as at
the end of
Current
Reporting
period

Particulars

I. EQUITY AND LIABILITIES

1. Shareholders Funds
a. Shares capital
b. Reserves and Surplus
2. Share Application Money Pending Allotment
3. Non-Current Liabities
a. Long Term Borrowings
b. Deferred Tax Liabilities (Net)
c. Long-Term Provision
4. Current Liabities
a. Short-Term Borrowings
b. Trade Payable
c. Others Current Liabities
d. Short-Term Provision
Total
Assets
1. Non-Current Asset
a. fixed Asstes
i) Tangible Assets
ii) Intangible Assets
iii) Capital work in Progress
iv) Intangible Assets under development
b. Non-current Invesstments
c. Deferred Tax Assets (Net)
d. Long-Term Loans and Advances
e. Others Non-Current Assets
2. Current Assets
a. Current Assets
b. Inventories
c. Trade Receivable
d. Cash and Cash Equivalents
e. Short-Term Loans and Advance
f. Others Current Assets
Total

25

Figures as at the
end of the
previous
Reporting
period

Profit & Loss Statement Format

Name of the Company
Profit and Loss statement for the year ended

Note
No

Particulars
I. Revenue from operations
II. Other Income
III. Total Revenue (I+II)
IV. Expenses: Cost of Materials Consumed
Purchases of Stock -in-Trade
Changes in inventories of finnished goods
Work-in-progress and stock-in-Trade
Employee benefits Expense
Finance costs
Depreciation and amortization expense
other Expensess
Total Expensess
V. Profit before exceptional and extraordinary items and tax (IIIIV)
VI. Excceptional Items
VII. Profit beore extraordinary items and tax (V-VI)
VIII. Extraordinary Items
IX. Profit before Tax (VII - VIII)
X. Tax expense:
1. Current tax
2. Deferred tax
XI. Profit (Loss) for the period from continuing operations
XII. Profit /Loss from discountinuing operations
XIII. Tax expenses of discountinuing operations
XIV. Profit/Loss from discounitnng operaions (after tax) (XIIXIII)
XV. Profit (Loss) for the Period (XI-XIV)
XVI. Earnings per equity share
1. Basic
2.Diluted

RE-APPOINTMENT OF AUDITOR
26

Figures for
the current
reporting
period

Figures for
the
Previous
reporting
period

After completion of tenure of 5 consecutive years the auditor may be re-appointed by

complying with the provisions of section 139(9) which states that subject to the provisions of
sub-section (1) & the rules made thereunder, a retiring auditor may be re-appointed at an
annual general meeting, ifHe is not disqualified for re-appointment.
He has not given the company a notice in writing of his unwillingness to be re-appointed
A special resolution has not been passed at that meeting appointing some other auditor or
providing expressly that he shall not be re-appointed.
ROTATION OF AUDITORS
As per section 139(2) no listed company or companies as prescribed shall appoint or reappoint :An individual as auditor for more than one term of 5 consecutive years; and
An audit firm as auditor for more than two terms of 5 consecutive years
Note: 1. Break in the term for a continuous period of 5 years will be considered as fulfillment
of criteria of rotation. (explanation 2 to rule 6(3)(ii)).
2. the period for which the individual or the firm has held office as auditor prior to the
commencement of the Act shall be taken into account for calculating the period of five
consecutive years or ten consecutive years, as the case may be(rule 6(3)(i))
Cooling period: 5 years from completion of tenure as said above.
Other persons who cannot be appointed as auditor:Firm having a common partner to the other audit firm, whose tenure has expired in a
company immediately preceding the financial year, shall be appointed as auditor of the same
company for a period of five years (1st proviso to section 139(2)).
The incoming auditor or audit firm shall not be eligible if such auditor or audit firm is
associated with the outgoing auditor or audit firm under the same network of audit firms(rule
6(3)(ii)).

