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Revised Statement on Companies (Auditor's Report) Order, 2003 AND Revised Format of Auditor's Certificate under Section 274(1)(g) of the Companies Act, 1956
July 13, 2005

The Council of the Institute of Chartered Accountants of India (ICAI), at its recent meeting, cleared a revised version of its technical pronouncement, "Statement on the Companies (Auditor's Report) Order, 2003", issued in 2003. The 2003 pronouncement provided extensive and in-depth guidance to auditors on discharge of the duties and responsibilities cast on them by the Companies (Auditor's Report) Order, 2003 (CARO, 2003). This CARO, 2003 was issued by the Department of Company Affairs in June 2003, replacing the erstwhile Manufacturing and Other Companies (Auditor's Report) Order, 1988.

 

Subsequently, the Department of Company Affairs in November 2004, issued the Companies (Auditor's Report) (Amendment) Order, 2004. This Amendment Order made a number of changes to the original Order, impacting the reporting responsibilities under the original Order. Some of the significant changes brought about by the Amendment Order related to reporting on loans taken from or given to parties listed in the register maintained under section 301 of the Companies Act, 1956 as well as reporting responsibilities with respect to payment of statutory dues.

 

The updated version of the Statement on the Companies (Auditor's Report) Order, 2003 seeks to provide detailed guidance to the members on compliance with the reporting requirements of the Companies (Auditor's Report) Order, 2003 as amended by the Companies (Auditor's Report) (Amendment) Order, 2004. In addition, the updated version of the Statement also attempts to resolve issues and queries raised by the members at different platforms regarding the difficulties being faced by them in the practical implementation of CARO, 2003, especially such clauses of CARO, 2003 which have not been amended by the Amendment Order.The updated version of the Statement is being finalised to bring it line with the deliberations at the abovementioned Council meeting and shall be released shortly.

 

In addition, the Council also approved a revision to the format of auditor's certificate under section 274(1)(g) of the Companies Act, 1956. It may be noted that a sub clause (f) had been added to section 227(3) of the Companies At, 1956 by the Companies (Amendment) Act, 2000. In terms of the said clause, the auditors were required to examine and report whether any of the directors of the company under audit were disqualified to be appointed as directors in terms of the requirements of section 274(1)(g) of the Companies Act, 1956. It would be evident that clause (f) of section 227(3) was aimed at improving the corporate governance practices in the Indian corporate world and bring to light such delinquent directors who had failed in fulfilling the duties cast by them under the very statute. The Government had, subsequently, in 2004, issued the Companies (Disqualification of Directors under section 274(1)(g) of the Companies Act, 1956) Rules, 2003 with a view to strengthen the reporting under section 227(3)(f).

 

The Institute of Chartered Accountants of India, with a view to provide guidance to the auditors for discharging their duties under section 227(3)(f) of the Act had issued a Guidance Note on Section 227(3)(e) and (f) of the Companies Act, 1956. The said Guidance Note was revised in 2004 to comply with the requirements of the abovementioned Rules. The said Rules also contained a requirement for the auditors to certify whether any of the directors was disqualified from being appointed as director. A format of the said certificate was published as Appendix to the Revised Guidance Note on Section 227(3)(e) and (f), issued by the Institute in 2004. Following the revision, the words, "in the aforementioned company", appearing in the certificate stand deleted, implying that the disqualified director would be disqualified in respect of all companies and not just the auditee company.

 

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