Page 244 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes 12.2.1 Clauses Removed

The clauses removed from the old order include those with regard to: revaluation of fixed assets;
valuation of stocks; unserviceable or damaged stores; sale and disposal of scrap; personal expenses
charged to revenue account; and special clauses applicable to service and trading companies

12.2.2 Clauses Expanded

The following clauses have been expanded:
1. While commenting on Section 301 of the Companies Act, the auditor is to state whether
the transactions entered into have been made at prices which are reasonable having regard
to the prevailing market prices at the relevant time. Benchmarks have been set that these
transactions should exceed ` 5 lakh in respect of any party and in any one financial year.
2. The auditor also needs to investigate into transactions relating to loans and advances,
whether reasonable steps have been taken by the company for recovery/payment of the
principal and interest.

3. While commenting on fixed assets, the auditor needs to comment whether the going
concern is affected in case a substantial part of the fixed assets have been disposed of
during the year.

4. In cases of contraventions of Section 58/58A of the Companies Act, the nature of the
contraventions should be expanded upon and compliance with orders of the CLB need to
be seen.
5. In cases wherein there are disputed statutory dues, such as sales tax/income-tax/Customs
tax/excise duty and cess, the amounts involved and the forum where the dispute is pending
need to be mentioned.

6. With the impending death of the BIFR, the incipient signs of sickness have been defined to
mean accumulated losses at the end of the financial year being not less than 50 per cent of
net worth and where cash losses have been incurred for the financial year under report
and the immediately preceding one.

12.2.3 New Clauses

The following are the new clauses that the auditor needs to comment on:

1. Default by the company in repayment of dues to a financial institution or bank is to be
mentioned. The period and the amount of default are to be quantified.

2. In case a company has granted loans by way of pledge of shares, debentures or other
securities, whether adequate documents and records are maintained is to be reported and
deficiencies pointed out.
3. Provisions of any special statute applicable to a chit fund are to be reported.

4. Specific points regarding ratios, prudential norms, appraisal of credit proposals and
repayment schedules are to be reported.
5. In case of companies dealing in shares, whether proper records have been maintained of
transactions and contracts and whether timely entries have been made therein is to be
reported.

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