27

 same network includes the firms operating or functioning, hitherto or in future, under the
same brand name, trade name or common control (explanation 1 to rule 6(3)(ii))
If a partner, who is in charge of an audit firm and also certifies the financial statements of the
company, retires from the said firm and joins another firm of chartered accountants, such
other firm shall also be ineligible to be appointed for a period of five years.
Companies prescribed (rule 5):Following companies excluding one person companies and small companies:Unlisted public companies having paid up capital of Rs.10 crore or more;
Private limited companies having paid up capital of Rs. 20 crore or more;
Companies having paid up capital less than as mentioned above, but having public
borrowings from financial institutions, banks or public deposits of rupees 50 crore or more.
Note :- Rotation of auditors does not apply to dormant companies(proviso to rue 6 of
Companies(Miscellaneous) rules, 2014)
Manner of rotation:- to be prescribed by way of rules(section 139(4) read with rule)
Recommendation of name:- The procedure depends upon whether audit committee is
required to be constituted or not. If constitution required then the Committee shall
recommend to the Board the name of the auditor who may replace the incumbent auditor on
expiry of his term. The Board shall consider the same and make its recommendation to the
members. In cases where committee not required then the Board shall itself recommend to
the members.
Transitional period:- For companies existing on commencement of this act, 3 years from such
commencement (2nd proviso to section 139(2))

and the priority in regard to their selection.

28

SA 700
FORMING AN OPINION AND REPORTING ON
FINANCIAL STATEMENTS

Introduction
Scope of this SA
1. This Standard on Auditing (SA) deals with the auditors responsibility to form an opinion
on the financial statements. It also deals with the form and content of the auditors report
issued as a result of an audit of financial statements.
2. SA 7054 and SA 7065 deal with how the form and content of the auditors report are
affected when the auditor expresses a modified opinion or includes anEmphasis of Matter
paragraph or an Other Matter paragraph in the auditors report.
3. This SA is written in the context of a complete set of general purpose financial statements.
SA 8006 deals with special considerations when financial statements are prepared in
accordance with a special purpose framework. SA 8057 deals with special considerations
relevant to an audit of a single financial statement or of a specific element, account or item of
a financial statement.
4. This SA promotes consistency in the auditors report. Consistency in the auditors report,
when the audit has been conducted in accordance with SAs, promotes credibility in the global
marketplace by making more readily identifiable those audits that have been conducted in
accordance with globally recognised standards. It also helps to promote the users
understanding and to identify unusual circumstances when they occur.
Effective Date
5. This SA is effective for audits of financial statements for periods beginning on or after
April 1, 2011.

29

Objectives
6. The objectives of the auditor are to:
(a) Form an opinion on the financial statements based on an evaluation of the conclusions
drawn from the audit evidence obtained; and
(b) Express clearly that opinion through a written report that also describes the basis for the
opinion.
Definitions
7. For purposes of the SAs, the following terms have the meanings attributed below:
(a) General purpose financial statements Financial statements prepared in accordance with a
general purpose framework8.
(b) General purpose framework A financial reporting framework designed to meet the
common financial information needs of a wide range of users. The financial reporting
framework may be a fair presentation framework or acompliance framework.
The term fair presentation framework is used to refer to a financial reporting framework
that requires compliance with the requirements of the framework and:
(i) Acknowledges explicitly or implicitly that, to achieve fair presentation of the financial
statements, it may be necessary for management to provide disclosures beyond those
specifically required by the framework; or
(ii) Acknowledges explicitly that it may be necessary for management to depart from a
requirement of the framework to achieve fairpresentation of the financial statements. Such
departures areexpected to be necessary only in extremely rare circumstances.The term
compliance framework is used to refer to a financial reportingframework that requires
compliance with the requirements of the framework, but does not contain the
acknowledgements in (i) or (ii) above9.

