Clause No.

Particulars

Remarks

Working paper reference

4(i)(a)

(a)

(i)         Sufficient description (distinctive numbers, purchase agreement, documents, records and registration references, etc.) of the asset to make identification possible. 

(ii)       Classification, that is, the head under which it is shown in the accounts, e.g. plant and machinery, office equipment, etc. 

(iii)       Location 

(iv)       Quantity i.e. number of units 

(v)       Original Cost 

(vi)       Year of purchase 

(vii)      Adjustment for revaluation or for any increase or decrease  in cost, e.g. on revaluation of foreign exchange liabilities. 

(viii)     Date of revaluation, if any 

(ix)       Rate and basis of depreciation, particulars regarding amortization and impairment. 

(x)        Depreciation, amortization and impairment for the current year. 

(xi)       Accumulated depreciation, amortization and impairment loss.

(xii)      Particulars regarding sale, discarding, demolition, destruction etc.

(xiii)     Particulars of fixed assets that have been retired from active use and held for disposal. 

(xiv)     Particulars of fixed assets that have been fully depreciated or amortised or impaired.

(b)

Conclusion :

4(i)(b)

(a)

(ii)        What is the periodicity of physical and whether the same is reasonable?

(iii)       Whether assets physically verified agreed/ reconciled with book figures?

If not, note the discrepancies against each class of assets in terms of value, and state how the discrepancies have been dealt with.

(iv)       Instructions to officials for carrying out physical verification to include procedures, timing, competency of team members, countsheets/ tags, formats etc.

(b)

(c)

Whether management representation is obtained confirming that:

·         Fixed assets are physically verified by the company in accordance with the policy of the company.

·         Periodicity of the physical verification of fixed assets.

·         Details of the material discrepancies noticed during the physical verification of the fixed assets.

·         If no discrepancies were noted during physical verification, the same should be clearly mentioned.

Conclusion:

(a)

(b)

(c)

Whether the company has disposed off substantial part of fixed assets during the accounting period? If yes, whether the disposal of such part of the fixed assets has triggered the risk of going concern assumption being no longer appropriate? Is such risk mitigated by factors such as the management's plan to adopt a more profitable line of business, or where the sale of fixed assets is for generating funds for fresh acquisition of fixed assets?

Whether sufficient and appropriate audit evidence obtained (Board minutes, minutes of committees, representation from management etc.) that plans of the management are feasible, are likely to be implemented, and that the outcome of these plans would improve the situation.

Whether going concern assumption is appropriate due to mitigating factors?

                    i.            If yes, whether plan or factors that need to be disclosed have been disclosed?

                  ii.            If no, whether adequate disclosure has been made in the financial statement and the fact been highlighted in the Report?

Conclusion:

4(ii)(a)

(a)

(b)

Has the management physically verified the inventory, as defined in AS 2? Inventory normally includes-

Raw materials and Components

Packing Materials

Maintenance Supplies

Work in Progress

Finished Goods

Stores and Spares

Consumables and Loose tools

Whether evidence of physical verification has been seen and reasonableness of periodicity and procedure of physical verification  evaluated? If yes, verify:

·         Written instructions issued by the management.

·         Duly authenticated physical verification sheets.

·         Duly authenticated summary sheets/ consolidation sheet.

·         Internal memo etc. regarding issues arising on physical verification.

·         Any other documents evidencing physical verification.

Conclusion:

4(ii)(b)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

Whether stock-taking procedures were reasonable and adequate in relation to the size of the company, nature of its business and volume of stock? If not, list out the inadequacies/weaknesses observed by us.

Whether the management has instituted adequate cut-off procedures?

Whether the original physical verification sheets have been reviewed and selected items traced into the final inventories? (including the more valuable ones as per ABC Classification)

Whether the comparison of final inventories with stock has been done? Whether records and other corroborative evidence, e.g. inventory statements submitted to banks?

Whether the procedures for identifying damaged and obsolete items of inventory operate properly?

Instruction issued by the management

In case of continuous stock taking method, whether management:

1. Maintains adequate and up-to-date stock records;
2. Has established adequate procedures for physical verification of inventories, so that in the normal circumstances, the programme of physical verification will cover all material items of inventory at least once during the year; and
3. Investigates and corrects all material differences between the book records and the physical counts.

Conclusion:

4(ii) (c)

(b)

(c)

(d)

·         Details regarding quantity of the receipts, issues, balances and dates of transactions in a chronological manner;

·         Particulars of the items, like nomenclature, nature, etc.

·         Relevant documents no. &department identification, if any;

·         Identification code of the item;

·         Physically verified quantities;

·         Location;

·         Valuation details; if any.

Whether the transactions entered in stock registers are duly supported are duly supported by relevant documents.

