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{The following is the General Clarification (GC)/AASB/3/2004
issued by the Auditing and Assurance Standards Board of the Institute
of Chartered Accountants of India on Auditing and Assurance Standard (AAS)
16, "Going Concern".} |
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1. |
The Companies (Amendment) Act, 2000 has mandated that
every private company existing on 13th December 2000 with a paid-up
capital of less than one lakh rupees, shall, within a period of two
years from such commencement enhance its paid up capital to one lakh
rupees. Similarly, every public company existing on 13th December 2000
with a paid-up capital of less than five lakh rupees, shall, within a
period of two years from such commencement enhance its paid up capital
to five lakh rupees. Where a private company or a public company fails
to enhance the paid-up capital to the statutory minimum, as mentioned
above, such company shall be deemed a defunct company within the
meaning of section 560 of the Companies Act, 1956 and its name shall
be struck off from the register by the Registrar. |
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2. |
Paragraphs 5 and 6 of Auditing and Assurance Standard (AAS)
16, Going Concern provide as follows:
"5. The auditor should consider the risk that
the going concern assumption may no longer be appropriate.
6. Indications of risk that continuance as a going concern may be
questionable could come from the financial statements or from other
sources."
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3. |
Further, AAS 16 also mentions that non-compliance with
capital or other statutory requirements could be an example of an
indication of risk that the going concern assumption may no longer be
appropriate. |
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4. |
If a company fails to enhance its paid-up capital up to
the statutory minimum, such company shall be deemed a defunct company
within the meaning of section 560 of the Companies Act, 1956 and
therefore, its name shall be struck off from the register by the
Registrar of Companies. However, such an entity may decide to carry on
business in some other form of organisation, e.g., partnership or may
decide not continue the business. This situation gives rise to the
risk that the going concern assumption may no longer be appropriate. |
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5. |
The auditor, in such a situation, performs the audit
procedures as required by the Auditing and Assurance Standard (AAS)
16, Going Concern. Unless, the entity under audit demonstrates
otherwise, the auditor should consider the going concern assumption as
inappropriate and report in accordance with paragraph 18 of AAS 16. |