30

(c) Unmodified opinion The opinion expressed by the auditor when the auditor concludes
that the financial statements are prepared, in all material respects, in accordance with the
applicable financial reporting framework10.
8. Reference to financial statements in this SA means a complete set of general purpose
financial statements, including the related notes. The related notes ordinarily comprise a
summary of significant accounting policies and other explanatory information. The
requirements of the applicable financial reporting framework determine the form and content
of the financial statements, and what constitutes a complete set of financial statements.
9. Reference to Financial Reporting Standards in this SA means the Accounting Standards
issued by the Institute of Chartered Accountants of India (ICAI) or Accounting Standards,
notified by the Central Government by publishing the same as the Companies (Accounting
Standards) Rules, 2006, orthe Accounting Standards for Local Bodies issued by the Institute
of Chartered Accountants of India, as may be applicable.
Requirements
Forming an Opinion on the Financial Statements
10. The auditor shall form an opinion on whether the financial statements areprepared, in all
material respects, in accordance with the applicable financial reporting framework.11 & 12
11. In order to form that opinion, the auditor shall conclude as to whether the auditor has
obtained reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraudor error. That conclusion shall take into
account:
(a) The auditors conclusion, in accordance with SA 330, whether sufficient appropriate audit
evidence has been obtained;13
(b) The auditors conclusion, in accordance with SA 450, whether uncorrected
misstatements are material, individually or in aggregate;14 and

31

(c) The evaluations required by paragraphs 12-15.

12. The auditor shall evaluate whether the financial statements are prepared, in all material
respects, in accordance with the requirements of the applicable financial reporting
framework. This evaluation shall include consideration of thequalitative aspects of the
entitys accounting practices, including indicators ofpossible bias in managements
judgments. (Ref: Para. A1-A3)
13. In particular, the auditor shall evaluate whether, in view of the requirementof the
applicable financial reporting framework:
(a) The financial statements adequately disclose the significant accounting policies selected
and applied;
(b) The accounting policies selected and applied are consistent with theapplicable financial
reporting framework and are appropriate;
(c) The accounting estimates made by management are reasonable;
(d) The information presented in the financial statements is relevant, reliable,comparable and
understandable;
(e) The financial statements provide adequate disclosures to enable the intended users to
understand the effect of material transactions and eventson the information conveyed in the
financial statements; and (Ref: Para.A4)
(f) The terminology used in the financial statements, including the title of each financial
statement, is appropriate.
14. When the financial statements are prepared in accordance with a fair presentation
framework, the evaluation required by paragraphs 12-13 shall also include whether the
financial statements achieve fair presentation. The auditors evaluation as to whether the
financial statements achieve fair presentation shallinclude consideration of:

32

(a) The overall presentation, structure and content of the financial statements; and
(b) Whether the financial statements, including the related notes, represent the underlying
transactions and events in a manner that achieves fair presentation.
15. The auditor shall evaluate whether the financial statements adequately
refer to or describe the applicable financial reporting framework. (Ref: Para. A5-A10)

Form of Opinion
16. The auditor shall express an unmodified opinion when the auditor concludes that the
financial statements are prepared, in all material respects, in accordance with the applicable
financial reporting framework.
17. If the auditor:
(a) concludes that, based on the audit evidence obtained, the financial statements as a whole
are not free from material misstatement; or
(b) is unable to obtain sufficient appropriate audit evidence to conclude that the financial
statements as a whole are free from material misstatement, the auditor shall modify the
opinion in the auditors report in accordance with SA 705.
18. If financial statements prepared in accordance with the requirements of a fair presentation
framework do not achieve fair presentation, the auditor shall discuss the matter with
management and, depending on the requirements of the applicable financial reporting
framework and how the matter is resolved, shall determine whether it is necessary to modify
the opinion in the auditors report in accordance with SA 705.
19. When the financial statements are prepared in accordance with acompliance framework,
financial statements aremisleading, the auditor shall discuss the matter with management and,
depending on how it is resolved, shall determine whether, and how, to communicate it in the
auditors report.
33

