CA - IPCC COURSE MATERIAL Quality Education beyond your imagination... AUDITING & ASSURANCE AMENDMENTS MATERIAL FOR NOV 2016 IPCC EXAMS Cell: 98851 25025 / 26 Visit us @ www.mastermindsindia.com Mail: mastermindsinfo@ymail.com Facebook Page: Masterminds For CA Youtube Channel: Masterminds For CA Page 1
S. No. Chapter Name Index No. of Questions Starting Page 1. CARO - (2016) - 3 2. Company Auditor 6 6 3. Concepts of Auditing 1 10 4. Internal Control 2 11 5. Audit of Cash Transactions 1 12 Total 10 NOTE: All amendments except CARO - 2016, 2 nd chapter 2 nd question and 5 th question are already updated in the following editions of MM materials 35 & 35.5 chapter 1 st 2/12
Ph: 98851 25025/26 www.mastermindsindia.com HISTORICAL BACK GROUND 1. CARO 2016 In exercise of the powers conferred by sub-section (11) of section 143 of the Companies Act, 2013 (18 of 2013 ) and in supersession of the Companies (Auditor's Report) Order, 2015 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O. 990 (E), dated the 10th April, 2015, except as respects things done or omitted to be done before such supersession, the Central Government, after consultation with the, committee constituted under proviso to subsection (11) of section 143 of the Companies Act, 2013 hereby makes the following Order dated 29th March, 2016, APPLICABILITY OF CARO, 2016 CARO - 2016 applies to every company including a foreign Company, except the following: a) A Banking company; b) An Insurance Company; c) A company licensed to operate under section 8 of the Companies Act; d) A One Person Company as defined under clause (62) of section 2 of the Companies Act and e) A small company as defined under clause (85) of section 2 of the Companies Act; and f) A private limited company which satisfies all the following 4 conditions: i) Not being a subsidiary or holding company of a public company ii) Paid up capital and reserves and surplus not more than rupees 1 crore as on the balance sheet date iii) Total borrowings does not exceeding rupees 1 crore from any bank or financial institution at any point of time during the financial year iv) Total revenue as disclosed in Scheduled III to the Companies Act, 2013 (including revenue from discontinuing operations) does not exceeding rupees 10 crore during the financial year as per the financial statements. Points to be kept in mind for CARO 2016 applicability w.r.t the Private Companies: 1. Paid up share capital includes both equity share capital as well as the preference share capital. 2. Both capital and the revenue reserves & surplus should be taken into account while computing the limit of Rs 1 Crore 3. Revaluation reserve, if any, should be taken into consideration while determining the applicability of CARO. 4. The debit balance of the profit and loss account, if any, should be reduced from the figures of Reserves & Surplus. 5. Loans from Banks or Financial Institutions shall include term loans, demand loans, working capital loans, cash credits, and overdraft, bills purchased and discounted. 6. Revenue means the aggregate amount of sales affected by the company. 7. Revenue includes sale of goods, services & any other operating revenues earned by the company. 8. The following amount shall be deducted from the Turnover Excise duty, if credited separately to such account. Copyrights Reserved To MASTER MINDS, Guntur IPCC_Auditing & Assurance Amendments Material (For Nov - 2016) 3/12
No.1 for CA/CWA & MEC/CEC CARO, 2016 REPORTING REQUIREMENTS MASTER MINDS Clause 3 (i) Fixed Assets a) Whether the company is maintaining proper records showing full particulars including quantitative details and situation of fixed asset. b) Whether these fixed assets have been physically verified by the management at reasonable intervals; Whether any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of accounts. c) Whether the title of immovable properties are held in the name of the company. If not provide the details of the same. Clause 3(ii) Inventories a) Whether physical verification of inventory has been conducted at reasonable intervals by the management. b) Whether any material discrepancies if any, were noticed on physical verification and if so, whether the same have been properly dealt with in the books of accounts. Clause 3(iii) Loans outstanding from parties Section 189 of Co. s act, 2013. a) Has the company granted any loans, secured or unsecured to companies, firms, Limited Liability Partnerships or other parties covered in the register maintains under section 189 of the Co. s Act, 2013. If so, the number of parties and the amount involved in the transaction? b) Whether the terms & conditions of grant of such loans are not prejudicial to the company s interest. c) Whether the schedule of repayment of principal & payment of interest has been stipulated & Whether the same are regular? d) If amount is overdue, state the amount overdue for more than 90 days, whether reasonable steps have been taken by the company for recovery of the principal and interest. Note: it should be noted that CARO 2016 only consider loan granted, not loan taken. Clause 3(iv) Guarantee given by company for loans: In respect of loans, Investments, Guarantees, and