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

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

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

Clause 4(iii)(c)

whether receipt of the principal amount and interest are also regular.


1) This part of the clause requires the auditor to report upon the regularity of receipt of principal amount of loans and interest thereon. Again, read with paragraphs 4(iii)(a) and (b) of the Order, the scope of auditor’s inquiry under this clause shall be restricted in respect of companies, firms or other parties covered in the register maintained under section 301 of the Act. The auditor is required to comment on this clause in regard to receipt of principal amount of loans “granted” by the company to companies, firms or other parties covered in the register maintained under section 301 of the Act.

2) The auditor has to examine whether the receipt of principal amount and interest is regular. The word ‘regular’ should be taken to mean that the principal and interest should normally be received whenever they fall due, respectively. If a due date for receipt of interest is not specified, it would be reasonable to assume that it falls due annually. A loan repayable on demand falls due as and when the lender calls back the loan. The auditor can make an assessment of the regularity only if the loan is demanded by the company since the question of regularity would be judged by consequent action of the company (payment or non-payment). If the lending company has not called back the loan, the auditor cannot comment under this sub-clause. 

3) The following are some of the procedures that the auditor may apply to report on the clause:

(i) the auditor, while obtaining an understanding of the terms and conditions for reporting under paragraph 4(iii)(b) of the Order, should also take note of repayment schedule;

(ii) if loan agreements are not executed, any other equivalent documents may be referred to arrive at the terms of receipt of interest, for example, letters of understanding, acknowledgement by the party of the terms and conditions communicated by the company, etc.;

(iii) the dates of receipt of principal amount and payment of interest needs to be verified with reference to the books of accounts of the company to come to the conclusion whether such receipts are regular; and

(iv) if the results of the procedures mentioned above indicate any irregularity in receipt of principal and/or interest, the auditor should mention the fact in his report. 

4) In case where the auditee company is a non banking finance company, the auditor, for reporting under this clause, would also need to refer to the policy for demand/ call loans framed under clause 6A of the NBFCs Prudential Norms
(RBI Directions), 1998 issued by the Reserve Bank of India. 

5) Where no stipulation has been made for the recovery of the loan, the auditor is not in a position to make any specific comments. However, the auditor should state the fact that he has not made any comments because the terms of recovery have not been stipulated.
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