16/04/2017
*Implementation Guide* on Auditor’s Report under Rule 11(d) of Companies (Audit and Auditors) Amendment Rules, 2017 and Amendment to *Schedule III* to Companies Act, 2013
(Pursuant to Notification No. G. S.R 307(E) and
Notification No. G.S.R. 308(E) dated 30th March, 2017)
*ICAI FAQs*
1. For which accounting periods does the Amendmentto Schedule III apply and whether disclosure given in the
financial statements should also mention
denominations along with the value?
*Answer*-
The notification to amend Schedule III is issued under thepowers conferred by Section 467(1) of the Act. Section467(2) states that any alteration notified under Section467(1) is effective from the date of the notification, unlessthe notification directs otherwise. This notification clearly
states that it comes into effect from the date of its publicationin the Official Gazette. Consequently, the disclosures are applicable to financial statements which are issued afterMarch 30, 2017 and which include the period from 8th
November 2016 to 30th December 2016.
Notification as mentioned above, seeks disclosure of closingcash in hand as on 08.11.2016 and as on 30.12.2016 with
other detail, which should be mentioned in terms of INR,thus there is no specific requirement to mention thedenomination also in which closing cash balance during thespecified period was held.
2. *What is the effective date for auditors reporting under*the new clause in Rule ?
*Answer*
As mentioned in the notification, the Companies (Audit andAuditors) Amendment Rules, 2017 is effective from the dateof its publication in the Official Gazette i.e. 30th March 2017and thus audit reports issued on the financial statements asmentioned in reply to FAQ 1 above, should include acomment against clause(d) of Rule 11 as referred above.
3. *What could be the audit procedures that the auditorsneed to perform for the purpose of reporting* againstRule 11(d)?
*Answer*
For the illustrative list of procedures to be followed by theauditor, based on his professional judgement, please refer
the section ―Illustrative list of audit procedures‖ given in the icai Guide.
4. *What should be the manner of reporting against Rule*11(d) for companies to which Schedule III requirementsare not applicable?
*Answer*
For companies which are not required to present theirfinancial statements as per Schedule III (Reference may bemade to Proviso (2) of sub-section (1) of Section 129 ofCompanies Act, 2013 in this regard). Refer Scenario 2, given
herein below in this Guide, for the purpose of reportingagainst Rule 11(d).
5. *Whether there could be a scenario for modifying themain audit report along with reporting against Rule*11(d)?
*Answer*
Where instance of non-compliance with relevant notificationsare noted by the auditor and where in the auditor‘sprofessional judgement it is concluded that the non-compliance is of such nature that it has an impact on the true
and fair view of the financial statements, the auditor shouldconsider modifying his report in accordance with SA 705,
‗Modifications to the Opinion in the Independent Auditor‘sReport‘.
*Note: It should also be noted that above guidance isequally applicable in respect of disclosure and reporting on the consolidated financial statement* .
Illustrative list of Audit Procedures*
[Please note that these procedures are notsubstitute for ensuring compliance with Standardson Auditing and relevant Guidance Notes]
Obtain closing cash balance certificate withdenominations from the Management as at 8 November2016 and as at 30 December 2016 in respect of
*Specified bank notes and other denomination notes*.
A. Obtain an understanding of the controls and proceduresimplemented by the company during the period 9November 2016 to as at 30 December 2016 to ensurethat there were no payments and receipts made in SBN
other than those permitted by regulators from time totime. Whether the controls (if implemented by thecompany) were reasonable to prevent and detect any
non-permitted transactions.
B. Confirm the balances as certified by the managementfrom the books of accounts as at those dates.
C.. In case the auditor had conducted physical cash countson 8 November 2016 and 30 December 2016 or a closerdate before or after that date (for example 31 December2016), he should consider performing roll-forward or roll-back procedures to confirm the balance as certified bythe management has been arrived at correctly.
D.. Obtain a listing from the management as to how theSBNs available with the company as at closing on 8November 2016 were dealt with, example.
(i) Used for payment for permitted transactions inaccordance with the issued notifications* from time to time.(ii) Deposited in bank accounts (with dates and amount,with denominations), as evident from bank depositslips/bank statements.
(iii) Used for Payment for non-permitted transactions
[Where cases of non-permitted transactions werenoted, the auditor should report the same against
Rule 11(d) of Companies (Audit and Auditors)Amendment Rules, 2017 - Refer reporting scenario6].
(iv) SBNs as available with the company as at closinghours of 30 December, 2016.
F. Obtain a listing from the management if there were anyreceipts of the SBNs during the period from 9 November
2016 to 30 December 2016, including the nature oftransaction and amount with denominations. Furtherexamine with the relevant notification that they were
eligible to accept SBNs.
G. Obtain a reconciliation of the cash balance from themanagement.
As explained in FAQ 1, the figures
required to be disclosed in Schedule III in INR, but forauditors working and reconciliation, obtain the figures
with denomination in the illustrative format as given.
H. For the details of payments given by the company, verifythe following with reference to relevant notifications
issued from time to time :
(i) Payments for permitted transactions: Verify cashpayment vouchers and whether the purpose forwhich payments were made are covered underpermitted/ non-permitted transactions
(ii) Deposited in bank accounts (with dates and amount,with denominations): verify deposit slips or deposit
form which would contain details of denominationsand would also be acknowledged by the bank.
I. Obtain bank statement regarding deposits made with thebanks
J. Where the entity is covered under the permitted list toreceive payments in SBN (e.g. hospital, toll-collectioncompanies, petrol pumps, air ticket etc.) as per the
notifications issued from time to time, obtain details ofreceipts made by the company and deposits made with
the bank. Also verify the same from the books ofaccounts of the company, bank deposit slips and BankStatements.
K.Obtain management representation regarding thefollowing:
(i) Completeness of the disclosure made in the notes tothe financial statements.
(ii) Manner of dealing in the SBNs during 9 November2016 to 30 December 2016, deposited in bank,payment against permitted transactions etc.
(iii) Permitted receipts and permitted payments made bythe company as per the Government notifications.