Whether stock register is updated and value of inventory extracted from above said records tally with the books of account.

If any material discrepancies were found as compared to stock records, what were the extant of discrepancies (in terms of value) and  how the same have been dealt with in the books of account as well as in the stock records?

Conclusion:

(i)                   Has the company granted/taken any loans (Secured or unsecured) from/ to companies, Firms or other parties listed in the register maintained under section 301 of the Act? If yes, give number of parties and the maximum amount involved at any time during the year.

(ii)                 Where the company has granted / taken any loans from section 301 parties and squared off during the year, such details of transactions taken?

Conclusion:

·         Terms & condition of the loan repayament, rate if interest, restricitive convenants etc,

·         Company's financial standing, its ability to borrow/ lend,

·         The nature of the security,

·         The availability of altermative sources of finance,

·         The urgency of the borrowing,

·         Purpose of the loan,

·         Prevailing market rate of interest etc.

Conclusion:

(b)

If not, the same should be reported.

Conclusion:

(b)

(c)

(d)

With regard to loans taken, the following may be seen:

·         Arrangement for raising finances;

·         Restructuring proposals;

·         Arrangement with the lenders for compromise proposals;

·         Partial repayment;

·         Cash flow position etc.

With regard to recovery of loan the following may be seen:

·         Facts each case including amounts involved

·         Issue of reminder

·         Sending of advocates or solicitor's notice

In absence of legal steps whether auditor is satisfied that reasonable steps have been taken

Obtain management's representation regarding steps that have been taken for recovery/ repayment of overdue amounts exceeding one lakh.

Conclusion:

(b)

(c)

(d)

(e)

(f)

(g)

·         Inventory

·         Fixed Assets

·         Sales

Prepare Summary statements for each section showing the major weakness in the system which calls for our reservations.

Note:

(Major weakness depends upon facts and circumstances. Ordinarily, any weakness in the internal control that may result into a significant loss to the company or may result in a material misstatement is considered to be a major weakness.)

Whether continuing failure is with reference to the weakness that existed at the time of previous year's audit and known to the management and not corrected on the date of balance sheet?

Whether there was a continuing failure to correct major weakness in the internal control system, is corrected at the time of issuance of report, state the fact.

Whether management has taken reasonable steps to correct major weakness in the internal control system, but weakness continues, if yes, report the weakness and steps taken for correcting the weakness.

Whether the report of internal auditors, minutes of the meeting of the audit committee if any, previous year's working paper have been reviewed in order to determine weakness in the internal controls already communicated to management?

Whether the existence of any major weakness in the internal control that has adverse effect have been considered for reporting appropriately?

Conclusion:

(b)

(c)

Whether the completeness of the entries as stated above have been verified with reference of the following:

·         Review of working papers for the prior years;

·         Review the entity's procedures for identification of parties;

·         Review From 24AA, and ensure compliance with provisions of section 297 & 299

·         Tracing transactions in the books of Account

In case the company has not maintained the register required to be maintained by it under section 301, mention the fact of non-maintenance/ improper maintenance of the aforesaid register.

Conclusion:

(b)

 In case where transactions are entered with sole suppliers also ensure that the fact is stated in the report, examine the reasonableness of prices paid with reference to list prices of the supplier concemed, other trade terms of the supplier, etc.

Conclusion:

(b)

(c)

(i)                   The directives issued by the Reserve Bank of India have been complied with and also that:

(ii)                 The provisions of Section 58A of the Companies Act, and the rules framed there under have been complied with.

(iii)                List out contraventions, if any.

Whether there is noncompliance of section 58AA, failure of the company to intimate the tribunal (CLB) any default in repayment of deposit made by small investors or part thereof or any interest thereon.

Where an order has been passed by the CLB in respect of above, examine the steps taken by the company to comply with the order, and if not, report briefly stating there in the nature of contravention and the fact that Company has not complied with the order.

Conclusion:

a)       Is there an internal audit system in the Company?(Mere internal check should not be considered as internal audit).

b)       Has the internal audit been conducted by a separate internal audit department or by outside professional firm?

c)       Is the internal audit department sufficient in size and properly manned to perform the internal audit function?

d)       Is the head of the internal audit department a member of the institute of Chartered Accountants of India?

e)       I it independent of the accounting and custody departments?

f)         To whom the department is responsible?

g)       Are the audits conducted in accordance with the generally accepted auditing standards?

h)       Do the Internal Audit have questionnaires or guide manual?

i)         Whether audit work is carried out according to a plan and programme and, if so what are the areas covered this year?

j)         Whether adequate files and records are maintained by the Internal Audits?

k)       Do the Internal Auditors' Reports give:

Conclusion on the audit?

Exceptions to the Account and records?

