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

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

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

Clause 4(iii)(a)

has the company granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Act. If so, give the number of parties and amount involved in the transactions; and 

1) There are seven clauses under paragraph 4(iii) of the Order. It is clarified that the auditor’s comments on all the seven clauses are to be made with reference to the companies, firms or other parties covered in the register maintained under section 301 of the Act.

2) The duty of the auditor, under this clause, is to determine whether the company has granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Act. If the company has done so, the clause requires that the auditor’s report should disclose the “number of parties” and “amountinvolved” in such cases. The auditor is required to disclose the requisite information in his report in respect of all parties covered in the register maintained under section 301 of the Act irrespective of the period to which such loan relates. The clause covers not only the loan granted during the year but covers all loans including opening balances. Further,there is no stipulation regarding the loan being given in cash or in kind. In the absence of such stipulation, the auditor is required to disclose the requisite information in his report in respect of all kind of loans whether given in cash or in kind to the parties covered in the register maintained under section 301 of the Act.

3) Under section 301 of the Act, every company is required to maintain one or more registers which contain the particulars of all contracts or arrangements to which section 297 or section 299 of the Act applies. The particulars of contracts and arrangements required to be entered in the register maintained under section 301 include, among other things, names of the parties to the contract or arrangement. It is, however, suggested that the auditor should acquaint himself with all the requirements of sections 297, 299 and 301 of the Act. 

4) The auditor should obtain a list of companies, firms or other parties covered in the register maintained under section 301 of the Act from the management. The auditor should examine all loans (secured or unsecured) granted by the company to identify those loans granted to companies, firms or other parties covered in the register maintained under section 301 of the Act.

5) It may so happen that a party listed in the register maintained under section 301 of the Act might take a loan from the company and repays it to the company during the financial year concerned. Therefore, while examining the loans, the auditor should also take into consideration the loan transactions that have been squared-up during the year and report such transactions under the clause. For example, the company has, during the financial year, granted a loan of Rs. 1,00,000/-to a firm in which one of the directors of the company is interested and the firm repays the loan during the
financial year concerned. The auditor is also required to consider such transaction while commenting upon this clause of the Order.

4) Apart from reporting the number of parties, the auditor is also required to disclose the “amounts involved”. Since the Order does not clarify what constitutes “amounts involved” it would be proper if the auditor discloses the maximum amount involved during the year in the transactions covered by this clause. While commenting upon this clause, the auditor may also consider whether the year-end balance should also be disclosed in his audit report.

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