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Unit 12: Cost Audit

6. The auditor is also required to comment whether the company has given any guarantee Notes
for loans taken by others and whether the terms and conditions are prejudicial to the
interests of the company.
7. The auditor is also required to comment on whether the term loans were applied for the
purpose for which they were obtained.
8. The auditor is also required to comment whether the funds raised on short-term basis
were use for long-term purposes.
9. Whether securities have been created in respect of debentures issued.
10. Whether the management has disclosed on the end use of funds in case of public issues and
whether the same has been verified.
11. Whether any fraud on, or by the, company has been noticed or reported during the year.
The nature and the amount are to be indicated
12. In case the auditors’ report is unfavorable or qualified in respect of any of the matters
above, the report shall also state the reasons for the unfavorable or qualified answer. In
case the auditor is unable to express an opinion on any of the matters stated, he should
expressly state this fact.

12.2.4 Pros and Cons

It seems to have missed a good opportunity to simplify the auditors’ report. It would seem
impertinent to keep repeating the same clauses year after year. For instance, if the company has
details about fixed assets and procedures for physical verification in place, it would be hard to
understand why this would not be maintained in any particular year. Similar would be the case
for maintenance of cost records and the internal control system for purchases of fixed assets and
stores. It would have been useful if all the clauses had been given as broad guidelines and only
exceptions to be reported. This system would ensure that the ordinary shareholder gets to know
the deviations instead of wading through all the fine print. This system would also take care of
situations wherein companies slip on certain areas in particular years. It is also seems to be
under the impression that only disposal of a substantial portion of the fixed assets would
threaten the going concern concept. This concept could be threatened by a host of other factors.
By being so restrictive, the auditor would not comment if a substantial portion of the fixed assets
has been disposed of in the normal course of business.

Notes This system would ensure that the ordinary shareholder gets to know the deviations
instead of wading through all the fine print. This system would also take care of situations
wherein companies slip on certain areas in particular years.
It could also have barred the parking of grey transactions in the notes to accounts. The notes
often contain many a landmine, which could blow up. It could take a cue from a recent RBI
guideline for banks, wherein it has been expressly stated that accounting disputes need to be
mentioned in the audit report or the financial statements, altered. With the introduction of
CARO, the responsibility of the auditors as well as the companies to which this report applies
has increased. This article makes an attempt to compare the reporting requirements in MAOCARO
with that prescribed in CARO. This will help the practicing members as well as members in
industry to understand the new requirement and comply with it.

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