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CA FINAL
AUDIT AMENDMENT
MAY 22 & NOV 22
by CA RAVI AGARWAL
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TOPIC PAGE NO
AUDIT OF DIVIDENDS 02
AUDIT OF CFS 14
LIABILITIES OF AUDITOR 36
COMPANY AUDIT
Casual Vacancy by Resigna on
SECTION 140(3) Consequences of Non- Compliance
As per sec on 140(2), the auditor who has resigned from the company shall file within a period
of 30 days from the date of resigna on, a statement in the prescribed Form ADT–3 (as per Rule8
of CAAR) with the company and the Registrar, and in case of the companies referred to in
sec on 139(5) i.e. Government company, the auditor shall also file such statement with the
Comptroller and Auditor-General of India, indica ng the reasons and other facts as may be
relevant with regard to his resigna on. In case of failure, the auditor shall be liable to a penalty
which shall not be less than fi y thousand rupees or the remunera on of the auditor,
whichever is less, and in case of con nuing failure, with further penalty of five hundred rupee
for each day a er the first during which such failure con nues, subject to a maximum of
two lakh rupees as per sec on 140(3).
Du es of Auditor:-
(4) (i) Whether the management has represented that, to the best of its knowledge
And belief, other than as disclosed in the notes to the accounts, no funds have
been advanced or loaned or invested (either from borrowed funds or share
Premium or any other sources or kind of funds) by the company to or in any
Other person(s) or en ty(ies), including foreign en es (“Intermediaries”), with
the understanding, whether recorded in wri ng or otherwise, that the
Intermediary shall, whether, directly or indirectly lend or invest in other persons or
en es iden fied in any manner whatsoever by or on behalf of the company
(“Ul mate Beneficiaries”) or provide any guarantee, security or the like onbehalf
of the Ul mate Beneficiaries;
(ii) Whether the management has represented, that, to the best of it’s knowledge
and belief, other than as disclosed in the notes to the accounts, no funds have
been received by the company from any person(s) or en ty(ies), including
foreign en es (“Funding Par es”), with the understanding, whether recorded in
wri ng or otherwise, that the company shall, whether, directly or indirectly,
lend or invest in other persons or en es iden fied in any manner whatsoever by or onbehalf
of the Funding Party (“Ul mate Beneficiaries”) or provide any
guarantee, security or the like on behalf of the Ul mate Beneficiaries; and
(iii) Based on such audit procedures that the auditor has considered reasonable
and appropriate in the circumstances, nothing has come to their no ce that has
caused them to believe that the representa ons under sub-clause (i) and (ii)
contain any material mis-statement.
(5) Whether the dividend declared or paid during the year by the company is in compliance
with sec on 123 of the Companies Act, 2013.
(6) [Whether the company, has used such accoun ng so ware for maintaining its books
of account which has a feature of recording audit trail (edit log) facility and the same has
been operated throughout the year for all transac ons recorded in the so ware and the
audittrail feature has not been tampered with and the audit trail has been preserved by
the company as per the statutory requirements for record reten on.]
Audit Trail means, a step-by-step sequen al record which provides evidence of the
documented history of financial transac ons to its source. An auditor can trace every step
of, the financial data of a par cular transac on right from the general ledger to its source
document with the help of the audit trail.
“The auditor of the company shall, in his report under sec on 143, make a statement as to
whether the remunera on paid by the company to its directors is in accordance with the
provisions of this, sec on, whether remunera on paid to any director is in excess of the limit
laid down under this sec on and give such other details as may be prescribed”.
The aforesaid repor ng requirement for auditors of public companies needs to be covered in
auditor’s report under the Sec on “Report on Other Legal and Regulatory Requirements”.
Accordingly, auditors of public companies are advised to comply with the aforesaid repor ng
requirements in their auditor’s reports.
(1) If any of the provisions of sec ons 139 to 146 (both inclusive) is contravened, the company
shall be punishable with fine which shall not be less than twenty-five thousand rupees but
which may extend to five lakh rupees and every officer of the company who is in default shall
be punishable with fine which shall not be less than ten thousand rupees but which may extend
to one lakh rupees.
(2) If an auditor of a company contravenes any of the provisions of sec on 139, sec on 144 or
sec on 145, the auditor shall be punishable with fine which shall not be less than twenty-five
thousand rupees but which may extend to five lakh rupees or four mes the remunera on of
the auditor, whichever is less.
It may be noted that if an auditor has contravened such provisions knowingly or willfully with
the inten on to deceive the company or its shareholders or creditors or tax authori es, he
shall be punishable with imprisonment for a term which may extend to one year and with fine
which shall not be less than fi y thousand rupees but which may extend to twenty-five lakh
rupees or eight mes the remunera on of the auditor, whichever is less.
(3) Where an auditor has been convicted under sub-sec on (2), he shall be liable to:-
(i) refund the remunera on received by him to the company;
(ii) and pay for damages to the company statutory bodies or authori es or to members or
the creditors of the Company for loss arising out of incorrect or misleading statements
of par culars made in his audit report.
(4) The Central Government shall, by no fica on, specify any statutory body or authority of
an officer for ensuring prompt payment of damages to the company or the persons under
clause (ii) of sub-sec on (3) and such body, authority or officer shall a er payment of
(5) Where, in case of audit of a company being conducted by an audit firm, it is proved that
the partner or partners of the audit firm has or have acted in a fraudulent manner or abe ed
or colluded in an fraud by, or in rela on to or by, the company or its directors or officers, the
liability, whether civil criminal as provided in this Act or in any other law for the me being in
force, for such act shall be the partner or partners concerned of the audit firm and of the firm
jointly and severally. However, in case of criminal liability of an audit firm, in respect of
liability other than fine, the concerned partner or partners, who acted in a fraudulent manner
or abe ed or, as the case may be, colluded in any fraud shall only be liable.
In exercise of the powers conferred by sec on 143(11) of the Companies Act, 2013, the
Central Government, a er consulta on with the Na onal Financial Repor ng Authority
cons tuted under sec on 132 of the Companies Act, 2013, has issued the Companies
(Auditor’s Report) Order, 2020,(CARO, 20) dated 25th February, 2020.
1. Applicability of the Order: The CARO, 2020 is an addi onal repor ng requirement.
The order applies to every company including a foreign company as defined in clause
(42) of sec on 2 of the Companies Act, 2013. However, the Order specifically exempts
the following classes of companies:
(i) a banking company as defined in clause (c) of sec on 5 of the Banking Regula on
Act, 1949 (10 of 1949);
(ii) an insurance company as defined under the Insurance Act,1938 .
(iii) a company licensed to operate under sec on 8 of the Companies Act;
(iv) a One Person Company as defined under clause (62) of sec on 2 of the
Companies Act and a small company as defined under clause (85) of sec on 2 of
the Companies Act; and
(v) a private limited company, not being a subsidiary or holding company of a public
company, having a paid up capital and reserves and surplus not more than rupees
one crore as on the balance sheet date and which does not have total borrowings
exceeding rupees one crore from any bank or financial ins tu on at any point of
me during the financial year and which does not have a total revenue as
disclosed in Scheduled III to the Companies Act, 2013 (including revenue from
discon nuing opera ons) exceeding rupees ten crore during the financial year as
It may be noted that the Order shall not apply to the auditor’s report on consolidated
financial statements except clause (xxi) of paragraph 3.