securities provided by company, whether provisions of section 185 & 186 have been complied with? If not, provide the details thereof. Clause 3(v) Deposits: In case the company has accepted deposits from the public, whether the directives issued by the RBI and the provisions of Sections 73 to 76 of the Co. s Act, 2013 or any other relevant provision of the Act and the rules framed there under, where applicable, have been complied with. If not, the nature of contraventions should be stated; if an order has been passed by CLB or RBI or any court or any other Tribunal whether the same has been complied with or not? Clause 3(vi) Cost Records Where maintenance of cost records has been prescribed by the Central Government under sub section (1) of section 148 of the Co. s Act, 2013 whether such accounts and records have made and maintained. Clause 3(vii) Statutory Dues a) Is the company regular in depositing undisputed statutory dues including provident fund, ESI, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise duty, VAT, 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. b) In case dues of Income Tax, Sales Tax, Wealth Tax, Service Tax, VAT, Custom duty, Excise Duty, Cess have not been deposited on account of any dispute, the amounts involved and the forum where dispute is pending shall be mentioned. (A mere representation to the concerned department shall not constitute a dispute.) IPCC_Auditing & Assurance Amendments Material (For Nov - 2016) 4/12
Ph: 98851 25025/26 www.mastermindsindia.com Clause 3(viii) Default in repayment of dues: Whether the company has defaulted in repayment of borrowings of loans to a financial institution or bank or debenture holders. If yes, the period and amount of default to be reported (in case of defaults to banks, financial institutions, & government lender wise details to be provided.) Clause 3(ix) Application of funds: Whether the money raised by way of initial or further public offer (including debt instruments) & term loans were utilized for the purposes for which those are raised. If not, the details along with the defaults, delays & subsequent rectifications, if any, to be reported. Clause 3(x) Reporting of Frauds: Whether any fraud by or on the company by its officers or employees has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated. Clause 3(xi) Managerial Remuneration a) Whether managerial remuneration has been paid or provided in accordance with the requisite approvals mandated under section 197 read with Schedule V? b) If not, state the amount involved & steps taken by company for refund of the same. Clause 3(xii) Nidhi Company 1. Whether Nidhi company has complied with the net owned funds to deposits in the ratio of 1:20 to meet out the liability & 2. Whether Nidhi Company is maintaining 10% unencumbered term deposits as specified in Nidhi Rules, 2014 to meet out the liability Clause 3(xiii) Related Party Transaction: Whether all transaction with related parties are in compliance with section 177 & 188 where applicable, & details have been disclosed in the financial statements etc., as required by applicable accounting standards. Clause 3(xiv) Preferential allotment: a) 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 they are raised. b) If not provide the details in respect of the amount involved & nature of non-compliance Clause 3(xv) Non-Cash Transaction: Whether Company has entered into any Non-Cash Transactions with directors or persons connected with him, & if so provisions of section 192 have been complied with. Clause 3(xvi) Non-Banking Financial Institution: Whether the company is required to be registered under section 45-IA of Reserve Bank Of India Act 1934, and if so, whether the registration has been obtained. Reasons to be stated for Qualified or Unfavourable answers: a) Where in the Auditor s report, the answer to any of the questions referred above is Qualified or unfavorable, the report shall the reasons for such answers which are given as qualified or unfavorable. Where the auditor is unable to express an opinion on a particular question, he shall report such fact along with the reasons thereof as to why it is not possible to give an answer to such clause. Copyrights Reserved To MASTER MINDS, Guntur IPCC_Auditing & Assurance Amendments Material (For Nov - 2016) 5/12
No.1 for CA/CWA & MEC/CEC MASTER MINDS 2. COMPANY AUDITOR Q.No.1. Write about ceiling on Number of Audits. a) As per section 141(3) (g): A chartered accountant in practice cannot hold appointments as auditor for more than 20 companies at any time. b) In the case of a firm of auditors, it has been further provided that specified number of companies shall be construed as the number of companies specified for every partner of the firm who is not in full time employment elsewhere. c) Sometimes, a chartered accountant is a partner in a number of auditing firms. In such a case, all the firms in which he is partner or proprietor will be together entitled to 20 company audits on his account. d) For the purpose of computation of ceiling limits following companies are excludedi) One person companies, ii) Dormant companies, iii) Small companies, and iv) Private