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Home » » Companies (Auditor's Report)(Amendment) Order, 2004 - Clause 4(iii)(f)

Companies (Auditor's Report)(Amendment) Order, 2004 - Clause 4(iii)(f)

Written By Admin on Sunday, 1 April 2012 | Sunday, April 01, 2012

Clause 4(iii)(f)

whether the rate of interest and other terms and conditions of loans taken by the company, secured or unsecured, are prima facie prejudicial to the interest of the company.


1) This clause, read with paragraph 4(iii)(e) of the Order, requires the auditor to examine and comment whether the rate of interest and other terms and conditions of loans taken by the company (whether secured or unsecured) from companies, firms or other parties covered in the register maintained under section 301 of the Act are prima facie prejudicial to the interest of the company. 

2) The auditor should examine agreements entered into by the company with the parties covered in the register maintained under section 301 of the Act or any other supportive documents available for ascertaining the rate of interest and other terms and conditions of all loans taken by the company from companies, firms or other parties covered in the register maintained under section 301 of the Act. 

3) The auditor’s duty is to determine whether, in his opinion, the rate of interest and other terms and conditions of the loans taken are prima facie prejudicial to the interest of the company. The “other terms” would primarily include security, terms and period of repayment and restrictive covenants, if any. In determining whether the terms of the loans are “prima facie” prejudicial, the auditor would have to give due consideration to a number of factors connected with the loan, including the company’s financial standing, financial position, availability of alternative sources of finance, urgency of borrowing, ability to borrow, the nature of the security given, prevailing market rate of interest and so on. 
  
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