3. Ma ers to be included in the auditor's report - The auditor's report on the accounts of
a company to which this Order applies shall include a statement on the following ma ers,
namely:-
(i) (a) (A) whether the company is maintaining proper records showing full par culars, including
quan ta ve details and situa on of Property, Plant and Equipment;
(B) whether the company is maintaining proper records showing fullpar culars of intangible
assets;
(b) whether these Property, Plant and Equipment have been physically verified by the
management at reasonable intervals; whether any material discrepancies were no ced on such
verifica on and if so, whether the same have been properly dealt with in the books of account;
(c) whether the tle deeds of all the immovable proper es (other than proper es where the
company is the lessee and the lease agreements areduly executed in favour of the lessee)
disclosed in the financial statements are held in the name of the company, if not, provide the details
thereof.
(d) whether the company has revalued its Property, Plant and Equipment(including Right of Use
assets) or intangible assets or both during the year and, if so, whether the revalua on is based on
the valua on by a Registered Valuer; specify the amount of change, if change is 10% or morein the
aggregate of the net carrying value of each class of Property, Plant and Equipment or intangible assets;
(e) whether any proceedings have been ini ated or are pending against thecompany for holding
any benami property under the Benami Transac ons (Prohibi on) Act, 1988 (45 of 1988) and
rules made thereunder, if so, whether the company has appropriately disclosed the details in its
financial statements;
(ii) (a) whether physical verifica on of inventory has been conducted at reasonable intervals by the
management and whether, in the opinion of the auditor, the coverage and procedure of such
verifica on by the management is appropriate; whether any discrepancies of 10% or more inthe aggregate
for each class of inventory were no ced and if so, whether they have been properly dealt with in the books
of account;
(b) whether during any point of me of the year, the company has been sanc oned working
capital limits in excess of five crore rupees, in aggregate, from banks
or financial ins tu ons on the basis of security of current assets; whether thequarterly returns or
statements filed by the company with such banks or financial ins tu ons are in agreement with
the books of account of the Company, if not, give details;
Companies Act, 2013 have been complied with and the funds raised have been used for the
purposes for which the funds were raised, if not, providedetails in respect of amount involved
and nature of non-compliance;
(xi) (a) whether any fraud by the company or any fraud on the company has beenno ced or
reported during the year, if yes, the nature and the amount
involved is to be indicated;
(b) whether any report under sub-sec on (12) of sec on 143 of the Companies Acthas been
filed by the auditors in Form ADT-4 as prescribed under rule 13 of Companies (Audit and
Auditors) Rules, 2014 with the Central Government;
(c) whether the auditor has considered whistle-blower complaints, if any, receivedduring the
year by the company;
(xii) (a) whether the Nidhi Company has complied with the Net Owned Funds toDeposits in the
ra o of 1:20 to meet out the liability;
(b) whether the Nidhi Company is maintaining ten per cent. unencumbered termdeposits as
specified in the Nidhi Rules, 2014 to meet out the liability;
(c) whether there has been any default in payment of interest on deposits orrepayment thereof
for any period and if so, the details thereof;
(xiii) whether all transac ons with the related par es are in compliance with sec ons177 and
188 of Companies Act where applicable and the details have been
disclosed in the financial statements, etc., as required by the applicableaccoun ng standards;
(xiv) (a) whether the company has an internal audit system commensurate withthe size and
nature of its business;
(b) whether the reports of the Internal Auditors for the period under audit wereconsidered by
the statutory auditor;
(xv) whether the company has entered into any non-cash transac ons with directorsor persons
connected with him and if so, whether the provisions of sec on 192
of Companies Act have been complied with;
(xvi) (a) whether the company is required to be registered under sec on 45-IA ofthe Reserve
Bank of India Act, 1934 (2 of 1934) and if so, whether the
registra on has been obtained;
(b) whether the company has conducted any Non-Banking Financial or HousingFinance
ac vi es without a valid Cer ficate of Registra on (CoR) from the Reserve Bank of India as per
the Reserve Bank of India Act, 1934;
(c) whether the company is a Core Investment Company (CIC) as defined in theregula ons made
by the Reserve Bank of India, if so, whether it con nues to fulfil the criteria of a CIC, and in case
the company is an exempted or unregistered CIC, whether it con nues to fulfil such criteria;
(d) whether the Group has more than one CIC as part of the Group, if yes, indicatethe number
of CICs which are part of the Group;
(xvii)
whether the company has incurred cash losses in the financial year and in the
immediately preceding financial year, if so, state the amount of cash losses;
(xviii) whether there has been any resigna on of the statutory auditors during the year, if so,
whether the auditor has taken into considera on the issues, objec ons or
concerns raised by the outgoing auditors;
(xix) on the basis of the financial ra os, ageing and expected dates of realisa on offinancial
assets and payment of financial liabili es, other informa on
accompanying the financial statements, the auditor’s knowledge of the Board ofDirectors and
management plans, whether the auditor is of the opinion that no material uncertainty exists as
on the date of the audit report that company is capable of mee ng its liabili es exis ng at the
date of balance sheet as and when they fall due within a period of one year from the balance
sheet date;
(xx) (a) whether, in respect of other than ongoing projects, the company hastransferred
unspent amount to a Fund specified in Schedule VII to the Companies Act within a period of six
months of the expiry of the financial year in compliance with second proviso to sub-sec on (5)
of sec on 135 of the said Act;
(b) whether any amount remaining unspent under sub-sec on (5) of sec on 135 ofthe
Companies Act, pursuant to any ongoing project, has been transferred to special account in
compliance with the provision of sub-sec on (6) of sec on 135 of the said Act;
(xxi) whether there have been any qualifica ons or adverse remarks by the respec ve auditors
in the Companies (Auditor's Report) Order (CARO) reports of the
companies included in the consolidated financial statements, if yes, indicate thedetails of the
companies and the paragraph numbers of the CARO report containing the qualifica ons or
adverse remarks.
Resigna on
Above provisions will not apply if the auditor is disqualified due to Sec on 141 of theCompanies
Act, 2013.
2. A director shall not be a member in more than ten commi ees or act as chairperson of more
than five commi ees across all listed en es in which he /she is a director which shall be
determined as follows: (a) the limit of the commi ees on which a director may serve in all public
limited companies, whether listed or not, shall be included and all other companies including
private limited companies, foreign companies, high value debt listed en es
and companies under Sec on 8 of the Companies Act, 2013 shall be excluded; (b) for the purpose
of determina on of limit, chairpersonship and membership of the audit commi ee and the
Stakeholders' Rela onship Commi ee alone shall be considered.
6. The independent directors of the listed en ty shall hold at least one mee ng in a financial
year, without the presence of non-independent directors and members of the management and
all the independent directors shall strive to be present at such mee ng.
Note : A ‘high value debt listed en ty’ shall undertake Directors and Officers insurance (D and O
insurance) for all its independent directors for such sum assured and for such risks as may be
determined by its board of directors.
SUBSIDIARY OF LISTED ENTITY [REGULATIONS 16(C), 24 AND 46 AND PART C OF
SCHEDULE V]
5. A listed en ty shall not dispose of shares in its material subsidiary resul ng in reduc on of its
shareholding (either on its own or together with other subsidiaries) to less than or equal to 50%
or cease the exercise of control over the subsidiary without passing a special resolu on in its
General Mee ng except in cases where such divestment is made under a scheme of arrangement
duly approved by a Court/Tribunal, or under a resolu on plan duly approved under sec on 31 of
the Insolvency Code and such an event has been disclosed to the recognized stock exchanges
within one day of the resolu on plan being approved.
