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CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

Narmada Infra Ltd shows a property, plant and equipment item, a building, at Rs 8 crore. During audit, the auditor finds that the title deed is in the name of the company's promoter and not in the company. The company says that it has paid the full price and uses the building. Under the Companies (Auditor's Report) Order, 2020 and the audit framework, what is the appropriate auditor action?

The auditor should report under the CARO 2020 clause on title deeds, giving details of the property not held in the company's name, and assess the effect on the opinion. Possession alone is not title, and the auditor cannot unilaterally change the books or report only privately.

  1. AIgnore the matter as the company has possession
  2. BReport in the CARO clause on title deeds of immovable properties not held in the company's name, giving details, and evaluate the effect on the opinionCorrect
  3. CRemove the building from the balance sheet on the auditor's own authority
  4. DReport only to the promoter in a management letter

Explanation

CARO 2020 requires the auditor to report whether title deeds of immovable properties are held in the company's name, and to give details where they are not. The auditor also evaluates whether the disclosure and ownership affect the true and fair view. The auditor cannot alter the financial statements, and a management letter alone does not satisfy reporting duties.

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