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

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

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

Clause 4(iii)(g)

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

1) This sub clause requires the auditor to report upon the regularity of payment of principal amount of loans taken and interest thereon. Again, read with paragraph 4(iii)(e) 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.

2) The auditor has to examine whether the payment of principal and interest is regular. The word ‘regular’ should be taken to mean that the principal and interest should normally be paid whenever they fall due. If a due date for payment of interest is not specified, it would be reasonable to assume that it falls due annually. 

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)(g) 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 repayment and payment 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 repayment of principal and payment of interest needs to be verified with reference to the books of account of the company to come to the conclusion whether the repayments of principal and payment of interest are regular; and

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

4) Where no stipulation has been made for the repayment of the loan, the auditor is not in a position to make any specific comments. However, the auditor should, in such situations, bring out the fact of non stipulation of any terms of repayment, in his audit report. In case of loans repayable at demand repayment of the loan becomes due as and when the lender calls back the loan. 
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