Every listed en ty and its material unlisted subsidiaries incorporated in India shall undertake
secretarial audit and shall annex a secretarial audit report given by a company secretary in prac ce,
in such form as specified, with the annual report of the listed en ty.
Every listed en ty shall submit a secretarial compliance report in such form as specified,to stock
exchanges, within sixty days from end of each financial year.
RISK MANAGEMENT COMMITTEE [REGULATION 21]
(a) The Board of Directors shall cons tute a Risk Management Commi ee.
(b) The Risk Management Commi ee shall have minimum three members with majority ofthem
being members of the board of directors, including at least one independent director and in case
of a listed en ty having outstanding SR equity shares, at least two thirds of the Risk Management
Commi ee shall comprise independent directors.
(c) The Chairperson of the Risk Management Commi ee shall be a member of the Board of
Directors and senior execu ves of the listed en ty may be members of the commi ee.
(d) The risk management commi ee shall meet at least twice in a year.
(e) The quorum for a mee ng of the Risk Management Commi ee shall be either two members
or one third of the members of the commi ee, whichever is higher, including at least one
member of the board of directors in a endance.
(f) The mee ngs of the risk management commi ee shall be conducted in such a mannerthat
on a con nuous basis not more than one hundred and eighty days shall elapse between any
two consecu ve mee ngs.
(g) The Board of Directors shall define the role and responsibility of the Risk Management
Commi ee and may delegate monitoring and reviewing of the risk management plan to the
commi ee and such other func ons as it may deem fit and such func on shall specifically
cover cyber security.
(h) It may be noted that the role and responsibili es of the Risk Management Commi ee shall
mandatorily include the performance of func ons specified in Part D of Schedule II.
(i) The provisions of this regula on shall be applicable to top 1000 listed en es, determinedon
the basis of market capitalisa on, as at the end of the immediate previous financial year.
(j) The Risk Management Commi ee shall have powers to seek informa on from any employee,
obtain outside legal or other professional advice and secure a endance of outsiders with
relevant exper se, if it considers necessary.
These procedures shall be periodically reviewed to ensure that execu ve management controls
risk through means of a properly defined framework. A majority of this Commi ee will be the
members of the Board of Directors. Senior execu ves of the company may be alsobe members
of the Commi ee, but the Chairperson of the Commi ee shall be a member of the Board of
Directors.
AUDIT OF CFS
RESPONSIBILITY OF AUDITORS OF THE CFS
Report on the ma ers given in the clauses (a) to (i) of sec on 143(3) of the Companies Act, 2013
for other ma ers under sec on 143(3)(j) read with rule 11 of the Companies (Audit andAuditors)
Rules, 2014, to comment on the ma ers specified in sub-rule (a),(b), (c), (d), (e), (f) and (g)to the
extent applicable.
AUDIT OF BANKS
FORM AND CONTENT OF FINANCIAL STATEMENTS(Addi on)
Every banking company is required to prepare a Balance Sheet and a Profit and Loss Account inthe
forms set out in the Third Schedule to the Act or as near thereto as the circumstances admit.Form
A of the Third Schedule to the Banking Regula on Act, 1949, contains the form of Balance Sheet
and Form B contains the form of Profit and Loss Account.
Every banking company needs to comply with the disclosure requirements under the various
Accoun ng Standards, as specified under sec on 133 of the Companies Act, 2013, read with Rule7
of the Companies (Accounts) Rules 2014, in so far as they apply to banking companies orthe
Accoun ng Standards issued by the ICAI. It may be noted that implementa on of Indian
Accoun ng Standards (Ind AS) has been deferred by RBI for all scheduled commercial banks
presently.
It is per nent to state that prepara on of balance sheet of a bank usually involves prepara on
of standalone financial statements and consolidated financial statements. Prepara on of
Standalone financial statements involve consolida on of branch accounts and incorpora on of
various ver cals/departments of bank in case of a na onalized bank/public sector bank. The
detailed procedures in this regard may vary from bank to bank. In case of private banks, the
processes of accoun ng are centralized and there is noconcept of mandatory branch audit in
accordance with RBI guidelines.
Public sector banks and private banks are listed on recognized stock exchange and are required
to comply with SEBI regula ons including LODR.
• Accoun ng manual and cri cal accoun ng entries, their processes and involvement of IT
Systems.
• Controls over key aspects, use of various account heads, expense booking, overdue
Iden fica on etc.
• Controls on recording of various e-banking and internet banking products and channels
Risk-based Internal audit is conducted based upon the risk assessment of business andcontrol
risks of branches. The risk assessment process includes: -
• Assessment of effec veness of control systems for monitoring inherent risks of business
ac vi es of branch (Control risk)
• Making an assessment of level and direc on of various risk areas and assess level and
direc on of overall business risk and control risk
• Drawing up of risk matrix taking into account factors viz. Risk of branch.
VERIFICATION OF ASSETS
CASH, BANK BALANCES AND MONEY AT CALL AND SHORT NOTICE - The Third
Schedule to the Banking Regula on Act, 1949, requires disclosures to be made in the balance
sheet regarding cash, balances with Reserve Bank of India, balances with otherbanks and
money at call and short no ce.
Audit approach: The auditor’s basic objec ve in verifica on of these items is their existence and
completeness as on date of balance sheet and audit procedures have to be tailored to meet
these. Remember that cash would be appearing in balance sheet of almost all branches. However,
in most of the branches of a bank, there will be no bank account requiring repor ng except in
branches with treasury opera ons. Similarly, ac vity pertaining to money at call and short no ce
is handled by treasury department of the bank at head office level.
Banks have a robust system of internal controls pertaining to cash like joint custody of two
responsible officers, checking of cash at periodic intervals etc due to higher risk of
misappropria on. Similarly, the balance with other banks (in case of applicable
branches) are reconciled periodically. The auditor has to be sa sfied about effec ve opera on and
implementa on of internal controls in this area.
CASH :-
• Carry out the physical verifica on of cash (including foreign currency, if any, cash at ATM and
cash at cash deposit machines) as close to the balance sheet date as possible.
• The cash balance as physically verified should be agreed with the balance shown in the cash
register/balance in CBS.
Balance with Reserve Bank of India:-
• Verify the ledger balances in each account with reference to the bank confirma on cer ficates
and reconcilia on statements as at the year-end.
• Review the reconcilia on statements, paying special a en on to the following items appearing
in the reconcilia on statements:
o Cash transac ons remaining unresponded;
o Revenue items requiring adjustments/write-offs; and
o Other credit and debit entries originated in the statement provided by RBI remaining
responded for More than 15 days.
Balance with Other Banks (Other than Reserve Bank of India):-
Apart from the procedures described above in examining the balances with Reserve Bank of
India, while reviewing the reconcilia on statements, the auditor should pay par cular a en on to
the following.
• Examine that no debit for charges or credit for interest is outstanding and all the items which
ought to have been taken to revenue for the year have been so taken.
• Examine that no cheque sent or received in clearing is outstanding.
• Examine that all bills or outsta on cheques sent for collec on and outstanding as on theclosing
date have been credited subsequently.
• Examine large transac ons in inter-bank accounts to ensure that no transac ons have been
put through for window-dressing par cularly towards the close of year.
