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

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

Clause 4(xix)

whether security or charges has been created in respect of debentures issued; 

1) The auditor, under this clause, is required to examine whether the company has created any ‘security’ or ‘charge’ for the debentures issued by it. The auditor is required to comment upon the creation of security or charge in respect of debentures issued by the company by creating proper charges on the assets of the company.

2) Where the company has issued any debentures, the auditor should also examine the debenture trust deed executed under section 117A of the Act. The auditor should pay particular attention to verify whether proper security has been created in favour of the debenture trust. The security creation can be verified by examining the relevant documents creating the charge in favour of the trustees for the debentureholders duly registered in the concerned Registrar’s office if the security is an immovable property. Readers’ attention is also invited to the Guidance Note on Certification of Documents for Registration of Charges issued by the Institute of Chartered Accountants of India.

3) If the debentures have been issued towards the end of the year and the securities are created subsequently then, to present a complete and balanced picture while reporting the fact that the security in respect of debentures is yet to be created, the auditor would be well advised to also mention the reason for the same, viz., that the debentures have been issued only recently (specify the month of issue) and that the company is taking steps to create the security. However, he should report as above only where, as a result of his enquiries, he is satisfied that the non-creation of security is not due to deliberate or inadvertent delay on the part of the company and that it is in fact in the process of creation of security.

4) If the company has not created any security, the auditor should report the fact in his report.
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