limited companies having a paid capital less than Rs.100 crores. ICAI notification: As per ICAI notification, a CA in practice will be guilty of professional misconduct, if he holds at any time, the appointment of more than 30 audit assignments, including audit of private companies. Q.No.2. Write about the Duties of Companies Auditor to Report on Fraud as per Sec 143(12) of the Companies Act 2013? (B) Reporting to the Central Government - As per sub-section (12) of section 143 of the Companies Act, 2013, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed. In this regard, Rule 13 of the Companies (Audit and Auditors) Rules, 2014 has been prescribed. Sub-rule (1) of the said rule states that if an auditor of a company, in the course of the performance of his duties as statutory auditor, has reason to believe that an offence of fraud, which involves or is expected to involve individually an amount of Rs. 1 crore or above, is being or has been committed against the company by its officers or employees, the auditor shall report the matter to the Central Government. The manner of reporting the matter to the Central Government is as follows: a) The auditor shall report the matter to the Board or the Audit Committee, as the case may be, immediately but not later than 2 days of his knowledge of the fraud, seeking their reply or observations within 45 days; b) On receipt of such reply or observations, the auditor shall forward his report and the reply or observations of the Board or the Audit Committee along with his comments (on such reply or observations of the Board or the Audit Committee) to the Central Government within 15 days from the date of receipt of such reply or observations; c) In case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of 45 days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he has not received any reply or observations; d) The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed Post followed by an e-mail in confirmation of the same; IPCC_Auditing & Assurance Amendments Material (For Nov - 2016) 6/12
Ph: 98851 25025/26 www.mastermindsindia.com e) The report shall be on the letter-head of the auditor containing postal address, e-mail address and contact telephone number or mobile number and be signed by the auditor with his seal and shall indicate his Membership Number; and f) The report shall be in the form of a statement as specified in Form ADT - 4. Reporting to the Audit Committee or Board - Sub-section (12) of section 143 of the Companies Act, 2013 further prescribes that in case of a fraud involving lesser than the specified amount [i.e. less than Rs. 1 crore], the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed. In this regard, sub-rule (3) of Rule 13 of the Companies (Audit and Auditors) Rules, 2014 states that in case of a fraud involving lesser than the amount specified in sub-rule (1) [i.e. less than Rs. 1 crore], the auditor shall report the matter to Audit Committee constituted under section 177 or to the Board immediately but not later than 2 days of his knowledge of the fraud and he shall report the matter specifying the following: a) Nature of Fraud with description; b) Approximate amount involved; and c) Parties involved. Disclosure in the Board's Report: Sub-section (12) of section 143 of the Companies Act, 2013 furthermore prescribes that the companies, whose auditors have reported frauds under this subsection (12) to the audit committee or the Board, but not reported to the Central Government, shall disclose the details about such frauds in the Board's report in such manner as may be prescribed. In this regard, sub-rule (4) of Rule 13 of the Companies (Audit and Auditors) Rules, 2014 states that the auditor is also required to disclose in the Board s Report the following details of each of the fraud reported to the Audit Committee or the Board under sub-rule (3) during the year: a) Nature of Fraud with description; b) Approximate Amount involved; c) Parties involved, if remedial action not taken; and d) Remedial actions taken. Q.No.3. Write about Cost Audit. (B) As per the section 148 the Central Government may by order specify audit of items of cost in respect of certain companies. Who can be cost auditor: The audit shall be conducted by a Cost Accountant in Practice. Provided that no person appointed under section 139 as an auditor of the company shall be appointed for conducting the audit of cost records: Appointment of Cost Auditor: As per rule 14 of the Companies (Audit and Auditors) Rules, 2014 a) In the case of companies which are required to constitute an audit committee the Board shall appoint an individual, who is a cost accountant in practice, or a firm of cost accountants in practice, as cost auditor on the recommendations of the Audit committee, which shall also recommend remuneration for such cost auditor. b) The remuneration recommended by the Audit Committee under (i) shall be considered and approved by the Board of Directors and ratified subsequently by the shareholders; c) In the case of other companies which are not required to constitute an audit committee, the Board shall appoint an individual who is a cost accountant in practice or a firm of cost accountants in practice as cost auditor and the remuneration of such cost auditor shall be ratified by shareholders subsequently. IPCC_Auditing & Assurance Amendments Material (For Nov - 2016) 7/12
