G.S.R. 480(E).— In exercise of the powers conferred by sub-section (4A) of section 227 of the Companies Act, 1956 (1 of 1956), read with the Notification of the Government of India in the Department of Company Affairs, number G.S.R. 443(E), dated 18th October, 1972, as amended from time to time and in supersession of order number G.S.R. 909(E), dated 7th September, 1988, published in the Gazette of India, part II, section 3, sub-section (i), except as respects things done or omitted to be done before the supersession, and after consultation with the Institute of Chartered Accountants of India [constituted under the Chartered Accountants Act, 1949 (38 of 1949)], in regard to class of companies to which this order applies and other ancillary matters, the Central Government hereby makes the following Order, namely:-—

1. This order may be called the Companies (Auditor’s Report) Order, 2003.

2. It shall apply to every company including a foreign company as defined in section 591 of the Act, except the following :—

1. 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 in clause (21) of section 2 of the Act;

3. a company licensed to operate under section 25 of the Act; and

4. a private limited company with a paid-up capital and reserves not more than fifty lakh rupees and does not have loan outstanding exceeding Rupees Twenty Five lakhs from any bank or financial institution and does not have a turnover exceeding five crores rupees at any point of time during the financial year

3. It shall come into force on the 1st day of July, 2003.

1. "Act" means the Companies Act, 1956 (1 of 1956);

2. "chit fund company", "nidhi company" or "mutual benefit company" means a company engaged in the business of managing, conducting or supervising as a foreman or agent of any transaction or arrangement by which it enters into an agreement with a number of subscribers that every one of them shall subscribe to a certain sum of installments for a definite period and that each subscriber, in his turn, as determined by lot or by auction or by tender or in such other manner as may be provided for in the agreement, shall be entitled to a prize amount, and includes companies whose principal business is accepting fixed deposits from, and lending money to members.

(This information is required only in case of transactions exceeding the value of five lakh rupees in respect of any party and in any one financial year)

6. in case the company has accepted deposits from the public, whether the directives issued by the Reserve Bank of India and the provisions of sections 58A, 58AA or any relevant provisions of the Act and the rules framed thereunder, where applicable, have been complied with. If not, the nature of contraventions should be stated; If an order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal, whether the same has been complied with or not?

7. in the case of listed companies and/or other companies having a paid-up capital and reserves exceeding Rs. 50 lakhs as at the commencement of the financial year concerned, or having an average annual turnover exceeding five crores rupees for a period of three consecutive financial years immediately preceding the financial year concerned, whether the company has an internal audit system commensurate with its size and nature of its business;

8. where maintenance of cost records has been prescribed by the Central Government under clause (d) of sub-section (1) of section 209 of the Act, whether such accounts and records have been made and maintained;

9. (a) is the company regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income-tax, Sales-tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor.

(b) in case dues of income tax/sales tax/wealth tax/service tax/ customs duty/ excise duty/cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned. (A mere representation to the Department shall not constitute the dispute).

10. whether in case of a company which has been registered for a period not less than five years, its accumulated losses at the end of the financial year are not less than fifty per cent of its net worth and whether it has incurred cash losses in such financial year and in the immediately preceding financial year;

11. whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holders? If yes, the period and amount of default to be reported;

12. whether adequate documents and records are maintained in cases where the company has granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities; If not, the deficiencies to be pointed out;

13. whether the provisions of any special statute applicable to chit fund have been duly complied with? In respect of nidhi/mutual benefit fund/societies;

1. whether the net-owned funds to deposit liability ratio is more than 1:20 as on the date of balance sheet;

2. whether the company has complied with the prudential norms on income recognition and provisioning against sub-standard / doubtful / loss assets;

3. whether the company has adequate procedures for appraisal of credit proposals/requests, assessment of credit needs and repayment capacity of the borrowers;

4. whether the repayment schedule of various loans granted by the nidhi is based on the repayment capacity of the borrower;

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

15. whether the company has given any guarantee for loans taken by others from bank or financial institutions, the terms and conditions whereof are prejudicial to the interest of the company;

16. whether term loans were applied for the purpose for which the loans were obtained;

17. whether the funds raised on short-term basis have been used for long-term investment; If yes, the nature and amount is to be indicated;

18. whether the company has made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act and if so whether the price at which shares have been issued is prejudicial to the interest of the company;

19. whether security or charges has been created in respect of debentures issued;

20. whether the management has disclosed on the end use of money raised by public issues and the same has been verified;

21. whether any fraud on or by the company has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated.

1. We have audited the attached balance sheet of (name of the company), as at 31st March, 20XX, the profit and loss account and also the (cash flow statement)² for the year ended on that date annexed thereto. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003³ issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956. we enclose in the Annexure⁴ a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to above, we report that:

1. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

2. In our opinion. proper books of account as required by law have been kept by the company so far as appears from our examination of those books (and proper returns adequate for the purposes of our audit have been received from the branches not visited by us. The Branch Auditor’s Report(s) have been forwarded to us and have been appropriately dealt with)⁵;

3. The balance sheet, profit and loss account and (cash flow statement)⁶ dealt with by this report are in agreement with the books of account (and with the audited returns from the branches)⁷;

4. In our opinion, the balance sheet, profit and loss account and (cash flow statement)⁸ dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;

5. On the basis of written representations received from the directors, as on 31st March, 20XX and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 20XX from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956;

6. In our opinion, and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

1. in the case of the balance sheet, of the state of affairs of the company as at 31st March, 20XX;

2. in the case of the profit & loss account, of the profit/loss⁹ for the year ended on that date; and

3. (in the case of the cash flow statement, of the cash flows for the year ended on that date)¹⁰

   For ABC and Co. Chartered Accountants Signature (Name of the Member Signing the Audit Report) (Designation)11 Membership Number Firm Registration Number

Place of Signature:
Date:

Referred to in paragraph 3 of our report of even date,

1. (a) The company has maintaining proper records showing full particulars, including quantitative details and situation of fixed assets.
   