Auditors Report
20. The auditors report shall be in writing. (Ref: Para. A13-A14)
Auditors Report for Audits Conducted in Accordance with Standards on
Auditing
Title
21. The auditors report shall have a title that clearly indicates that it is the report of an
independent auditor. (Ref: Para. A15)
Addressee
22. The auditors report shall be addressed as required by the circumstances of the
engagement. (Ref: Para. A16)
Introductory Paragraph
23. The introductory paragraph in the auditors report shall: (Ref: Para. A17A19)
(a) Identify the entity whose financial statements have been audited;
(b) State that the financial statements have been audited;
(c) Identify the title of each statement that comprises the financial statements;
(d) Refer to the summary of significant accounting policies and other
explanatory information; and
(e) Specify the date or period covered by each financial statement comprising
the financial statements.

34

24. This section of the auditors report describes the responsibilities of those in the
organisation that are responsible for the preparation of the financial statements. The auditors
report need not refer specifically to management, but shall use the term that is appropriate
in the context of the legal and/or regulatory framework applicable to the entity. In case of
some entities, the appropriate reference may be to those charged with governance*.
25. The auditors report shall include a section with the heading Managements [or other
appropriate term] Responsibility for the Financial Statements.
26. The auditors report shall describe managements responsibility for thepreparation of the
financial statements in the manner in which that responsibility is described in the terms of the
audit engagement. The description shall include an explanation that management is
responsible for the preparation of the financial statements in accordance with the applicable
financial reporting framework; this responsibility includes the design, implementation and
maintenance of internal control relevant to the preparation of financial statements
that are free from material misstatement, whether due to fraud or error
27. Where the financial statements are prepared in accordance with a fairpresentation
framework, the explanation of managements responsibility for the financial statements in the
auditors report shall refer to the preparation and fairpresentation of these financial
statements or the preparation of financial statements that give a true and fair view, as
appropriate in the circumstances.
Auditors Responsibility
28. The auditors report shall include a section with the heading Auditors
Responsibility.
29. The auditors report shall state that the responsibility of the auditor is to express an
opinion on the financial statements based on the audit. (Ref: Para. A23)
30. The auditors report shall state that the audit was conducted in accordance with Standards
on Auditing issued by the Institute of Chartered Accountants of

35

India. The auditors report shall also explain that those Standards require that the auditor
comply with ethical requirements and that the auditor plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material
misstatement. (Ref: Para. A24-A25)
31. The auditors report shall describe an audit by stating that:
(a) An audit involves performing procedures to obtain audit evidence about theamounts and
disclosures in the financial statements;
(b) The procedures selected depend on the auditors judgment, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the
entityspreparation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entitys internal control. In circumstances when the auditor also has a
responsibility to express an opinion on the effectiveness of internal control in conjunction
with the audit of the financial statements, the auditor shall omit the phrase that the auditors
consideration of internal control is not for the purpose ofexpressing an opinion on the
effectiveness of internal control; and
(c) An audit also includes evaluating the appropriateness of the accounting policies used and
the reasonableness of accounting estimates made bymanagement, as well as the overall
presentation of the financial statements.
32. Where the financial statements are prepared in accordance with a fair presentation
framework, the description of the audit in the auditors report shall refer to the entitys
preparation and fair presentation of the financial statements or the entitys preparation of
financial statements that give a true and fair view, as appropriate in the circumstances.
33. The auditors report shall state whether the auditor believes that the audit evidence the
auditor has obtained is sufficient and appropriate to provide a basisfor the auditors opinion.