No.1 for CA/CWA & MEC/CEC MASTER MINDS d) Rule 6 of the Companies (Cost Records and Audit) Rules, 2014 requires the companies prescribed under the said rules to appoint an Auditor within 180 days of the commencement of every financial year. Every referred company shall inform the cost auditor concerned of his or its appointment as such and File a notice of such with the central Government within a period of 30 days of the Board meeting in which such appointment is made or within a period of 180 days of the commencement of the financial year. Whichever is earlier, through electronic mode, in Form CRA-2 along with the feed as specified in companies (Registration offices and Fees) Rules, 2014. e) The cost auditor appointed as such shall continue in such capacity till the expiry of 180 days from the closure of the financial year, or till he submits the cost audit report, for the financial year for which he has been appointed. f) Casual Vacancy in the office of a cost Auditor: Any casual vacancy in the office of a cost Auditor, whether due to resignation, death or removal, shall be filled by the Board of Directors within 30 days of occurrence of such vacancy and the company shall inform the central government in Form CRA-2 within 30days of such appointment of cost auditor. Qualification, disqualification, rights, duties and obligations of Cost Auditor: Similar to the company auditor. Q.No.4. Write about maintenance of cost records by certain class of companies. (A) (PM) Companies (cost records and Audit) Rules 2014: The Central Government has notified the Companies (Cost Records and Audit) Rules, 2014 (amended dated 31 st December, 2014) which prescribes the classes of companies required to include cost records in their books of account, applicability of cost audit, maintenance of records etc. Maintenance of Cost Records: Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 provides the classes of companies, engaged in the production of goods or providing services, having an overall turnover from all its products and services of Rs.35 crore or more during the immediately preceding financial year, required to include cost records in their books of account. These companies include Foreign Companies defined in sub-section (42) of section 2 of the Act, but exclude a company classified as a Micro enterprise or a Small enterprise including as per the turnover criteria provided under Micro, Small and Medium Enterprises Development Act, 2006. The said rule has divided the list of companies into regulated sectors and non-regulated sectors. Some of the companies/ industry/ sector/ product/ service prescribed under the said rule are given below: a) Regulated Sectors i) Telecommunication services made available to users by means of any transmission or reception of signs, signals, images etc. (other than broadcasting service) and regulated by the telecom Regulatory Authority of India. ii) Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 2003, other than for captive generation. iii) Petroleum products regulated by the Petroleum and Natural Gas Regulatory Board. iv) Drugs and Pharmaceutical. v) Fertilisers. vi) Sugar and industrial alcohol. b) Non-Regulated Sectors- i) Machinery and mechanical appliances used in defence, space and atomic energy sectors excluding any ancillary item or items. ii) Turbo jets and turbo propellers. iii) Tyres and Tubes. iv) Steel; Cement. IPCC_Auditing & Assurance Amendments Material (For Nov - 2016) 8/12
Ph: 98851 25025/26 www.mastermindsindia.com v) Production, import and supply or trading of following medical devices, such as heart valves; orthopedic implants; pacemaker (temporary and permanent), etc. The rule excludes the foreign companies having only liaison offices. As per Rule 5 of the companies (Cost Records and Audit) Rules, 2014, every company under these rules including all units and branches thereof, shall, in respect of each of its financial year, is required to maintain cost records in Form CRA 1. The cost records shall be maintained on regular basis in such manner as to facilitate calculation of per unit cost of production or cost of operations, cost of sales and margin for each of its products and activities for every financial year on monthly or quarterly or half-yearly or annual basis. Additionally, as per clause (vi) to Paragraph of the CARO, 2016, where maintenance of cost records has been specified by the Government under section 148(1) of the Companies Act, 2013, the auditor has to report whether such accounts and records have been made and maintained. Q.No.5. Write about applicability of Cost Audit. (A) (PM) Applicability of Cost Audit: Rule 4 of the companies (Cost Records and Audit) Rules, 2014 states the provisions related to the applicability of the cost audit depending on the turnover of the company as follows: Classes of companies specified under item (A) Regulated Sectors are required to get its cost records audited if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is