The Ministry of Corporate Affairs has issued an order directing auditors to highlight any lapses in companies related to frauds, internal control, inventories and outstanding dues as part of a more stringent set of rules to curb 'fraudulent practices ' in company.
The measures are aimed at strengthening the overall corporate governance standards in the country.
The government order stipulates that auditors are required to mention internal control systems, records of fixed assets, undisputed statutory dues and default in repayment of loans, among other factors related to the company they audit.
In the order, dated April 10, the ministry said that an auditor should mention whether there is an adequate internal control system commensurate with the size of the company and the nature of its business for the purchase of inventory and fixed assets and sale of goods and services.
Further, any continuing failure to correct major weaknesses in the internal control system will have to be flagged.
The ministry has also stated that the auditors will have to mention outstanding statutory dues. This would be applicable on dues related to provident fund, employee state insurance, income, sales, wealth and service taxes, customs and excise duties, among others.
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, the order states. Tax disputes should also be mentioned by the auditors.
Besides, the auditor is required to report whether a firm is maintaining proper records, including quantitative details and situation of fixed assets. The auditor has to mention whether the company's management physically verifies fixed assets at reasonable intervals and about any material discrepancies. It should also mention whether lapses have been properly dealt with in the books of account.
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