The Manufacturing and other Companies (Auditor's Report) Order 1988

Companies (Auditor’s Report) Order, 2003.

MACORO apply to every company including a foreign company as defined in S. 591 of the Companies Act, 1956 (1 of 1956), which is engaged or proposes to engage in one or more of the following activities namely :
 i.  Manufacturing, mining or processing;
 ii. supplying and rendering services;
 iii. trading; and 
the business of financing, investment, chit fund, nidhi or mutual benefit societies.
It shall not apply to :
 1.  a banking company as defined in clause (c) of S.5 of the Banking Regulation Act, 1949 (10 of 1949);
 2.  an insurance company as defined in S. 2(21) of the Companies Act, 1956 (1 of 1956); and
a company licensed to operate u/s. 25 of the Companies Act, 1956 (1 of 1956).

CARO shall apply to every company including a foreign company as defined in section 591 of the Act, except the following :-

(i) a Banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(ii)  an insurance company as defined in clause (21) of section 2 of the Act;
(iii)  a company licensed to operate under section 25 of the Act; and
(iv)  a private limited company with a paid up capital and reserves not more than fifty lakh rupees and has not accepted any public deposit and does not have loan outstanding ten lakh rupees or more from any bank or financial institution and does not have a turnover exceeding five crore rupees.

It shall come into force on the lst day of November, 1988.

It shall come into force on the 1^st day of July, 2003

"manufacturing company" means a company engaged in any manufacturing process as defined in the Factories Act, 1948 (63 of 1948);

“manufacturing company” means a company engaged in any manufacturing process as defined in the Factories Act, 1948 (63 of 1948);

The matters to be included in the Auditor’s Report:

Matters to be included in the auditor’s report.

i) Whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets; whether these fixed assets have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and, if so, whether the same have been properly dealt with in the books of account;

(i) (a) whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets;

(b) whether these fixed assets have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of account;

(c)  if a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern;

ii) Whether any of the fixed assets have been revalued during the year? if so, the basis of revaluation should be indicated;

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iii) Whether physical verification has been conducted by the management at reasonable intervals in respect of finished goods, stores, spare parts and raw materials?

(ii) (a) whether physical verification of inventory has been conducted at reasonable intervals by the management;

iv) Are the procedures of physical verification of stocks followed by the management reasonable and adequate in relation to the size of the company and the nature of its business? If not, the inadequacies in such procedures should be reported;

(b) are the procedures of physical verification of inventory followed by the management reasonable and adequate in relation to the size of the company and the nature of its business. If not, the inadequacies in such procedures should be reported;

v) Whether any material discrepancies have been noticed on physical verification of stocks as compared to book records, and if so, whether the same have been properly dealt with in the books of account?

whether the company is maintaining proper records of inventory and whether any material discrepancies were noticed on physical verification and if so, whether the same have been properly dealt with in the books of account;

vi) Whether the auditor, on the basis of his examination of stocks, is satisfied that such valuation is fair and proper in accordance with the normally accepted accounting principles? Is the basis of valuation of stocks same as in the preceding year? if there is any deviation in the basis of valuation, the effect of such deviation, if material, should be reported;

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vii) If the company has taken any loans, secured or unsecured, from companies, firms; or other parties listed in the register maintained u/s.301 of the Companies Act, 1956 (1 of 1956), and/or from the companies under the same management as defined under sub-section (1B) of S. 370 of the Companies Act, 1956 (1 of 1956), whether the rate of interest and other terms and conditions of such loans are prima facie prejudicial to the interests of the company;

(iii) (a)  has the company either granted or taken any loans, secured or unsecured to/from 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.

(b)   whether the rate of interest and other terms and conditions of loans given or taken by the company, secured or unsecured, are prima facie prejudicial to the interest of the company;

viii) If the company has granted any loans, secured or unsecured to companies, firms or other parties listed in the registers maintained u/s.301 and/or to the companies under the same management as defined under sub-section (1 B) of S. 370 of the Companies Act, 1956 (1 of 1956), whether the rate of interest and other terms and conditions of such loans are prima facie prejudicial to the interests of the company;

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ix) Whether the parties to whom the loans, or advances in the nature of loans, have been given by the company are repaying the principal amounts as stipulated and are also regular in payment of the interest and if not, whether reasonable steps have been taken by the company for recovery of the principal and the interest;

(c)    whether payment of the principal amount and interest are also regular;

(d)      if overdue amount is more than one lakh, whether reasonable steps have been taken by the company for recovery/payment of the principal and interest;

x) Is there an adequate internal control procedure commensurate with the size of the company and the nature of its business, for the purchase of stores, raw materials including components, plant and machinery, equipment and other assets, and for the sale of goods;

(iv)      is there an adequate internal control procedure commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods. Whether there is a continuing failure to correct major weaknesses in internal control;

xi) Whether the transactions of purchase of goods and materials and sale of goods, materials and services, made in pursuance of contracts or arrangements entered in the register(s) maintained u/s.301 of the Companies Act, 1956 (1 of 1956), as aggregating during the year to Rs. 50,000 (rupees fifty thousand) or more in respect of each party, have been made at prices which are reasonable having regard to prevailing market prices for such goods, materials, or services or the prices at which transactions for similar goods or services have been made with other parties;