Rs.50 crore or more and the aggregate turnover of the individual product(s) or service(s) for which cost records are required to be maintained under rule 3 is Rs.25 crore or more. Classes of companies specified under item (B) Non-Regulated Sectors are required to get its cost records audited if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is Rs.100 crore or more and the aggregate turnover of the individual product(s) or service(s) for which cost records are required to be maintained under rule 3 is Rs.35 crore or more. Cost Audit Rules Not to Apply in Certain Cases: sub-rule(3) of rule 4 provides that the requirement for cost audit under these rules shall not be applicable to a company which is covered under Rule 3, and, i) Whose revenue from exports, in foreign exchange, exceeds 75% of its total revenue; or ii) Which is operating from a special economic zone. Q.No.6. Write about submission of cost Audit Report. (A) Submission of cost Audit Report: i) To the Board of Directors of the Company The cost auditor shall submit the cost audit report along with his reservations or qualifications or qualification or observations or suggestions, if any, in Form CRA - 3. He shall forward his report to the Board of Directors of the Company within a period of 180 days from the closure of the financial year to which the report relates and the Board of Directors shall consider and examines such report particularity any reservation or qualification contained therein. ii) To the Central government. The company shall within 30 days from the dated of receipt of a copy of the cost audit report prepared (in pursuance of a direction issued by Central Government) furnish the Central Government with such report along with full information and explanation on every reservation or qualification contained therein in Form CRA-4 along with fees specified in the companies (Registration offices and Fees) Rules. 2014. If after considering the cost audit report and the information and explanation furnished by the company as above, the central Government is of the opinion that any further information or explanation is necessary, it may call for such further information and explanation and the company shall furnish the same within such time as may be specified by that Government. Duty to Report on fraud: The provisions of section 143(12) of the Companies Act, 2013 and the relevant rules on duty to report on fraud shall apply mutatis mutandis to a cost auditor during performance of his functions under section 148 of the Act and these rules. IPCC_Auditing & Assurance Amendments Material (For Nov - 2016) 9/12
No.1 for CA/CWA & MEC/CEC MASTER MINDS 3. CONCEPTS OF AUDITING Q.No.1.Write about the concept of True and Fair? The importance of the concept of true and fair view can also be understood and appreciated from the fact that sections 128, 129 and 143 of the Companies Act, 2013 also discuss this concept in relation to account books, financial statements and reporting on financial statements respectively. Section 128(1) of the Companies Act, 2013 provides that every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices, if any. The company shall be in a position to explain the transactions effected both at the registered office and its branches. Such books of Accounts shall be kept on accrual basis and according to the double entry system of accounting. Section 129(1) of the Companies Act, 2013 provides that the financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 of the Companies Act, 2013 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III to the said Act. The term financial statement shall include any notes annexed to or forming part of such financial statement, giving information required to be given and allowed to be given in the form of such notes under the said Act. It may be noted that nothing contained in sub-section (1) of section 129 shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company. However, the financial statements shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose- a) In the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938, or the Insurance Regulatory and Development Authority Act,1999; b) In the case of a banking company, any matters which are not required to be disclosed by the Banking Regulation Act, 1949; c) in the case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by the Electricity Act, 2003; d) In the case of a company governed by any other law for the time being in force, any matters which are not required to be disclosed by that law. It may be noted that where the financial statements of a company do not comply with the accounting standards referred to in sub-section (1), the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation. Further, according to section 143(2) of the said Act, the auditor is required to make a report to the members of the company indicating that, to the best of his information and knowledge, the financial statements give a true and fair view of the state of the company s affairs as at the end of its financial year and profit or loss and cash flow for the year and such other matters as may be prescribed. SA 700 Forming an Opinion and Reporting on Financial Statements, requires the auditor to form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained; and express clearly that opinion through a written report that also describes the basis for the opinion. The auditor is required to express his opinion on the financial statements that it gives a true and fair view in conformity with the accounting principles generally accepted in India IPCC_Auditing & Assurance Amendments Material (For Nov - 2016) 10/12
