New norms for auditors to be effective from July 1
The government has put in place norms for auditors to note if companies have used loans from banks and financial institutions for the stated purposes.
Auditors will also be required to reveal the period and the magnitude of defaults on loans from banks and financial institutions to debenture holders.
A notification on Companies (Auditor Report) Order, 2003, issued by the department of company affairs on June 12 has also prescribed that auditors take note of the loans extended by companies in the auditor's report. The new guidelines will be applicable from July 1.
Auditors will now have to track the number and nature of frauds related to a company during the year and specify the amount involved.
They have also been mandated to state if the rate of interest and terms and conditions of loans given or taken by the company are prejudicial to the interest of the company.
Further, in case of an overdue of over Rs 1 lakh, auditors will be required to record the steps taken to recover or repay them in the audit reports.
The Companies (Auditor Report) Order, 2003, would improve financial discipline, thus benefiting shareholders and companies, chartered accountants said.
Apart from mentioning the extent of default to the provident fund and the Employees' State Insurance, auditors will also be required to furnish details on similar irregularities in depositing funds in the Investor Education and Protection Fund, defaults in tax commitments and payment of statutory dues.
Auditors said they would face problem in ascertaining the use of term loans as these are not immediately employed by the companies for the specified intention and the funds are diverted to other uses.
Another complication faced by the auditor will be with respect to giving reasons for qualified or unfavourable comments. They would also have to provide explanation in case they are unable to express any opinion.
"This would be tricky when the auditor is dealing with confidential issues and when such revelation is detrimental to the interest of the company," chartered accountant Vinod Jain said.
The earlier order covered companies involved with mining, manufacturing, trading and investment and the clauses too were classified on the basis of the activity of the company.
The present order puts no activity limitations, the clauses being applicable to all companies except the usual banks, financial institutions and non profitable organisations.
Only private companies with paid up capital and reserves of Rs 50 lakh, turnover of below Rs 5 crore and with loans under Rs 10 lakh will be exempted.
New norms
