Companies (Auditor's Report) Order, 2003

SHORT TITLE & COMMENCEMENT

1) Short Title Companies (Auditor's Report) Order, 2003
2) Commencement Effective from 01-07-2003



APPLICABILITY OF ORDER [SECTION 1(2)]
It shall apply to every company including a foreign company as defined in section 591 of the Act, except
the following:-
1) Banking Co. As defined in Banking Regulation Act, 1949
2) Insurance Co. As defined in the Insurance Act
3) Sec. 25 Co. A company licensed to operate u/s 25 of the Act
4) Pvt. Ltd. Co, A Pvt. Ltd. Company having all of the following three conditions satisfied
PUC + Reserves < = Rs. 50 Lacs
Loan outstanding from Bank/ Financial Institute < = Rs. 25 Lacs
Turnover at any Pt. Of time during the F.Y. < = Rs. 5 Crore



DEFINITIONS [SECTION 2]
1) Act Companies Act, 1956
2) Chit Fund / NIDHI
/Mutual Benefit Co.
It includes following 2 types of Companies
A co. engaged in managing, conducting or supervising of any
KAMETI Transaction
Co. whose principal business is accepting FDs from members and
lending money to them
KAMETI Transaction > where a number of subscribers, subscribe to a
certain sum of instalments for a definite period and each subscriber, in his
turn, shall be entitled to a prize amount (As determined by Lot, Auction,
Tender or any other manner agreed by subscribers)

AUDIT REPORT TO CONTAIN MATTERS SPECIFIED IN U/S 4 & 5 [SEC. 3]
Audit report of every company to which this order applies shall contains the matters specified in
paragraphs 4 & 5.

Companies (Auditor's Report) Order, 2003

MATTERS TO BE INCLUDED IN AUDITORS REPORT [SECTION 4]

1. Fixed Assets Records of FA Whether Co is maintaining proper records of FA showing full particulars.
(incl. Quantitative Details & Situation of FA)
Physical verification of
FA
Whether Mgmt physically verified these F.A. at reasonable intervals.
whether any material discrepancies were noticed on such verification,
If Noticed, whether the same have been properly dealt with in the books of account
Going Concern Whether a disposal of substantial part of F.A. during the year, if any, affected the going concern
2. Inventories Physical Verification Whether Mgmt. Conducted the physical verification of inventory at reasonable intervals
Reasonableness and
adequacy of physical
verification procedures
Are the procedures of physical verification of inventory followed by the Mgmt. reasonable and
adequate in relation to the size of the company and the nature of its business?
If not, the inadequacies in such procedures should be reported.
Records of Inventory whether the company is maintaining proper records of inventory
Accounting treatment
of any Discrepancy
whether any material discrepancies were noticed on physical verification and if so,
whether the same have been properly dealt with in the books of account
3. Loan to/from
Parties
covered under
register u/s
301
Loan granted to parties
of register u/s 301
Has the company granted any loans (secured/unsecured) to Companies/Firms/Other Parties
covered in the register maintained u/s 301 of the Act?
If so, give the number of parties and amount involved in the transactions
Prudence of ROI/ T&C whether ROI/other T&Cs of loans given are prima facie prejudicial to the interest of the company
Regularity of receipts whether receipt of the principal amount and interest are also regular
Overdue AMT. > 1 Lakh if overdue amount is more than Rs. 1 lakh, whether reasonable steps have been taken by the
company for recovery of the principal and interest
Companies (Auditor's Report) Order, 2003

Loan taken from parties
of register u/s 301
Has the co. taken any loans (secured/unsecured) from Companies/Firms/Other Parties covered in
the register maintained u/s 301 of the Act?
If so, give the number of parties and the amount involved in the transactions
Prudence of ROI/ T&C whether ROI/other T&Cs of loan taken are prima facie prejudicial to the interest of the company
Regularity of payments Whether payment of the principal amount and interest are also regular
4. Internal
Control
Adequate internal
control System
Is there an adequate internal control system
commensurate with the size of the company and the nature of its business,
for the purchase of inventory and fixed assets and for the sale of goods and services
Failure to correct
weaknesses
Whether there is continuing failure to correct major weakness in internal control system
5. Comment on
Register
maintained u/s
301
Maintenance of
register u/s 301
whether the particulars of contracts or arrangements referred to in section 301 of the Act have
been entered in the register required to be maintained under that section
Prudence of
transaction u/s 301
whether transactions made in pursuance of such contracts or arrangements have been made at
prices which are reasonable having regard to the prevailing market prices at the relevant time
6. Co. Accepted
Deposit from
public
Compliance of RBI &
Act
in case the company has accepted deposits from the public, whether following are complied with
o Directives issued by the RBI and
o Provisions of sec. 58A, 58AA or any other relevant provisions of the Act and the rules
framed there under, where applicable
If not, the nature of contraventions should be stated
Compliance of any
order by any Authority
If any order has been passed by CLB/National Company Law Tribunal/RBI/Any Court/Any other
tribunal whether the same has been complied with or not
Companies (Auditor's Report) Order, 2003