Ph: 98851 25025/26 www.mastermindsindia.com 4. INTERNAL CONTROL Q.No.1. What is the purpose of Internal Control Purpose of Internal Control: Internal control is designed, implemented and maintained to address identified business risks that threaten the achievement of any of the entity s objectives that concern- 1) The reliability of the entity s financial reporting; 2) The effectiveness and efficiency of its operations; 3) Its compliance with applicable laws and regulations; and 4) Safeguarding of assets. The way in which internal control is designed, implemented and maintained varies with an entity s size and complexity. Q.No.2. What are the Limitations of Internal Control system? Limitations of Internal Control: Internal control, no matter how effective, can provide an entity with only reasonable assurance about achieving the entity s financial reporting objectives. The likelihood of their achievement is affected by inherent limitations of internal control. These include- a) Role of Human Judgement: The realities that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human error. For example, there may be an error in the design of, or in the change to, a control. b) Ineffective Operation of Control: Equally, the operation of a control may not be effective, such as where information produced for the purposes of internal control (for example, an exception report) is not effectively used because the individual responsible for reviewing the information does not understand its purpose or fails to take appropriate action. c) Collusion among Employees: Additionally, controls can be circumvented by the collusion of two or more people or inappropriate management override of internal control. For example, management may enter into side agreements with customers that alter the terms and conditions of the entity s standard sales contracts, which may result in improper revenue recognition. Also, edit checks in a software program that are designed to identify and report transactions that exceed specified credit limits may be overridden or disabled. d) Judgement by Management: Further, in designing and implementing controls, management may make judgments on the nature and extent of the controls it chooses to implement, and the nature and extent of the risks it chooses to assume. e) Considerations specific to Smaller Entities: Smaller entities often have fewer employees which may limit the extent to which segregation of duties is practicable. However, in a small owner-managed entity, the owner-manager may be able to exercise more effective oversight than in a larger entity. This oversight may compensate for the generally more limited opportunities for segregation of duties. Copyrights Reserved To MASTER MINDS, Guntur IPCC_Auditing & Assurance Amendments Material (For Nov - 2016) 11/12
No.1 for CA/CWA & MEC/CEC MASTER MINDS 5. AUDIT OF CASH TRANSACTIONS Q.No.1.what are the transactions which requires prior approval of the company by way of special resolution to be entered with related parties? 1) For the following Contract or Arrangements Criteria as mentioned belowa) Sale, purchase or supply of any goods or materials directly or through appointment of agents exceeding 10% of the turnover of the company or Rs.100 crore, whichever is lower; b) Selling or otherwise disposing of or buying property of any kind, directly or through appointment of agents, exceeding 10% of net worth of the company or Rs.100 crore, whichever is lower; c) Leasing of property of any kind exceeding 10% of the net worth of the company or 10% of turnover of the company or Rs.100 crore, whichever is lower; d) Availing or rendering of any services directly or through appointment of agents exceeding 10% of the turnover of the company or Rs.50 crore, whichever is lower; It may be noted that the limits specified above shall apply for transaction(s) to be entered into either individually or taken together with the previous transactions during a financial year. 2) Is for appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding Rs.2.5 lakh; 3) Is for remuneration for underwriting the subscription of any securities or derivatives thereof of the company exceeding 1% of the net worth. It may be noted that the Turnover or Net Worth referred above shall be computed on the basis of the Audited Financial Statement of the preceding financial year. In case of wholly owned subsidiary, the special resolution passed by the holding company shall be sufficient for the purpose of entering into the transactions between wholly owned subsidiary and holding company. Copyrights Reserved To MASTER MINDS, Guntur THE END IPCC_Auditing & Assurance Amendments Material (For Nov - 2016) 12/12