Today we discuss on the Guidance note on company audit 2016, what are the points to be kept in mind while conducting company audit for the year ended 31st March 2016. In this blog we will share the steps and procedure to follow for the company audit for the year 2015-16 as per company act 2013.
Finalisation of Company Books of Accounts –
First step while conducting company Audit is to finalisation of books of accounts, passed necessary closing entry.
Check the opening balance –
First step is to check the opening balance of books of accounts with the Previous year signed balance sheet.
Reversal of Provision entry –
Check all the provision entry made in the last year ended 31st March 2014, whether their reversal entry passed on 1st April 2014
Verify Closing entry –
Provision for expenses –
Check whether all the closing entry of the Provision for expenses has been passed and TDS has been deducted and paid where applicable.
Depreciation as per company Act 2013 –
Check the Depreciation entry with the Depreciation rate schedule as specified in the company Act has been passed.
Passed Deferred Tax entry –
Deferred tax Liability – If depreciation of income tax is more than depreciation as per company act than deferred tax liability will be created @30.90%.
Entry – P&L A/c Dr
To Deferred tax Liability
Deferred tax Assets – If depreciation of company act is more than depreciation as per income tax act than deferred tax Assets will be created @30.90%
Deferred Tax Assets A/c Dr
To Profit and loss A/c
Check Compliance applicable to the company –
Applicability of CARO –
Check whether CARO is applicable to an company or not , Caro will be applicable to the private company if he satisfy any one of the following condition-
1 Turnover exceed rupees 5 crore at any point of time during the previous year.( upto Rs 5 crore CARO not applicable)
2 Paid up capital + Reserve exceeds Rs 50 Lakh. (up to 50 laks not applicable)
3 Outstanding loan from the financial institution exceed Rs 25 Lakhs.
If CARO is applicable – Download latest CARO Report and comply the same.
Applicability of Internal Audit –
Check whether internal audit is applicable to company or not.
Internal audit will be applicable if any of the following condition is satisfy –
1 Paid up capital + reserve at the commencement of the year exceeds Rs 50 lakhs Rupees.
2 Average Annual turnover of the last three years exceed Rs 5 Cr (if total turnover of last three year/3 exceed rs 5 Cr)
Applicability of Cash flow –
Check whether Cash flow is applicable to particular company or not.
Company will be required to prepare the cash flow statement if any of the following condition satisfy –
1 Paid up capital exceed Rs 50 Lakhs
2 Turnover of the company exceeds Rs 2 croreCash Flow Statement is applicable for all companies except OPC & Small Company’Small Company – Section 2 (85) after amendment of 13th Feb, 2015 – here Small Company means as a company (other than Public Company) whose paid up capital does not exceed Rs. 50 lacs and turnover as per last profit and loss account does not exceed Rs. 2 .crores.Verify the Company Balance Sheet –
After finalisation of books of accounts and verify the Company compliance the next step is to do the Ledger scrutiny of each and every item of company accounts.
Verify the Share Application Money
If any application money received and share not allotted it will treated as deposit.
Verify the Loan taken as per company act 2013 –
As per the latest company Rule a private limited can not take the Loan from any party other than Director loan or Loan from financial institution (NBFC, Bank). Also director can not take a loan from the other person and give a loan to the company.
Inter company loan and advances and loan from the shareholder are also not allowed.
If repayment of loan not made before 31st March 2015-
Company can take the extension from the CLB. If loan not repaid than issue them share and covert the loan amount into capital accounts.
Loan taken from the foreign company –
Check if the loan taken from the foreign company whether ECB guidelines has been followed or not. If external commercial borrowing is not allowed in particular sector than company can not take the loan. It has to issued the share of the company to the foreign company. Valuation of share to be done as per discounted cash flow method (DCF).
Verify the Business Advances –
Any money received as advance in the ordinary course of business and goods and service not provided with in 365 days will be treated as Deposit.
Verify the Deposit in company as per company Act 2013 –
DPT – 4 should be filed for the Deposit taken. A company can not accept the deposit which is repayable on the demand or repayable on a notice period of less than 6 months. A company cannot take the deposit which is payable after than 36 months.
Limit of deposit for Non eligible company is 25% of paid up capital and free reserve.
An eligible company can take the deposit only upto 10% of paid up capital and free reserve from the member and 25% of paid up capital and free reserve from other than member.
Amendment in loan provision in company Act 2013
1. Acceptance of deposit from members/shareholders : –Acceptance of deposits and loans from members shall be exempt up to net worth of the Company. 2. Loan to directors/associates company etc :-
The lending from company is allowed subject to the following condition
a. there is no body corporate shareholder in the lending/guaranteeing company;
b. the lending company’s aggregate borrowings from other bodies corporate or banks or financial institutions is limited i. twice net worth of company; or ii. Rs 50 crores whichever is lower; c. there is no pending default in repayment of such borrowings by the lending company.
Verify the Interest expense in company –
Check the interest rate in the company , A company can not pay the interest more than prescribed by the RBI.
Verify the Brokerage expense in company –
Check the Brokerage rate in the company , A company can not pay the Brokerage more than prescribed by the RBI.
