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The Companies (Auditor S Report) Order, 2016
April, 05th 2016

The Ministry of Corporate Affairs vide Notification No. S.O. 1228(E), dated 29.03.2016 made ‘The Companies (Auditor’s Report) Order, 2016’ (‘Order’ for short) in supersession of the Companies (Auditor’s Report) Order, 2015.

Applicability of the Order

This order is applicable to every company including the foreign company except the following companies-

A banking company;
An insurance company;
Section 8 company;
A One Person Company;
A small company;
A private limited, not being a subsidiary or holding company of a public company, having a paid up capital and reserves and surplus not more than ? 1 crore as on the balance sheet date and which does not have total borrowings exceeding ? 1 crore from any bank or financial institution at any point of time during the financial year and which does not have a total revenue as disclosed in Schedule III to the Companies Act, 2013 (including revenue from discontinuing operations) exceeding ? 10 crore during the financial year as per the financial statements.
Auditor’s Report

Section 143 of the Companies Act, 2013 deals with the powers of the Auditors and auditing Standards. Para 2 of the Order provides that every report made by the Auditor under Section 143 of the Companies Act, 2013 on the account of every company audited by him, to which this order applies, for the financial year commencing on or after 01.04.2015, shall in addition, contain the matters specified in Para 3 and 4, as may be applicable.

This order shall not apply to the auditor’s report on consolidated financial statements.

Matters to be included

Para 3 and 4 provides that the auditor’s report on the accounts of a company to which this Order applies shall include a statement on the following matters

Fixed assets
Whether the company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets?
whether the said assets have been physically verified at reasonable intervals?
whether any material discrepancies were noticed on such verification?
whether the discrepancy have been properly dealt with in the books of accounts?
whether the title deeds of immovable properties are held in the name of the company?
if not, the details of the same are to be furnished;
Whether physical verification of inventory has been conducted at reasonable intervals by the management?
Whether any material discrepancy was noticed?
Whether the discrepancy has been properly dealt with in the books of account?
Whether the company has granted any loans, secured or unsecured to companies, firms, LLPs or other parties covered in the register maintained under Section189 of the Companies Act, 2013?
Whether the terms and conditions of the grant of such loans are not prejudicial to the company’s interest?
Whether the schedule of repayment of principal and payment of interest has been stipulated?
Whether the repayment or receipts are regular?
If the amount is overdue, state the total amount overdue for more than 90 days;
Whether reasonable steps have been taken by the company for recovery of the principal and interest?
In respect of loans, investments, guarantees and security whether provisions of Section 185 and 186 of the Companies Act, 2013 have been complied with. If not, provide the details thereof;
Deposits accepted
In case the company has accepted deposits whether the directives issued by the RBI and the provisions of Section 73 to 76 or any other provisions of the Act and the rules made there under, where applicable have been complied with?
If not, the nature of such contraventions be stated;
If an order has been passed by CLB or NCLT or RBI or any court or any other Tribunal, whether the same has been complied with or not?
Cost records
Whether maintenance of cost records has been specified by the Central Government under Section 148(1) of the Act?
If so whether such accounts and records have been so made and maintained;
Statutory dues
Whether the company is regular in depositing undisputed statutory dues including EPF,ESI, Income tax, sales tax, service tax, customs duty, excise duty, VAT, cess and any other statutory dues to the appropriate authorities?
If not the extent of the arrears of outstanding statutory dues as on the last day of the financial year concerned for a period of more than 6 months from the date they became payable shall be indicated;
Where dues of income tax or sales or service tax or customs duty or excise duty or VAT have not been deposited on account of any dispute, then the amount involved and the forum where dispute is pending shall be mentioned;
Whether the company has defaulted in repayment of loans or borrowing to a financial institution, bank, Government or dues to debenture holders?If yes, the period and the amount of default is to be reported;
Whether moneys raised by way of IPO or further public offer, including debt instruments and term loans were applied for the purposes for which those are raised.If not the details to be reported;
Whether any fraud by the company or any fraud on the company by its officers or employees has been noticed or reported during the year? If yes, the nature and amount involved is to be indicated;
Managerial remuneration
Whether managerial remuneration has been paid or provided in accordance with the requisite approvals mandated by Section 197 read with Schedule V of the Act?
If not, state the amount involved;
Steps taken by the company for securing refund of the same;
Nidhi companies
Whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of 1:20 to meet out the liability and whether the Nidhi Company is maintaining 10% unencumbered term deposits as specified in Nidhi Rules, 2014 to meet out the liability;


Related parties
Whether all transactions with the related parties in compliance with Section 177 and 188 of the Companies Act, 2013 where applicable?
The details disclosed in the Financial Statements as required by the applicable standards;
Preferential allotment
Whether the company has made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review?
If so, as to whether the requirement of Section 42 have been complied with and the amount raised have been used for the purpose for which the funds were raised;
If not, the details in respect of the amount involved and nature of non compliance is to be informed;
Non cash transactions
Whether the company has entered into any non cash transactions with the directors or persons connected with him?
If so, whether the provisions of section192 of the Act have been complied with?
Whether the company is required to be registered under Section 51A of the RBI Act, 1934 and if so whether the registration has been obtained.
Reasons for unfavorable or qualified answers

Para 4 of the order provides that where, in the auditor’s report, the answer to any of the questions is unfavorable or qualified, the auditor’s report shall also state the basis for such unfavorable or qualified answer as the case may be. If the auditor is unable to express any opinion on any specified matter, his report shall indicate such fact together with the reasons as to why it is not possible for him to give his opinion on the same.

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