(v) (a) whether transactions that need to be entered into a register in pursuance of section 301 of the Act have been so entered;

(b) whether each of these transactions have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time;

(This information is required only in case of transactions exceeding the value of five lakh rupees in respect of any party and in any one financial year).

xii) Whether any unserviceable or damaged stores, raw materials or finished goods, are determined and whether provision for the loss, if any, has been made in the accounts;

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xiii) In case the company has accepted deposits from the public, whether the directives issued by the Reserve Bank of India and the provisions of S. 58A of the Companies Act, 1956, and the rules framed thereunder where applicable, have been complied with. If not, the nature of contraventions should be stated;

(vi) in case the company has accepted deposits from the public, whether the directives issued by the Reserve Bank of India and the provisions of sections 58A and 58AA of the Act and the rules framed there under, where applicable, have been complied with. If not, the nature of contraventions should be stated; If an order has been passed by Company Law Board whether the same has been complied with or not?

xiv) Is the company maintaining reasonable records for the sale and disposal of realisable by-products and scraps, where applicable;

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xv) In the case of companies having a paid-up capital exceeding Rs. 25 lakhs as at the commencement of the financial year concerned, or having an average annual turnover exceeding Rs. 2 crores for a period of three consecutive financial years immediately preceding the financial year concerned, whether the company has an internal audit system commensurate with its size and nature of its business;

(vii) in the case of listed companies and/or other companies having a paid-up capital and reserves exceeding Rs.50 lakhs as at the commencement of the financial year concerned, or having an average annual turnover exceeding five crore rupees for a period of three consecutive financial years immediately preceding the financial year concerned, whether the company has an internal audit system commensurate with its size and nature of its business;

xvi) Where maintenance of cost records has been prescribed by the Central Government u/s.209(1)(d) of the Companies Act, 1956 (1 of 1956), whether such accounts and records have been made and maintained;

(viii) where maintenance of cost records has been prescribed by the Central Government under clause (d) of sub-section (1) of section 209 of the Act, whether such accounts and records have been made and maintained;

xvii) Is the company regular in depositing Provident Fund and Employees’ State Insurance dues with the appropriate authority and if not, the extent of arrears of Provident Fund and Employees’ State Insurance dues shall be indicated by the auditor;

(ix) (a) is the company regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income-tax, Sales-tax, Wealth Tax, Custom Duty, Excise Duty, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor.

xviii) Whether, any undisputed amounts payable in respect of income tax, wealth tax, sales tax, customs duty and excise duty were outstanding, as at the last day of the financial year concerned, for a period of more than six months from the date they become payable; if so, the amounts of such outstanding dues should be reported;

(b) in case dues of sales tax/income tax/custom tax/wealth tax/excise duty / cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending may please be mentioned. (A mere representation to the Department shall not constitute the dispute).

xix) Whether personal expenses have been charged to revenue account; if so, the details thereof should be reported;

xx) Whether the company is a sick industrial company within the meaning of clause (o) of sub-section (1) of S. 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); if so, whether a reference has been made to the Board for Industrial and Financial Reconstruction under section 15 of that Act;

(x) whether in case of a company which has been registered for a period not less than five years, its accumulated losses at the end of the financial year are  not less than fifty per cent of its net worth and whether it has incurred cash losses in such financial year and in the financial year immediately preceding such financial year also;

(xi) whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holders? If yes, the period and amount of default to be reported;

(xii) whether adequate documents and records are maintained in cases where the company has granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities; If not, the deficiencies to be pointed out.

(xv)  whether the company has given any guarantee for loans taken by others from bank or financial institutions, the terms and conditions whereof are prejudicial to the interest of the company;

(xvi) whether term loans were applied for the purpose for which the loans were obtained;

(xvii) whether the funds raised on short-term basis have been used for long term investment and vice versa; If yes, the nature and amount is to be indicated;

(xviii)   whether the company has made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act and if so whether the price at which shares have been issued is prejudicial to the interest of the company;

(xix) whether securities have been created in respect of debentures issued?

(xx) whether the management has disclosed on the end use of             money raised by public issues and the same has been   verified;

(xxi) whether any fraud on or by the company has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated.

Reason to be stated for unfavourable or qualified answers

Where, in the Auditor’s Report, the answer to any of the questions referred to in paragraph 4 is unfavourable or qualified, the Auditor’s Report shall also state the reasons for such unfavourable or qualified answer, as the case may be. Where the auditor is unable to express any opinion in answer to a particular question, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such question.

5.Reasons to be stated for unfavourable or qualified answers. – Where, in the auditor’s report, the answer to any of the questions referred to in paragraph 4 is unfavourable or qualified, the auditor’s report shall also state the reasons for such unfavourable or qualified answer, as the case may be. Where the auditor is unable to express any opinion in answer to a particular question, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such question.