   (b) All the assets have not been physically verified by the management during the year but there is a regular programme of verification which, in our opinion, is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verification.
   
   (c) During the year, the company has disposed of a substantial part of the plant and machinery. According to the information and explanations given to us, we are of the opinion that the sale of the said part of plant and machinery has not affected the going concern status of the company.

2. (a) The inventory has been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable.
   
   (b) The procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.
   
   (c) The company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material.

3. (a) The company has granted loans to two companies covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 20 crores and the year-end balance of loans granted to such parties was Rs. 20 crores.
   
   (b) In our opinion, the rate of interest and other terms and conditions of such loans are not, prima facie, prejudicial to the interest of the company.
   
   (c) The parties have repaid the principal amounts as stipulated and have also been regular in the payment of interest to the company.
   
   (d) There is no overdue amount in excess of Rs. 1 lakh in respect of loans granted to companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956.
   
   (e) The company had taken loan from five companies covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 50 crores and the year-end balance of loans taken from such parties was Rs. NIL.
   
   (f) In our opinion, the rate of interest and other terms and conditions on which loans have been taken from companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956 are not, prima facie, prejudicial to the interest of the company.
   
   (g) The company is regular in repaying the principal amounts as stipulated and has been regular in the payment of interest.

4. In our opinion and according to the information and explanations given to us, there exists an adequate internal control system commensurate with the size of the company and the nature of its business, with regard to purchase of inventory, fixed assets and with regard to the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control system of the company.

5. (a) According to the information and explanations given to us, we are of the opinion that the particulars of all contracts or arrangements that need to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered.
   
   (b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and exceeding the value of rupees five lakhs in respect of any party during the year have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

6. In our opinion and according to the information and explanations given to us, the company has complied with the provisions of sections 58A and 58AA and other relevant provisions of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public. No order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

7. In our opinion, the company has an internal audit system commensurate with the size and nature of its business.

8. We have broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the company pursuant to the Rules made by the Central Government for the maintenance of cost records under section 209(1)(d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained.

9. (a) The company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education fund, employees’ state insurance, income tax, sales tax, wealth tax, service tax, custom duty, excise duty and other material statutory dues applicable to it.

   Further, since the Central Government has till date not prescribed the amount of cess payable under section 441A of the Companies Act, 1956, we are not in a position to comment upon the regularity or otherwise of the company in depositing the same.

   (b) According to the information and explanations given to us, no undisputed amounts payables in respect of income tax, sales tax, wealth tax, service tax, customs duty and excise duty were in arrears, as at ………. for a period of more than six months from the date they became payable.

   (c) According to the information and explanations given to us, there are no dues of income tax, sales tax, service tax, customs duty and excise duty which have not been deposited on account of any dispute.

10. In our opinion, the accumulated losses of the company are not more than fifty per cent of its net worth. Further, the company has not incurred cash losses during the financial year covered by our audit and the immediately preceding financial year.

11. In our opinion and according to the information and explanations given to us, the company has not defaulted in repayment of dues to a financial institution, bank or debentures holders.

12. We are of the opinion that the company has maintained adequate records where the company has granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

13. In our opinion, the company is not a chit fund or a nidhi mutual benefit fund/society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the company.

14. In our opinion, the company is not dealing in or trading in shares securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the company.

15. In our opinion, the terms and conditions on which the company has given guarantees for loans taken by others from banks or financial institutions are not prejudicial to the interest of the company.

16. In our opinion, the term loans have been applied for the purpose for which they were raised.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that the no funds raised on short-term basis have been used for long-term investment.

18. According to the information and explanations given to us, the company has made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act. In our opinion, the price at which shares have been issued is not prejudicial to the interest of the company.

19. According to the information and explanations given to us during the period covered by our audit report, the company had issued 1,00,000 debentures of Rs. 100 each. The company has created security in respect of debentures issued.

20. We have verified the end use of money raised by public issue from the draft prospectus filed with SEBI, the offer document and as disclosed in the notes to the financial statements.

21. According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the course of our audit.

    For ABC and Co. Chartered Accountants Signature (Name of the Member Signing the Audit Report) (Designation)12 Membership Number Firm Registration Number

Place of Signature :

Date :

Note: Clause to be inserted in the main report, where CARO, 2003 is not applicable:

3. As the company is a private company and falls within the exemption specified under paragraph 2(iv) of the Companies (Auditor’s Report) Order, 20033 issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956. Hence the matters specified in paragraphs 4 and 5 of the said Order are not enclosed.

1. Reference may also be made to the Auditing and Assurance Standard (AAS) 28. The Auditor’s Report on Financial Statements, Statement on Qualifications in the Auditor’s Report and the Guidance Note on sections 227(3)(e) and (f) of the Companies Act, 1956, issued by the Institute of Chartered Accountants of India.

2. Wherever applicable.

3. All references made in this Specimen Auditor’s Report to Companies (Auditor’s Report) Order, 2003 should be construed as being to the Companies (Auditor’s Report) Order, 2003 as amended by Companies (Auditor’s Report) (Amendment) Order, 2004

4. Alternatively, in lead of giving the comments on Companies (Auditor’s Report) Order, 2003 in an Annexure, the comments may be contained in the body of the main report.

5. Wherever applicable.

6. Wherever applicable.

7. Wherever applicable.

8. Wherever applicable.

9. Wherever applicable.

10. Wherever applicable.

11. Partner or proprietor, as the case may be.

12. Partner or Proprietor, as the case may be.