36

34. The auditors report shall include a section with the heading Opinion.
35. When expressing an unmodified opinion on financial statements prepared in accordance
with a fair presentation framework, the auditors opinion shall, unless otherwise required by
law or regulation, use one of the following phrases,which are regarded as being equivalent:
(Ref: Para. A26-A32)
(a) The financial statements present fairly, in all material respects, inaccordance with [the
applicable financial reporting framework]; or
(b) The financial statements give a true and fair view of in accordance with [the applicable
financial reporting framework].
36. When expressing an unmodified opinion on financial statementsprepared in accordance
with a compliance framework, the auditors opinion shall be that the financial statements are
prepared, in all material respects, in accordance with [the applicable financial reporting
framework]. (Ref: Para.A26, A28-A32)
37. If the reference to the applicable financial reporting framework, in theauditors opinion, is
not to the Accounting Standards issued by the Institute of Chartered Accountants of India
(ICAI) or Accounting Standards, notified by the Central Government by publishing the same
as the Companies (AccountingStandards) Rules, 2006, or the Accounting Standards for Local
Bodies issued by the Institute of Chartered Accountants of India, as may be applicable, the
auditors opinion shall identify the jurisdiction of origin of the framework.
Other Reporting Responsibilities
38. If the auditor addresses other reporting responsibilities in the auditors report on the
financial statements that are in addition to the auditors responsibility under the SAs to report
on the financial statements, these other reporting responsibilities shall be addressed in a
separate section in the auditorsreport that shall be sub-titled Report on Other Legal and

37

39. If the auditors report contains a separate section on other reportingresponsibilities, the
headings, statements and explanations referred to inparagraphs 23-37 shall be under the subtitle Report on the Financial
Statements. The Report on Other Legal and Regulatory Requirements shallfollow the
Report on the Financial Statements. (Ref: Para. A35)Signature of the Auditor
40. The auditors report shall be signed. (Ref: Para. A36)Date of the Auditors Report
41. The auditors report shall be dated no earlier than the date on which the auditor has
obtained sufficient appropriate audit evidence on which to base the auditors opinion on the
financial statements, including evidence that: (Ref: Para.
A37-A40)
(a) All the statements that comprise the financial statements, including the related notes, have
been prepared; and
(b) Those with the recognised authority have asserted that they have taken responsibility for
those financial statements.
Place of Signature
42. The auditors report shall name specific location, which is ordinarily the city where the
audit report is signed.
Auditors Report Prescribed by Law or Regulation
43. If the auditor is required by any law or regulation to use a specific layout or wording of
the auditors report, the auditors report shall refer to Standards on Auditing only if the
auditors report includes, at a minimum, each of the following elements: (Ref: Para. A41)
(a) A title;
(b) An addressee, as required by the circumstances of the engagement;
(c) An introductory paragraph that identifies the financial statements audited;
38

(d) A description of the responsibility of management (or other appropriate term, see
paragraph 24) for the preparation of the financial statements;
(e) A description of the auditors responsibility to express an opinion on the financial
statements and the scope of the audit, that includes:
A reference to Standards on Auditing and the law or regulation; and
A description of an audit in accordance with those Standards;
(f) An opinion paragraph containing an expression of opinion on the financial statements and
a reference to the applicable financial reporting framework used to prepare the financial
statements (including identifying the jurisdiction of origin of the financial reporting
framework, see paragraph 37);
(g) The auditors signature;
(h) The date of the auditors report; and
(i) The place of signature.

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CARO 2015
The Ministry of Corporate Affairs, on 10th April, 2015, notified the Companies (Auditors
Report) Order , 2015 (CARO, 2015)

