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CMA Intermediate · Corporate Accounting and Auditing · Audit Report and Reporting under CARO

Hind Textiles Ltd was sanctioned working capital limits of Rs 4 crore from Bank A and Rs 2 crore from Bank B during the year, both against security of current assets. Under clause 3(ii)(b) of CARO 2020, what must the auditor report?

The aggregate sanctioned limits are Rs 6 crore, which exceeds Rs 5 crore, so the auditor must report whether the quarterly returns or statements filed with the banks agree with the books of account, giving details of any differences. The test is on the aggregate, not on each bank.

  1. ANothing, because each bank's limit is individually below five crore rupees
  2. BWhether quarterly returns or statements filed with the banks agree with the books of account, since aggregate limits exceed five crore rupeesCorrect
  3. COnly whether the limits were utilised for the purpose sanctioned
  4. DWhether annual returns filed with the banks agree with the books, since limits exceed five crore rupees

Explanation

The clause tests the limits in aggregate from banks or financial institutions: 4 + 2 = Rs 6 crore, which exceeds Rs 5 crore. The auditor must therefore state whether quarterly returns or statements agree with the books of account and give details if not. Testing each bank separately is wrong because the clause says in aggregate.

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