• Examine quick/early mortality accounts. Any advance slippage to NPA within 12 months ofits
sanc on is called as quick/early mortality case.
• Verify completeness and accuracy of interest being charged.
• Carry out appropriate analy cal procedures.
Recoverability of Advances
Review auditor’s reports in case of borrowers having credit facili es from the bankingsystem
beyond a cut-off limit fixed by board of directors of bank.
Classifica on and Provision
• Verify whether bank has a system of ongoing iden fica on and classifica on of advances
through CBS without manual interven on and its accuracy in crystallising date of NPA.
• Examine whether the classifica on made by the branch is appropriate. Par cularly, examine
the classifica on of advances where there are threats to recovery.
• Examine whether the secured and the unsecured por ons of advances have beensegregated
correctly and provisions have been calculated properly.
• Review and compare the date of NPA of loan accounts men oned in current year statements
with that of previous year.Reasons for any change should be ascertained.
Restructured Advances
Restructuring is an act in which a lender, for economic or legal reasons rela ng to borrower’s
financial difficulty, grants concessions to the borrower. It may involve modifica on of terms of
advances including altera on of amount of instalments/altera on of repayment
period/rate of interest/sanc on of addi onal credit facili es etc. to help in curing of default. RBI
has given revised guidelines for treatment of restructured accounts by its circular. The auditor
should verify compliance with the requirements of the circular issued in this regard. Banks may
restructure the accounts classified under standard, substandard or doub ul categories. Banks
cannot restructure accounts with retrospec ve effect. Once the bank receives an
applica on/proposal in respect of an account for restructuring, it implies
that the account is intrinsically weak. Accordingly, during the me the account remains pending
for restructuring, the auditors need to take a view whether provision n eeds to be made in respect
of such accounts, pending approval for restructuring.
On restructuring, the account will be downgraded from Standard to substandard. NPAs will
remain in the same category.
Upgrada on of Account
Examine all the accounts upgraded from NPA to standard category during the year, to ensure that
the upgrading of each account is strictly in terms of RBI guidelines. There can be a possibility of
incorrect upgrada on of account on the basis of par al recoveries made in theaccount and
overdue por on might not have wiped out completely. There can also be a possibility of
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Deposits designated in foreign currencies e.g. Foreign currency non-resident deposits(FCNR) are
Besides, there are some accounts like NRE [Non-Resident (External)Rupee account scheme] and
NRO [Non-Resident Ordinary Rupee account scheme]. NRE accounts may be opened by Non-
Resident Indians and persons of Indian origin. NRO accounts may be opened by all non- residents.
These accounts may be maintained in form of savings, current, recurring or fixed deposit and are
denominated in Indian Rupees.
Deposits would be appearing in balance sheet of most of the branches. Hence, these are of
concern to auditors at branch and central/head office level.
Audit Procedures:
The auditor may verify various types of deposits in the following manner:
Verfica on Current and saving accounts
• Verify on a sample basis current account and saving accounts opened during the year for
adherence to KYC norms. Verify that saving accounts are opened in name of individuals, HUF,
some approved ins tu ons like trusts, educa onal ins tutes etc. Remember that saving
accounts are not opened for business or professional concern. The business transac ons are
carried in current accounts which can be opened for all kind of customers like companies,
individuals, partnership firms etc.
• Verify the balances in individual accounts on a sample basis.
• Check the calcula ons of interest on a test check basis. Remember that no interest is paid
generally on current accounts by banks.
• Examine whether the procedure for obtaining balance confirma on periodically has been
followed consistently. Examine, on a sampling basis, the confirma ons received.
• Ensure that debit balances in current accounts are not ne ed out on the liabili es side butare
appropriately included under the head ‘advances’.
• Inopera ve accounts (both current and saving) are a high-risk area of frauds in banks. As per
RBI guidelines, a savings/ current account should be treated as inopera ve/dormant if there
are no transac ons in the account for over a period of two years. Verify on a sample basis some
of inopera ve accounts revived/closed during the year. Ensure that inopera ve accounts are
revived only with proper authority. In this regard, cases where there is significant reduc on in
balances of such accounts as compared to previous year, exam ine authorisa on for
withdrawals.
Term deposits
• Examine whether the deposit receipts and cash cer ficates are issued serially and all of themare
accounted for in the registers.
• Verify in case of bulk deposits (` 2 crore and above for scheduled commercial banks presently),
correct rate of interest has been offered.
• In case of closure of term deposit, test check whether required foreclosure penalty has been
deducted from applicable rate of interest payable.
Others
• In case of NRE and NRO accounts, verify on a sample basis credits and debits as per RBI
guidelines. Also check repatriablity. NRE accounts are repatriable whereas NRO accounts are
not repatriable except for all current income subject to certain condi ons.
General
Verify that deposits of a bank are not inflated for purpose of balance sheet presenta on. For
example, some customers might be given overdra s near date of balance sheet and the
resultant overdrawn amounts may be placed as deposits with banks and further advances may
be given on strength and security of these deposits. It would lead to inflated deposits aswell as
advances. The transac ons may be reversed a er close of the year. In such cases which
indicate the possibility of window-dressing, the auditor should consider making a suitable
qualifica on in main audit report besides other applicable repor ng.
• Examine that interest accrued but not due on deposits is not included under the relevant
deposits but is shown under the head ‘other liabili es and provisions’.
• Ensure that framework rela ng to ‘Know Your Customer’ and An - Money Launderingmeasures
is formulated and put in place by the bank.
CONTINGENT LIABILITIES
Con ngent Liabili es
- Claims against the bank not acknowledged as debts
- Liability for partly paid investments
- Liability on account of outstanding forward exchange contracts & Deriva veContracts
- Guarantees given on behalf of cons tuents (within India; outside India)
- Acceptances, endorsements and other obliga ons
- Other items for which the bank is con ngently liable
(ii) Whether the management has represented, that, to the best of it’s knowledge and belief,
other than as disclosed in the notes to the accounts, no funds have been received by the
company from any person(s) or en ty(ies), including
foreign en es (“Funding Par es”), with the understanding, whether recordedin wri ng or
otherwise, that the company shall, whether, directly or indirectly, lend or invest in other persons
or en es iden fied in any manner whatsoeverby or on behalf of the Funding Party (“Ul mate
Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ul mate
Beneficiaries; and
(iii) Based on such audit procedures that the auditor has considered reasonableand appropriate in
the circumstances, nothing has come to their no ce that has caused them to believe that the
representa ons under sub-clause (i) and (ii) contain any material mis-statement.
(5) Whether the dividend declared or paid during the year by the company is incompliance with
sec on 123 of the Companies Act, 2013.
(6) [Whether the company, in respect of financial years commencing on or a er the 1st April,
2022,] has used such accoun ng so ware for maintaining its books of account which has a
feature of recording audit trail (edit log) facility and the same has been operated throughout the
year for all transac ons recorded in the so ware and the audit trail feature has not been
tampered with and the audit trail has been preserved by the company as per the statutory
requirements for record reten on.]
Concurrent Audit
Scope of Concurrent Audit
The detailed scope of the concurrent audit should be clearly and uniformly determined for the
Bank as a whole by the Bank’s Central Inspec on and Audit Department in consulta on with the
Bank’s Audit Commi ee of the Board of Directors (ACB). In determining the scope, importance
should be given to checking high-risk transac ons having large financial implica ons as opposed
to transac ons involving lesser amounts. The detailed scope ofthe concurrent audit may be
determined and approved by the ACB.