APPLICABILITY:It shall apply to every company including a foreign company as defined in clause (42) of
section 2 of the Companies Act, 2013 (18 of 2013) hereinafter referred to as the Companies
Act except1) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act,
1949 ( 10 of 1949);
2) an insurance company as defined under the insurance Act,1938 (4 of 1938).
3) a company licensed to operate under section 8 of the Companies Act;
4) one person company as defined under clause (62) of sec 2 of the companies Act and a
small company as defined under clause (85) of sec 2 of the companies Act and
5) a private Limited Company with a paid up capital & reserves not more than rupees
fifty lakh& which does not have loan outstanding exceeding rupees twenty five lakh
from any bank or financial institution and does not have a turnover exceeding rupees five
crore at any point of time during the financial year.
COMMENCEMENT:Financial Year start on or after 01/04/2014
Matters to be included in the auditors report :
The auditors report on the account of a company to which this Order applies shall include a
statement on the following matters, namely:1) Fixed Assets
a) Whether the company is maintining proper records showing full particulars including
quantitative details & 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 bnooks of
account.
2) Inventory
a) Whether physical verification of inventory has been conducted at reasonable intervals
by the management.

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b) Are the procedures of physical verification of inventory followed by the management

resonable and adequate in relation to the size of the company & nature of its business
of not, the adequacies in such procedures should be reprted.
c) Whether the company is maintaining proper records of inventory & whetyher any
material discrepancies were noticed on physical verification & if so whether the same
have been properly dealt with in the books of account.
3) Loans & Advances
Whether the company has granted any loans, secured or unsecured to companies , firms
or other parties covered in the registered maintained under section 189 of the companies
Act, if so
a) Whether receipts of the principal amount and interest are also regular, and
b) If overdue amount is more than rupees ane lakh whether resonable steps have been
taken by the company & interest.
4) Internal Control
Is there an adequate internal control system commensurate with the size of the company
& the nature of its businesss for the purchase of inventory & fixed assets and for the sale
of goods and services . Whether there is a continuing failure to correct major weakness in
internal control system.
5) Deposits
In caase the company has accepted deposits, whether the directives issued by the Reserve
Bank of India and the provisions of the Companies Act and the rules framed there under,
where applicable have been complied with ?
If not, the nature of contraventions should be stated if any ordered 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 ?
6) Cost Accounting system
Where maintenance of cost records has been specified by the central government under
sub section (1) of sec 148 of the Companies Act whether such accounts & records have
been made & maintained,
7) Statutory Dues
a) Is the company regular in depositing undisputed statutory dues including provident
fund, employees state insurance, income tax, Sale tax, wealth tax, service tax ,duty
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tax, duty of customs, duty of excise, VAT, cess & any other statutory dues with the
appropriate authorities & if not the extent of the arrears of outstanding statutory dues
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 or sale tax or wealth tax or service tax or duty of customs
or duty of excise or Vat or cess have not been deposited on account of any dispute
then the amounts involved & the forum where dispute is pending shall be mentioned.
c) Whether the amount required to be transferred to investor education & protection fund
in accordance with the relevant provisions of companies Act 1956 (1 of 1956) & rules
made thereunder has been transferred to such fund within time.
8) Loss making companies
Whether in case of company which has been registered for a period not less than five
years its accumulated losses at the end of financial year are not less than fifty per cent of
its net worth & whether it has incurred cash losses in such financial year & in the
immediately preceding year.
9) Repayment of Dues
Whether the company has given any guarantee for loans taken by others from bank or
financial instituations, the terms & conditions whereof are prejudicial to the interest of
the company.
10) Guarantee Given
whether the company has given guarantee for loans taken from banks or any other
financial instituations the terms and condition whereof prejudial to the interest of the
company.
11) Use of Funds
Whether term loans were applied for the purpose for which the loans were obtained.

12)Fraud
Whether any fraud on or by the company has been noticed or reported during the year
if yes the nature & the amount involved is to be indicated.