7. Internal Audit Whether Specified Co.
Have an Internal Audit
system
whether the following company has an internal audit system commensurate with its size and
nature of its business
o Listed companies
o Companies having a PUC & Reserves > Rs.50 lakhs as at commencement of the F.Y. concerned.
o Companies having an average annual turnover exceeding Rs. 5 crore for a period of three
consecutive F.Y. immediately preceding the financial year concerned
8. Cost records Maintenance of Cost
record, if Prescribed
where maintenance of cost records has been prescribed by the CG u/s 209(1)(d) of the Act
whether such accounts and records have been made and maintained
9. Statutory dues Regularity in depositing
undisputed statutory
dues
Is the co. regular in depositing undisputed statutory dues including PF/Investor Education and
Protection Fund/ESI/I. 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.
Disputed statutory
dues not deposited
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. Performance
of Co. Regd.
for 5 years
Acc. Losses against Net
Worth
& Cash Losses
In case of a company which has been registered for a period not less than five years, whether
o its accumulated losses at the end of the F.Y. are not less than 50 % of its net worth and
o It has incurred cash losses in such F.Y. and in the immediately preceding F.Y.
Companies (Auditor's Report) Order, 2003

11. Default in
repayment of
dues
Default in repayment
to Bank/ Fin. Inst./ Deb.
holder
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. Loan secured
by shares/
Deb./other
adequacy of records in
case of such loan
Whether adequate documents/records are maintained in cases where the company has granted
loans/advances on the basis of security by way of pledge of Shares/Deb./other securities.
If not, the deficiencies to be pointed out.
13. Chit fund
&
NIDHI/ mutual
benefit
fund/societies
Compliance by chit
fund
Whether the provisions of any special statute applicable to chit fund have been duly complied
with?
Compliance by NIDHI/
mutual benefit fund/
societies
In respect of Nidhi/ Mutual benefit fund/societies
o whether the net-owned funds to deposit liability ratio is more than 1:20 as on the date of
balance sheet
o whether the company has complied with the prudential norms on income recognition and
provisioning against sub-standard/doubtful/loss assets
o whether the company has adequate procedures for appraisal of credit proposals/requests,
assessment of credit needs and repayment capacity of the borrowers
o whether the repayment schedule of various loans granted by the nidhi is based on the
repayment capacity of the borrower
14. Co. Dealing in
securities
Records & compliance
in case of dealing in
shares
if the company is dealing or trading in shares, securities, debentures and other investments
o whether proper records have been maintained of the transactions and contracts and
o whether timely entries have been made therein; also
o whether the shares, securities, debentures and other investments have been held by the
Companies (Auditor's Report) Order, 2003

company, in its own name except to the extent of the exemption granted u/s 49 of the Act
15. Guarantee
given to bank
Prudence of T&Cs of
guarantees
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. Term loan Correct use of loan whether term loans were applied for the purpose for which the loans were obtained
17. Short term
raised fund
Correct use of funds 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. Preferential
Allotment to
parties u/s 301
Details and Prudence of
such allotment
whether the company has made any preferential allotment of shares to parties and companies
covered in the Register maintained u/s 301 of the Act and
if so whether the price at which shares have been issued is prejudicial to the interest of company
19. Debenture Security & Charge Whether security or charge has been created in respect of debentures issued
20. money raised
from public
Disclosure end use such
money
whether the management has disclosed on the end use of money raised by public issues and the
same has been verified
21. Fraud Details of fraud Indicate the nature and amt. of any fraud on or by the company, noticed or reported during the
year, if any.

Companies (Auditors Report) Order, 2003 [Sec. 5 Reasons to be stated for unfavourable or qualified answers]
Where, in the auditor's report, the answer to any of the questions referred to in paragraph 4 is unfavourable or qualified, the auditor's report shall
also state the reasons for such unfavourable or qualified answer, as the case may be.
Where the auditor is unable to express any opinion in answer to a particular question, his report shall indicate such fact together with the reasons why
it is not possible for him to give an answer to such question