Further, the guidelines issued by the RBI cover all the key areas of ac vi es of the branchwhich is
under concurrent audit. Most banks have prepared an Audit Manual for this purpose. Broadly
stated, the following areas are covered by these guidelines:
Scope of Concurrent Audit in BanksCash
Deposits Advances Investments Foreign Exchange House Keeping Other Items
Coverage of Business/Branches
The scope of work to be entrusted to concurrent auditors, coverage of business/branches, etc.
is le to the discre on of the head of internal audit of banks with the due prior approvalof the
Audit Commi ee of the Board of Directors (ACB).
Banks may, however, ensure that risk sensi ve areas iden fied by them as per their specific
business models are covered under concurrent audit. The detailed scope of the concurrent
audit may be determined and approved by the ACB.
The broad areas of coverage under concurrent audit shall be based on the iden fied risk ofthe
unit and must include random transac on tes ng of sufficiently large sample of such
transac ons wherever required.
Repor ng Systems
• There should be proper repor ng of the findings of the concurrent auditors. For thispurpose,
each bank should prepare a structured format. The major deficiencies/ aberra ons no ced
during audit should be highlighted in a special note and given
immediately to the bank’s branch/controlling offices. A quarterly review containing key features
brought out during the concurrent audits should be placed before the ACB.
• There should be zone-wise repor ng of the findings of the concurrent audit to ACB andan
annual appraisal/report of the audit system should be placed before the ACB.
• Before submission of the report the auditor should discuss the important issues on which
he/she wishes to report with the branch manager and concerned officers. This willenable the
auditor to take into considera on the opposite view point and clarify any doubts.
• Minor irregulari es pointed out by the concurrent auditors are to be rec fied in a mely
manner. Serious irregulari es should be reported to the controlling offices/ Head Offices for
immediate ac on.
• Whenever fraudulent transac ons are detected, they should immediately be reported to
Inspec on & Audit Department (Head Office) as also the Chief Vigilance Officer as well
as Branch Managers concerned (unless the branch manager is involved).
• Follow-up ac on on the concurrent audit reports should be given high priority by the
controlling office/Inspec on and Audit Department and rec fica on of the features donewithout
any loss of me.
Role of Auditor: The auditor should, inter alia, do the following for verifica on of commission:
• Ensure that commission/brokerage is not paid in excess of the limits specified by IRDAI
• Ensure that commission/brokerage is paid as per rates with the agent and rates filed with
IRDAI
• Ensure that commission/brokerage is paid to the agent/broker who has solicited the
business
• Ensure that the agent/broker is not blacklisted by IRDAI and is not terminated for fraudetc.
• Vouch disbursement entries with reference to the disbursement vouchers with copies of
commission bills and commission statements.
• Check whether the vouchers are authorised by the officers-in–charge as per rules in force
and income tax is deducted at source, as applicable.
• Scru nise agents’ ledger and the balances, examine accounts having debit balances, if
any,and obtain informa on on the same. Necessary rec fica on of accounts and other
remedial ac ons have to be considered.
• Check whether commission outgo for the period under audit been duly accounted.
I.(a) Whether during the year the company has made investments in, provided anyguarantee or
security or granted any loans or advances in the nature of loans, secured or unsecured, to
companies, firms, Limited Liability Partnerships or any other par es, If so,
(b) whether the investments made, guarantees provided, security given and theterms and
condi ons of the grant of all loans and advances in the nature of loans and guarantees
provided are not prejudicial to the company’s interest;
(c) in respect of loans and advances in the nature of loans, whether the scheduleof repayment
of principal and payment of interest has been s pulated and whether the repayments or
receipts are regular;
(d) if the amount is overdue, state the total amount overdue for more than ninety days, and
whether reasonable steps have been taken by the company for recovery of the principal and
interest;
(f) whether the company has granted any loans or advances in the nature of loanseither
repayable on demand or without specifying any terms or period of repayment, if so, specify
the aggregate amount, percentage thereof to the total loans granted, aggregate amount of
loans granted to Promoters, related par es as defined in clause (76) of sec on 2 of the
Companies Act, 2013; [Paragraph 3(iii)]
(II) (a) Whether the company is required to be registered under sec on 45-IA of theReserve Bank
of India Act, 1934 and if so, whether the registra on has been obtained.
(b) Whether the company has conducted any Non-Banking Financial or Housing Finance ac vi es
without a valid Cer ficate of Registra on (CoR) from the Reserve Bank of India as per the Reserve
Bank of India Act, 1934;
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Clause 18
Par culars of deprecia on allowable as per the Income-tax Act, 1961 inrespect of each asset or
block of assets, as the case may be, in the following form:-
(a) Descrip on of asset/block of assets.
(b) Rate of deprecia on.
(c) Actual cost or wri en down value, as the case may be.
(ca) Adjustment made to the wri en down value under sec on 115BAC/115BAD (forassessment
year 2021-22 only).
(cb) Adjustment made to wri en down value of Intangible asset due to excluding value of goodwill
of a business or profession.
(cc) Adjusted wri en down value.
(d) Addi ons/deduc ons during the year with dates; in the case of any addi on ofan asset, date
put to use; including adjustments on account of –
(i) Central Value Added Tax credits claimed and allowed under the Central Excise Rules, 1944, in
respect of assets acquired on or a er 1st March,1994,
(ii) Change in rate of exchange of currency, and
(iii) Subsidy or grant or reimbursement, by whatever name called.
(e) Deprecia on allowable.
(f) Wri en down value at the end of the year.
- Verify the segrega on of the assets acquired during the year between the assetsused for 180
days or more and the assets used for less than 180 days.
- In case of an asset newly coming into existence during the previous year, the auditor shall check
some samples of vouchers reflec ng payment made by the assessee to check the actual cost of
the asset. In case any amount is capitalised and added to the purchase price, the auditor shall
check whether the amount eligible for capitalisa on has only been capitalised.
- Basis of determining cost of intangible assets should be examined carefully.
- For verifying CENVAT credit, the auditor shall go through the excise records tofind out CENVAT
credit availed of by the assessee during the previous year.
- In case an asset is purchased in foreign currency on deferred payment basis, theauditor shall
verify the increment/decrement in liability thereof on the basis of change in rate of exchange of
currency. The change in rate of exchange can be verified from the RBI bulle n. The auditor shall take note
of provision of sec on 43A in terms of which only such liability due to fluctua on in foreign exchange,
which is taken into account at the me of making the payment, irrespec ve of themethod of accoun ng
adopted by the assessee can only be added to the actual cost of the asset.
- In case of subsidy the auditor can verify the existence thereof by going through the le er of
appropriate authority gran ng the subsidy and the receipt thereof canbe verified from the bank
records on test check basis.
(iv) [Clause 18(ca, cb & cc)]: Check whether the assessee company has opted for special taxa on
under sec on 115BAC/115BAD during the AY 2021-22? Adjustment made to wri en down value
of Intangible asset due to excluding value of goodwill of a business orprofession If yes, calculate
the adjusted WDV and report.
(v) Sale or Purchase of Asset During the Year [Clause 18(d)]
- The auditor shall review the fixed assets register and check the dates of addi ons/deduc ons of
the assets on a sample basis.
- Obtain a list of assets sold/demolished/discarded during the year and ensure that WDV thereof
is reduced from the WDV of the block of assets.