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SA 500* AUDIT EVIDENCE

Introduction
Scope of this SA
1. This Standard on Auditing (SA) explains what constitutes audit evidence in an audit of
financial statements, and deals with the auditors responsibility to design and perform audit
procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable
conclusions on which to base the auditors opinion.
2. This SA is applicable to all the audit evidence obtained during the course of the audit.
Other SAs deal with specific aspects of the audit (for example, SA 3153), the audit evidence
to be obtained in relation to a particular topic (for example, SA 5704), specific procedures to
obtain audit evidence (for example, SA 5205), and the evaluation of whether sufficient
appropriate audit evidence has been obtained (SA 200 and SA 3306).
Effective Date
3. This SA is effective for audits of financial statements for periods beginning on or after
April 1, 2009.
Objective
4. The objective of the auditor is to design and perform audit procedures in such a way as to
enable the auditor to obtain sufficient appropriate audit evidence to be able to draw
reasonable conclusions on which to base the auditors opinion.
Definitions
5. For purposes of the SAs, the following terms have the meanings attributed below:
(a) Accounting records The records of initial accounting entries and supporting records,
such as checks and records of electronic fund transfers; invoices; contracts; the general and

43

subsidiary ledgers, journalentries and other adjustments to the financial statements that are
not reflected in journal entries; and records such as work sheets and spreadsheets supporting
cost allocations, computations, reconciliations and disclosures.
(b) Appropriateness (of audit evidence) The measure of the quality of audit evidence; that
is, its relevance and its reliability in providing support for the conclusions on which the
auditors opinion is based.
(c) Audit evidence Information used by the auditor in arriving at the conclusions on which
the auditors opinion is based. Audit evidence includes both information contained in the
accounting records underlying the financial statements and other information.
(d) Managements expert An individual or organisation possessing expertise in a field other
than accounting or auditing, whose work in that field is used by the entity to assist the entity
in preparing the financial statements.
(e) Sufficiency (of audit evidence) The measure of the quantity of audit evidence. The
quantity of the audit evidence needed is affected by the auditors assessment of the risks of
material misstatement and also by the quality of such audit evidence.
Requirements
Sufficient Appropriate Audit Evidence
6. The auditor shall design and perform audit procedures that are appropriate in the
circumstances for the purpose of obtaining sufficient appropriate audit evidence. (Ref: Para.
A1-A25) Information to Be Used as Audit Evidence
7. When designing and performing audit procedures, the auditor shall consider the relevance
and reliability of the information to be used as auditevidence. (Ref: Para. A26-A33)
8. When information to be used as audit evidence has been prepared using the work of a
managements expert, the auditor shall, to the extent necessary, having regard to the
significance of that experts work for the auditors purposes,:
(Ref: Para. A34-A36)
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(a) Evaluate the competence, capabilities and objectivity of that expert; (Ref:Para. A37-A43)
(b) Obtain an understanding of the work of that expert; and (Ref: Para. A44-A47)
(c) Evaluate the appropriateness of that experts work as audit evidence for the relevant
assertion. (Ref: Para. A48)
9. When using information produced by the entity, the auditor shall evaluate whether the
information is sufficiently reliable for the auditors purposes
(a) Obtaining audit evidence about the accuracy and completeness of the information; and
(Ref: Para. A49-A50)
(b) Evaluating whether the information is sufficiently precise and detailed for the auditors
purposes.

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SA 505* EXTERNAL CONFIRMATIONS

Introduction
Scope of this SA
1. This Standard on Auditing (SA) deals with the auditors use of external confirmation
procedures to obtain audit evidence in accordance with the requirements of SA 3303 and SA
5004. It does not address inquiries regarding litigation and claims. SA 5015 deals with
obtaining sufficient appropriate auditevidence from such inquiries. External Confirmation
Procedures to Obtain Audit Evidence
2. SA 500 indicates that the reliability of audit evidence is influenced by its source and by its
nature, and is dependent on the individual circumstances under which it is obtained6. That SA
also includes the following generalisations applicable to audit evidence 7:
Audit evidence is more reliable when it is obtained from independent sources outside the
entity.
Audit evidence obtained directly by the auditor is more reliable than audit evidence
obtained indirectly or by inference.
Audit evidence is more reliable when it exists in documentary form, whether paper,
electronic or other medium.
Accordingly, depending on the circumstances of the audit, audit evidence in the form of
external confirmations received directly by the auditor from confirming parties may be more
reliable than evidence generated internally by the entity. This SA is intended to assist the
auditor in designing and performing external confirmations procedures to obtain relevant and
reliable audit evidence.
3. Other SAs recognise the importance of external confirmations as audit evidence, for
example:
SA 330 discusses the auditors responsibility to design and implement overall responses to
address the assessed risks of material misstatement