Recommendations on the Internal Auditors' Reports:

·         Are they sent to an appropriate operating official?

·         Is corrective/ remedial action initiated?

·         Do internal auditors follow up to see that appropriate action is taken?

·         Do the files indicate that appropriate action was taken?

Conclusion:

Conclusion:

(b)

(c)

(d)

(e)

(f)

(g)

(h)

In case where there are so no arrears on the balance sheet date but the company has been irregular during the year in depositing the statutory dues, the fact should be stated.

Whether the Company has been generally regular in depositing statutory dues or otherwise, indicate the same.

Note: A matter is disputed where there is a positive evidence or action on the part of the company to show that it has not accepted the demand for payment of tax or duty, e.g., where it has gone into appeal.

Whether penalty and/or interest levied under the respective law is included under amounts payable.

Ensure that disclosure is restricted to the actual arrears and should not include the amounts which have not fallen due for deposit and have been shown as arrears at the balance sheet date.

Whether the information about arrears of outstanding statutory dues is provided in the format:

·         Name of the Statute

·         Nature of the dues

·         Amounts(Rs.)

·         Due date

·         Date of payment

Whether a written representation with reference to the date of the balance sheet from the management obtained:

·         Specifying the cases and the amounts considered disputed;

·         Containing a list of the cases and the amounts in respect of the statutory dues which are undisputed and have remained outstanding for a period of more than six months from the date they became payable;

·         Containing a statement as to the completeness of the information provided by the management.

Whether any register of significant laws with shich the entity has to comply within its particular industry and a record of complaints in respect of non-compliance been maintained

Conclusion:

(b)

Ensure that information about arrears of disputed statutory dues is provided in the format:

·         Name of the Statute

·         Nature of the dues

·         Amounts (Rs)

·         Forum where dispute is pending

(b)

(c)

(d)

Whether the amount of cash losses is stated.

Whether effect of qualification on the figure of accumulated losses, net worth and cash losses considered? In case qualification is not capable of being quantified, whether the fact is stated in the Report?

Whether the accumulated losses exceeds 50% or not of the networth

Conclusion:

(b)

(c)

If application of reschedulement of loan has been made/accepted or default has been made good during accounting period, whether the fact has been stated.

Whether the disputes between the company and the lender on various issues give tise to disclaimer stating the fact there is a dispute between the company and the lender and auditor is unable to determine whether there is a default in repayment of dues to the lender concerned.

Conclusion:

(b)

(c)

(d)

·         Full name and address of the borrower.

·         Amount of the loan or advance.

·         Stipulations regarding period of repayment, the rate of interest, the security to be pledged and all other terms of the loans or advance.

·         The record of the disbursements, repayments towards the loans or advance and recovery of the interest.

·         Full particulars of the security pledged.

·         Documents needed to transfer the ownership of the security in case of need.

·         Periodical acknowledgements from the parties confirming the balance due.

·         Proof that the party has power to borrow, e.g., in case the borrower is a company, its memorandum of association, board resolution or shareholders resolution. Information about market value of securities such as stock exchange quotations.

Whether physical verification of security pledged carried on.

Whether security is in the custody of company and market value of security is adequate to over the outstanding amount of loan and interest.

Whether there is any deficiency, observed at the time of examining various documents and records as referred above? If yes, report the same.

Conclusion:

(b)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

·         Some alone, but not all, of the subscribers get the prize amount without any liability to pay future subscriptions; or

·         All the subscribers get the chit amount by turn with a liability to py future subscriptions.)

Ensure that the company has complied with all the provisions of the special statutes, relating to of the chit fund company and state the same.

In respect of nidhi/mutual benefit fund/societies:

(a)     Whether the net-owned funds to deposit liability ratio is more than 1:20 as the date of balance sheet;

(b)     Whether the company has complied with the prudential norms on income recognition and provisioning against substandard/default/loss assets;

(c)     Whether the company as adequate procedures for appraisal of credit proposals/ requests, assessment of credit needs and repayment capacity of the borrowers;

(d)     Whether the repayment schedule of various loans granted by the nidhi is based on the repayment capacity of the borrower and would be conducive to recovery of the loan amount.

Whether in the case of a nodhi and mutual benefit society net-owned funds to deposit liability ratio is more than 1:20 as on the date of balance sheet?

(i)                   Net owned funds in the case of a nidhi or a mutual benefit society means the aggregate of paid-up equity capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet of the company.

(ii)                 Free reserves is a reserve considered as a "free reserve" if it is available for distribution as dividend.

(iii)                The amount representing the proceeds of issue of  preference shares shall not be included for calculating net-owned funds. However, for nidhis or mutual benefit societies existing on or before 26^th Jully 2001, the proceeds of issue of preference shares are to be included for calculation of net-owned funds up to the financial year 31^st march 2003.