- Obtain copies of the documents rela ng to acquisi on/sale of fixed assets.
(vi) Deprecia on Allowable [Clause 18(e)]
- The auditor shall check whether the deprecia on is calculated by applying the correct rate of
deprecia on on the wri en down value at year end applicable incase of the asset concerned.
- The wri en down value of the block at the year end is calculated correctly by taking the relevant
figure at the beginning of year and adjusted in respect of theaddi ons/deduc ons during the
year.
- The auditor shall check whether any asset has been put to use for less than 180days because in
respect of such an asset only 50 per cent of the amount of deprecia on is allowable.
(vii) Wri en Down Value at the Year End [Clause 18(f)]
- The auditor shall check the WDV at the beginning of the year in respect of each ofthe blocks of
assets.
- The auditor shall check that current amount of deprecia on is calculated on the WDV at the
beginning of the year as adjusted by the addi ons/dele ons during the
Note: *If the assessed deprecia on is less and no appeal pending then take assessed.Note: ^To be
filled in for assessment year 2021-2022 only.’’:
This clause requires informa on in respect of brought forwarded losses and unabsorbed
deprecia on, which can be verified from the previous return and the assessment orders. The
above brought forwarded losses/allowance, not allowed under sec on 115BAA/115BAC/115BAD,
are to be listed out assessment year wise and sec on wise as perthe return (and where assessed,
as per the assessment order) are to be reported under this clause. A repor ng format is
prescribed for the sake of standardiza on.
Note: Amount as adjusted by withdrawal of addi onal deprecia on on account of op ng for
taxa on under sec on 115BAD* is required to be filled in for assessment year 2021-22 only.
LIABILITIES OF AUDITOR
LIABILITIES UNDER INCOME TAX ACT 1961
Under Sec on 271J of the Income Tax Act: As per sec on 271J of the Income Tax Act, if
an accountant or a merchant banker or a registered valuer, furnishes incorrect informa on in a
report or cer ficate under any provisions of the Act or the rules made thereunder, the
Assessing Officer or the Commissioner (Appeals) may direct him to pay a sum of ten thousand
rupees for each such report or cer ficate by way of penalty. [ sec on 271J].
OPERATIONAL AUDIT
Review of Systems and Procedure
The purpose of systems and procedures is to help management in the planning and
accomplishment of organisa onal goals, in communica ng their requirements, and in assis ng
the personnel in carrying out the requirements. The review of systems and procedures is to
improve the methods, to get away from the old ways and tradi onal rou nes and to reduce the
cost in comple ng and processing the paperwork - elimina ng waste, duplica on and
inefficiencies. In reviewing any system or procedure, the management auditor must concern
himself with its purpose as well as its design and then he must decide on its merits as the best
serving the interests of the enterprise.
In the study of the systems and procedural func ons, the auditor should ask himself:
1. Is the func on properly located in the organisa on?
2. Do the staff personnel have the necessary training and experience to perform the work?
3. Has a definite programme been established and has been taken for its a en ve
accomplishment?
4. Is produc vity sa sfactory?
The evalua on of a system or a procedure actually includes three separate considera ons.
First, is the system or procedure mee ng all of the current requirements? Second, is it
opera ng effec vely? And third, what is the degree of effec veness? To determine whetherthe
PEER Review
Scope Of Peer Review
As per the Statement, Technical, Professional and Ethical Standards – means
(i) Accoun ng Standards issued by ICAI that are applicable for en es other than companiesunder
the Companies Act, 2013;
(ii) Accoun ng Standards prescribed under sec on 133 of the Companies Act; 2013 by the
Central Government based on the recommenda on of ICAI and in consulta on with and a er
examina on of the recommenda ons made by the Na onal Financial Repor ng Authority
(NFRA);
(iii) Indian Accoun ng Standards prescribed under sec on 133 of the Companies Act 2013 by
the Central Government based on the recommenda on of ICAI and in consulta on with NFRA
and no fied as Companies (Indian Accoun ng Standards) Rules, 2015, as amended from me to
me;
Applicability
Prac ce Units subject to Review
1. Every Prac ce Unit including its branches, based on their category as determined below will
be subject to Peer Review in accordance with this Statement.
Level I: A Prac ce Unit which has undertaken any of the under-men oned assurance services in
the period under review shall be treated a Level I en ty:
(ii) Statutory Audit of Central or State Public Sector Undertakings and Central Coopera ve
Socie es having turnover exceeding Rs.250 crores or net worth exceeding Rs.5 crores.
(iv) Statutory Audit of enterprises whose equity or debt securi es are listed in India or abroad as
defined under SEBI (Lis ng Obliga ons and Disclosure Requirements) Regula ons, 2015.
(v) Statutory audit of any body corporate including trusts which are covered under public
interest en es.
(vi) Statutory Audit of en es which have raised funds from public or banks or financial
ins tu ons or by way of dona ons/contribu ons over Rs.50 Crore rupees.
(vii) Statutory Audit of en es having net worth of more than Rs.100 crore or havingturnover of
Rs.250 crore or above.
(viii) Statutory Audit of en es which have been funded by Central and / or State
Government(s) schemes of over Rs.50 Crore.
(ix) Statutory Audit of Non – Banking Financial Companies (NBFCs) having deposits of Rs.100
crore, or above.
(x) Statutory Audit of En es preparing the financial statements as per Ind AS.
Level II: A Prac ce Unit which has undertaken any of the under-men oned assurance services in
the period under review shall be treated as Level II en ty:
(i) Statutory / Internal / Concurrent / Systems / Tax audit and / or Departmental Review of
Branches / Offices of -
(ii) Statutory Audit of Non – Banking Financial Companies (NBFCs) not covered in L-1 above,
(iii) UDIN’s generated by the Prac ce Units more than the specified number determined bythe
Board from me to me.
(iv) Any other Prac ce Unit providing assurance or other services not covered under (i) (ii),and
(iii) hereinabove.
The Board, based on specific informa on received from Secretary, ICAI or Disciplinary
directorate or any other Regulator , which in the opinion of the Board requires a special review
of the Prac ce Unit, may conduct a special review of the Prac ce Unit for a period tobe
determined in each case.
(b) In case a member has moved from industry to prac ce and is currently in prac ce heshould
have at least 10 years of audit experience in industry and at least 3 years audit experience in
prac ce.
(c) Should have undergone the requisite training and cleared the requisite test for Peer Review as
prescribed by the Board.
(b) a Declara on of Confiden ality as per Annexure A to this Statement while giving consentfor
appointment as a Peer Reviewer.
3. A member shall not be eligible for being appointed as a Reviewer of a Prac ce Unit, if -
(ii) he has been found guilty of professional or other misconduct by the Council or the Board of
Discipline or the Disciplinary Commi ee at any me
(iii) he has been convicted by a competent court whether within or outside India, of an offence
involving moral turpitude and punishable with imprisonment,
(iv) he or his partners have any obliga on or conflict of interest in the Prac ce Unit.
(v) He has undergone training/ar cleship under any of the partner of Prac ce Unit.
4. A Reviewer shall not accept any professional assignment from the Prac ce Unit for a periodof
next two years from the date of appointment. Further, he should not have accepted any
professional assignment from the Prac ce Unit for a period of two years before the date of
appointment as reviewer of that Prac ce Unit.
(ii) The Reviewer shall complete the Review within the prescribed me frame and submit the
report to the Board.