46

at the financial statement level, and to design and perform further auditprocedures whose
nature, timing and extent are based on, and are responsive to, the assessed risks of material
misstatement at the assertion
level8. In addition, SA 330 requires that, irrespective of the assessed risks of material
misstatement, the auditor designs and performs substantive procedures for each material class
of transactions, account balance, and disclosure. The auditor is also required to consider
whether external confirmation procedures are to be performed as substantive audit
procedures9.
SA 330 requires that the auditor obtain more persuasive audit evidence the higher the
auditors assessment of risk10. To do this, the auditor may increase the quantity of the
evidence or obtain evidence that is more relevant or reliable, or both. For example, the
auditor may place more emphasis on obtaining evidence directly from third parties or
obtaining corroborating evidence from a number of independent sources. SA 330 also
indicates that external confirmation procedures may assist the auditorin obtaining audit
evidence with the high level of reliability that the auditor requires to respond to significant
risks of material misstatement, whetherdue to fraud or error11.
SA 240 indicates that the auditor may design confirmation requests to obtain additional
corroborative information as a response to address the assessed risks of material
misstatement, whether due to fraud at the assertion level12.
SA 500 indicates that corroborating information obtained from a source independent of the
entity, such as external confirmations, may increase the assurance the auditor obtains from
evidence existing within the accounting records or from the representations made by the
management13.

Effective Date
4. This SA is effective for audit of financial statements for period beginning on or after April
1, 2010.
Objective
5. The objective of the auditor, when using external confirmation procedures, is to design and
perform such procedures to obtain relevant and reliable audit evidence.

47

Definitions
6. For purposes of the SAs, the following terms have the meaningsattributed below:
a) External confirmation Audit evidence obtained as a direct written response to the auditor
from a third party (the confirming party), in paperform, or by electronic or other medium.
b) Positive confirmation request A request that the confirming party respond directly to the
auditor indicating whether the confirming party agrees ordisagrees with the information in the
request, or providing the requestedinformation.
c) Negative confirmation request A request that the confirming party respond directly to the
auditor only if the confirming party disagrees with the information provided in the request.
d) Non-response A failure of the confirming party to respond, or fully respond, to a positive
confirmation request, or a confirmation request returned undelivered.
e) Exception A response that indicates a difference between information requested to be
confirmed, or contained in the entitys records, and information provided by the confirming
party.
Requirements
External Confirmation Procedures
7. When using external confirmation procedures, the auditor shall maintain control over
external confirmation requests, including:
(a) Determining the information to be confirmed or requested; (Ref: Para. A1)
(b) Selecting the appropriate confirming party;
(c) Designing the confirmation requests, including determining that requests are properly
addressed and contain return information for responses to be sent directly to the auditor; and
(Ref: Para. A3-A6)

48

(d) Sending the requests, including follow-up requests when applicable, to theconfirming
party.

49

Bibliography

1. http://www.charteredclub.com/tax-audit/
2. http://taxguru.in/income-tax/download-revised-utility-tax-auditreport-ay-201415.html
3. http://www.ahujaandahuja.in/services/income-tax/
4. Refer on Advanced auditing book of Seth Publication on author
name of L.N Chopde.
5. Refer on Diret&Indirct text MananPrakashan on Author of Ainapure.
6. Reference:7. Auditing Book of M.Com Part II sem IV
8. Mumbai University Book of Auditing

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