(iv)                Deposit liability would mean the aggregate deposits accepted by the company.]

Ensure that ratio is computed by using the figures of net owned funds and deposit liability computed in accordance with as stated under this clause.

Sub Clause (b) of the Order requires, whether, the company has complied with the prudential norms on income recognition and provisioning against sub-standard/doubtful and loss assets.

Whether the prudential norm for revenue recognitions and classification of assets has been complied with by the nidhi or nutual benefit society in the preparation and presentation of the financial of the statements? If not state the fact in report.

Examine, as per sub-clause (c) of the order study and analyse the various procedures prevailing in the company for appraisal of credit proposals/requests, assessment of credit needs and repayment capacity of the borrowers and their follow up.

As per sub-clause (d) the whether the repayment schedule of various loans granted by the nidhi is based on the repayment capacity of the borrower and would be conducive to recovery of the loan amount. Scope is limited to the examination of documents available with the company in regard to loan.

Ensure that the system, policies and procedures are complied with based on the examination of all large loans and a test check of other loans.

Have we examined the documentation available with the company with regard to large loans.

Conclusion:

(a)

(b)

(c)

(d)

(e)

Whether:

·         Records regarding transactions and contracts are maintained;

·         Timely entries have been made in such records; and

·         The investments are in the company's own name.

Whether the form in which records have been maintained is adequate, properly written up and preserved?

Whether adequacy of the records maintained can be verified from the following:

·         Purchases and sales and the profit or loss arising on sale,

·         The stock of investments and their valuation, and

·         The amounts due for sales and payables for purchases.

To ascertain that timely entries are made in the records, have you applied any of the following methods:

·         A surprise inspection of the records;

·         An examination of the system of internal control with particular reference to the manner in which and the time at which entries are made in the records; and

·         An examination of the internal audit reports to ensure if the programme of internal audit specifically covers an inspection of the records to determine whether entries are made in time.

In case investments which are intended to be sold immediately may not have been transferred in the name of the company, whether, in the circumstances of each case, the failure to transfer the investments to the company's name is understandable.

Conclusion:

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

Ensure on the basis of examination of Memorandum of Association whether company can issue guarantees?

Obtained a list of guarantees issued by the company during the year from the management.

Whether there are adequate internal controls over issuance of guarantees?

Review the guarantees to ensure the reasonableness thereof in view of previous experience and knowledge of current year's activities.

Whether the tangible/ intangible benefits flowing to the company due to furnishing of guarantee are commensurate with risk undertaken by the company in doing so.

Whether on the basis of examination carried out, the company could have provided the guarantee on better terms and conditions, obtain the company's explanation in writing as to why the company considers that the terms obtained are not prejudicial o the interest of the company.

In case the explanation given above is not convincing, state that the terms and conditions on which the company has given the guarantees are prejudicial to the interests of the company and also disclose the amount involved in such guarantee.

Whether compliance with the provisions with section 295 and 372A of companies Act ensured?

Whether a written representation from the management obtained that:

·         All obligations in respect of guarantees have been duly recorded in the register and disclosed;

·         There are no guarantees issued up to the year-end which are yet to be recorded; and

·         Disclosed contingent liabilities do not include any contingencies which are likely to result in a loss and which, therefore, require adjustment of assets or liabilities.

Conclusion:

(b)

(c)

(d)

(e)

(f)

Examine the terms and conditions subject to which the company obtained the term loans including purpose for which term loans were sanctioned?

Compare the purpose for which term loans were sanctioned with the actual utilization of the loans and obtain sufficient appropriate audit evidence regarding the utilization of the amounts raised.

In case during a construction phase surplus funds were temporarily invested, however, subsequently the same are utilized for the stated objectives, mention the fact that the funds were temporarily used for the purpose other than for which the loan was sanctioned but were ultimately utilized for the stated end- use.

Whether term loans taken were not applied for stated purpose during the year for any reason? If yes, mention the facts and amount. Also disclose the fact about utilization of term loan of earlier year in current year.

 Whether the fund flow statement has been reviewed where one to one correlation was not possible.

Conclusion:

(b)

(c)

Whether movement of funds of company can be examined and verified and such movement also be supported by relevant documentation, direct relationship between particular funds and an asset from the balance sheet can be ascertained.

Whether trail is available to show that movement of source and application of funds and direct relationship between them? if not, determine movement and application of funds on a overall basis.

Conclusion:

(b)

(c)

(d)

(e)

In case of unlisted or private companies, where any of the four pricing methods (Net Assets Basis, Maintainable Profit Basis, Yield Basis & Discounted Cash flow Method) have been followed, it may be concluded that the share price is not prejudicial to the interest of the company.