(iii) The Reviewer shall document all his working papers and submit a copy of his working papers
to the Board, if called for by the Board within 18 months of submission of Review Report.
(ii) A detailed declara on cum ques onnaire in the form approved by the Board shall be
submi ed by the Prac ce Unit within seven days from the date the Prac ce Unit (PU) has been
no fied by the Board so that Reviewer to be allo ed from the Panel of three reviewers can be
iden fied by the Board as per declara on cum ques onnaire submi ed by Prac ce Unit.
Planning
(ii) Informa on to be furnished by Peer Review Board: The Peer Review Board shall call for
relevant informa on from the UDIN Directorate and may share the concerned details with Peer
Reviewer which shall form part of Peer Review.
(a) The Reviewer shall within 7 days of receiving the informa on from the Prac ce Unit selecta
sample of the assurance services that he would like to Review and in mate the same to the
Prac ce Unit and the Peer Review Board.
(b) The Reviewer may also seek further / addi onal clarifica on from the Prac ce Unit on the
informa on furnished / not furnished.
(c) The Reviewer shall plan for an on–site Review visit or ini al mee ng inconsulta on with the
Prac ce Unit. The Reviewer shall give the Prac ce Unit at least five days’ me to keep ready
the necessary records of the selected assurance services.
(d) The Reviewer and Prac ce Unit shall mutually co-operate and ensure that the en re Review
EXECUTION:-
(i) Peer Review Visits: Peer Review visits will be conducted at the Prac ce Unit's head office or
/and branch(es) or any other loca ons. This on-site Review should not extend beyond seven
working days based on the size of the Prac ce Unit.
REPORTING:-
(i) Discussion/Communica on of Findings
(a) A er comple ng the on-site review, the Reviewer, before making his Report to the Board,
shall communicate his findings to the Prac ce Unit if in his opinion, the systems and
procedures are deficient or non-compliant with reference to any ma er that has been no ced
by him or if there are other ma ers where he wants to seek clarifica on.
(b) The Prac ce Unit shall, within 5 days of the date of receipt of the findings, make its
submissions or representa ons, in wri ng to the Reviewer.
(b) Inform the Prac ce Unit that a Peer Review cer ficate cannot be issued along with the
reasons therefor as well inform the Prac ce Unit about the due date for conduc ng a follow on
review.
PROFESSIONAL ETHICS
Non-Compliance with Laws and Regula ons (NOCLAR)
In the course of providing a professional service to a client or carrying out professional ac vi es for an
employer, a Professional accountant may come across an instance of non-compliance with laws and
regula ons (NOCLAR) or suspected NOCLAR commi ed or about to be commi ed by the client or the
employer, or by those charged with governance, management or employees ofthe client or employer.
Non-compliance with laws and regula ons (“non-compliance”) comprises of acts of omission or
commission, inten onal or uninten onal, which are contraryto the prevailing laws or regula ons
commi ed by:
anisa on.
loying
organisation.
1. SA 250 is applicable only on Audit, and not on other Assurance engagements. However,
NOCLAR is applicable on professional accountants in service, and in prac ce. Among those in
prac ce, it applies to Auditors, as well as professional services other than Audit. However,
degree of responsibility of the professional accountant varies as per the role.
2. SA 250 talks of auditor’s responsibili es for laws having direct effect on the determina on of
material amounts and disclosures in the financial statements (such as tax and labour laws);and
other laws and regula ons that do not have a direct effect on the determina on of the
amounts and disclosures in the financial statements, but compliance with which may be
fundamental to the opera ng aspects of the business. NOCLAR, while being alike to SA 250 ll
this point, is further ahead of it in that it takes into account non-compliance that causes
substan al harm resul ng in serious consequences in financial or non-financial terms.
3. SA 250 does not define stakeholders. NOCLAR is related to affect of non -compliance on
investors, creditors, employees as also the general public.
4. As per NOCLAR, in excep onal circumstances, the professional accountant might become
aware of an imminent breach of a law or regula on that would cause substan al harm to
investors,creditors, employees or the general public. Having first considered whether it would
be appropriate to discuss the ma er with management or those charged with governance of
It may also be noted that in a situa on where disclosure ought to be made by the Auditor, the
“Appropriate authority” for the purpose of disclosure will depend on the nature of thema er.
Forexample, the appropriate authority would be SEBI in the case of fraudulent financial
repor ng. Appropriate alignment has been made in the Code with regard to requirements of
Confiden ality, as required under Chartered Accountants Act, 1949.
For Members in prac ce – Clause (1) of Part -I of First schedule to The Chartered AccountantsAct,
1949 : A chartered accountant in prac ce shall be deemed to be guilty of professional misconduct,
if he discloses informa on acquired in the course of his professional engagement to any person
other than his client so engaging him, without the consent of his client or otherwise than as
required by any law for the me being in force;
For Members in service - Clause (2) of Part-II to the Second Schedule of the Chartered
Accountants Act, 1949 : A member of the Ins tute, whether in prac ce or not, shall be deemedto
be guilty of professional misconduct, if he being an employee of any company, firm or person,
discloses confiden al informa on acquired in the course of his employment except as and when
required by any law for the me being in force or except as permi ed by the employer;
Documenta on Requirements in NOCLAR :
Revised Code over and above require the professional accountant to follow the addi onal
documents requirements as under:
• How management / those charged with governance have responded to the ma er.
• The course of ac on the accountant considered, the judgments made and the decisions that
were taken, having regard to the reasonable and informed third party test.
• How the accountant is sa sfied that the responsibility of public interest has been fulfilled. This
documenta on is in addi on to complying with the documenta on requirements under
applicable audi ng standards. SAs, for example, require a professional accountant performing an
audit of financial statements to:
• Prepare documenta on sufficient to enable an understanding of significant ma ers arising
The Ins tute of Chartered Accountants of India may issue a reasoned direc ve for removal or
withdrawal of the whole write-up or of any part(s) thereof.
The Chartered Accountants and Chartered Accountants Firms may have entries made in a
Telephone Directory (in printed and electronic form) either by making a special request or by
means of an addi onal payment. The Council has also considered the ques on of permi ng
entries in respect of Chartered Accountants and their firms under specified groups in
telephone/trade directories subject to the following addi onal restric ons :-
(i) The entry should not appear in any other sec on/category except that of ‘Chartered
Accountants’.
(ii) The member/firm should belong to the town/city in respect of which the directory is being
published.
(iii) The order of the entries should not be in any manner other than alphabe cal.
(iv) The entry should not be made in a differen al or prominent manner giving the impressionof
publicity/adver sement.
(v) The entries should not be restricted and should be open to all the Chartered
Accountants/firms of Chartered Accountants in the par cular city/town in respect whereof the
directory is published.
(vi) The members can also include their names in trade/ social directories.
Exemp ons
1. A special exemp on has been made as regards publica on of the name and address of
a member or that of his firm, with the descrip on Chartered Accountant(s), in an adver sement
appearing in the press in the following circumstances, provided that the adver sement is not
displayed more prominently than is usual for such adver sements or the name of the member or
2 . When adver sing for staff, it is desirable that members should avoid the expression such as “a
well-known firm”, since this would savour of adver sement. Similar considera ons applyto
adver sements for ar cled assistants. The adver sements should not contain any promo onal
element nor should there be any sugges on that the services offered by the Chartered
Accountant or his firm are superior to those offered by other accountants.
CLAUSE 8
Premises found Locked : The communica on received back by the Incoming Auditor with “Office
found Locked” wri en on the Acknowledgement Due shall be deemed as having beendelivered to
the re ring auditor.
Firm not found at the given Registered address : If the Communica on sent by the Incoming
auditor is received back with remarks “No such office exists at this address”, and the address of
communica on is the same as registered with the Ins tute on the date of dispatch, the le er will
be deemed to be delivered, unless the re ring auditor proves that it was not really served and
Special Audit under Income Tax Act, 1961 : It would be a healthy prac ce if a Tax Auditor
appointed for conduc ng special audit under the Income Tax Act,1961 communicates with the
member who has conducted the Statutory Audit.
The Council has also laid down the detailed guidelines on the subject as under:-
Communica on required for all kinds of audit : The requirement for communica ng with the
previous auditor being a Chartered Accountant in prac ce would apply to all types of Audit viz.,
Statutory Audit, Tax Audit, GST Audit, Internal Audit, Concurrent Audit or any other kindof
audit.
Communica on in case of Assignments done by other professionals: A Communica on is
mandatorily required for all types of Audit/Report where the previous auditor is a Chartered
Accountant. In case of assignments done by other professionals not being Chartered
Accountants, it would also be a healthy prac ce to communicate.
Lack of me in acceptance of Government Audits: Although the mandatory requirement of
communica on with previous auditor being Chartered Accountant applies, in uniform manner, to
audits of both government and Non-Government en es, yet in the case of audit of government
Companies/ banks or their branches, if the appointment is made well in me to enable the
obliga on cast under this clause to be fulfilled, such obliga on must be complied with before
accep ng the audit. However, in case the me schedule given for the assignment is such that
there is no me to wait for the reply from the outgoing auditor, the incoming auditor may give a
condi onal acceptance of the appointment and commence the work which needs to be a ended
to immediately a er he has sent the communica on to the previous auditor in accordance with
this clause. In his acceptance le er, he should make clear to the client that hisacceptance of
appointment is subject to professional objec ons, if any, from the previous auditors and that he
will decide about his final acceptancea er taking into account the informa on received from the
previous auditor.
Public conscience is expected to be ahead of the law. Members, therefore, are expected to
interpret the requirement as regards independence much more strictly than what the law
requires and should not place themselves in posi ons which would either compromise or
jeopardise their independence.
Member must take care to see that they do not land themselves in situa ons where therecould
be conflict of interest and duty.
In this connec on, the Council has decided not to permit a Chartered Accountant in
employment to cer fy the financial statements of the concern in which he is employed, or ofa
concern under the same management as the concern in which he is employed, even though he
holds cer ficate of prac ce and that such cer fica on can be done by any Chartered
Accountant in prac ce. This restric on would not however app ly where the cer fica on is
permi ed by any law. The Council has also decided that a Chartered Accountant should not by
himself or in his firm name:-
a. accept the Auditorship of a college, if he is working as a part- me lecturer in thecollege.
b. accept the Auditorship of a Trust where his partner is either an employee or a trustee of the
Trust.
Many new areas of professional work have been added, e.g., Tax Audit, GST Audit, Concurrent
Audit of Banks, Concurrent Audit of Borrowers of Financial ins tu ons, Audit of non-corporate
borrowers of Banks and Financial Ins tu ons, Audit of Stock Exchange, Brokers, etc. The Council
wishes to emphasize that the aforesaid requirement of Clause (4) are equally applicable while
performing all types of a est func ons by the members.
It is not permissible for a member to undertake the assignment of cer fica on, wherein the client
is rela ve of the member. The "rela ve" for this purpose would refer to the defini on men oned
in Accoun ng Standard (AS)-18.
Members not to write Books of Account for auditee clients : The Council has clarified that the
members are not permi ed to write the books of account of their auditee clients.
Internal auditor not to be the Tax auditor simultaneously: An Internal Auditor of an assessee,
whether working with the organiza on or an independently prac cing Chartered Accountant
irrespec ve of being an individual Chartered Accountant or a firm of Chartered Accountants
cannot be appointed as its Tax Auditor.
Internal Auditor not to be the GST Auditor simultaneously: The Internal Auditor of anen ty
Cooling off period a er comple on of tenure as Director: A member shall not accept the
assignment of audit of a Company for a period of two years from the date of comple on ofhis
tenure as Director, or resigna on as Director of the said Company.
Members to sa sfy whether appointment is as per the statute: A member should sa sfy himself
before accep ng an appointment as an auditor of an en ty that his appointment is in accordance
with the statute governing the en ty. In case the en ty is cons tuted under a trust
deed/instrument, the member should sa sfy whether his appointment is valid according to the
instrument cons tu ng the en ty and rules and regula ons made thereunder.
COUNCIL GENERAL GUIDELINES, 2008
Explana on 2: For this purpose, “sick unit” shall mean a unit registered for not less than five
years, which has at the end of any financial year accumulated losses equal to or exceeding its
en re net worth.
A member of the Ins tute in prac ce shall not respond to any tender issued by an organiza on or
user of professional services in areas of services which are exclusively reserved for chartered
accountants, such as audit and a esta on services. However, such restri c on shall not be
applicable where minimum fee of the assignment is prescribed in the tender document itself or
where the areas are open to other professionals along with the Chartered Accountants.
Whereas, to curb the malprac ce of false cer fica on/a esta on by the unauthorized persons &
to eradicate the prac ce of bogus cer ficates and to save various regulators, banks,
stakeholders etc. from being misled, the Council of the Ins tute decided to implement an
applica on forms for approval of name and registra on, provisions of ethical compliance and
other details have been issued and the same will come into force w.e.f 1.10.2006.
On abundant cau on, it may be clarified that no audit prac ce can be done in Corporate Form. The
consultancy prac ce hitherto done in Individual or Firm Status alone is now intended to be
permi ed in Corporate Form also.
Ethical Compliance: (i) Once the Management Consultancy Company is Registered with the
Ins tute as per the Guidelines, it will be necessary for such a Company to comply with the
following requirements: -
(a) If the individual prac oner/sole-proprietorship firm/partnership firm is the statutory auditor
of an en ty then the Management Consultancy Company should not accept the internal audit or
book-keeping or such other professional assignments, which are prohibited for the statutory
auditor firm.
(b) The No fica on No. 1-CA(7)/60/2002 dated 8th March, 2002 (enclosed) in respect of ceilingon
Non-audit fees is applicable in rela on to a Management Consultancy Company.
(c) The Management Consultancy Company shall comply with clauses (6) & (7) of Part-I of theFirst
Schedule to the Chartered Accountants Act, 1949 and such other direc ves as may be issued by
the Ins tute from me to me.
(ii) The Management Consultancy Company shall give an undertaking that it shall comply with
clauses (6) & (7) of Part-I of the First Schedule to the Chartered Accountants Act, 1949 and such
other direc ves as may be issued by the Ins tute from me to me.
Object of Management Consultancy Company: The Management Consultancy Company shall
engage itself only in Management Consultancy & Other Services. The Management Consultancy
Company shall give an undertaking that it shall render only Management Consul tancy & Other
Services prescribed by the Council pursuant to powers under sec on 2 (2)(iv) of the Chartered
Accountants Act, 1949.
AIR
01
CA BISHAL TIMSINA
CAmentoringprogram.org