Important Considerations for audit report on financial statement for the year ended March 31, 2018

As the financial year 2017-18 end is approaching, auditors are geared for performing audit procedures for issuance of the audit report on the financial statements of the auditess.  Objective of this article is to bring out certain important consideration to be made while reporting on these financial statements. 

1)  Reporting on Specified Bank Notes (SBNs) (In main audit report):
By way of the MCA notification, companies were required to make disclosures related to the SBN’s in the financial statement for the period ended March 31, 2017.

It is to be noted that the provisions stated in Schedule III (Divisions I and II) to the Companies Act, 2013, and Rule 11(d) of the Companies (Audit and Auditors) Rule 2014 have not yet been withdrawn. Consequently, the previous year figures relating to SBNs are required to be given in the financial statements prepared for the financial year ending March 31, 2018.

   Further, while reporting on the financial statements for the financial year ending March 31, 2018 prepared pursuant to the Act, the following  enlightenments can be considered appropriately :

If the reporting on SBNs was made during the previous year  and report was unmodified in respect of SBN's disclosures then following reporting can be made in current year:

"The reporting on disclosures relating to Specified Bank Notes is not applicable to the Company for the year ended [date]."


2) Reporting on Clauses 3(vii)(a) and (b) of Companies (Auditor's Report) Order, 2016 (CARO):

Goods and Service Tax  (GST) has come into place in India wef July 1, 2017, replacing several erstwhile taxes such as Central and State taxes like Excise Duty, Service Tax, Value Added Tax, Purchase Tax, Entry Tax , etc. 

With the applicability of GST, the impact on the reporting on Clauses 3(vii)(a) and (b) of the CARO is given below:

(i) The existing Clause 3(vii)(a) is as follows:
Whether the company is regular in depositing undisputed statutory dues including Provident Fund, employees’ State Insurance, Income-tax, Sales-tax, Service Tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues to the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues on 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; 

As stated above, a large number of taxes have been subsumed by GST. While reporting under the above Clause under the head "any other statutory dues"  Paragraph 42(b) of the Guidance Note on CARO, 2016 provides as follows:

One can have a note that the use of the word “any other statutory dues” indicates that the clause covers all type of dues under various statutes applicable to a company.  In addition to the statutory dues listed, the auditor is required to report on the regularity of the company in depositing “any other statutory dues” such as Labor welfare fund, ESIC,  etc. payable by the company to appropriate authorities.

Accordingly, as the provisions relating to GST are applicable from July 1, 2017, one can report under this Clause as below:

 "....value added tax, cess,  goods and service tax with effect from July 1, 2017 and other material statutory dues, and.... ".

(ii) The existing Clause 3(vii)(b) reads as follows:

Where dues of income Tax or sales Tax or service Tax or duty of customs or duty of excise or value added tax have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned. {A mere representation to the concerned Department shall not be treated as a dispute.}

The above Clause requires reporting on dues of income Tax or sales Tax or service Tax or duty of customs or duty of excise or value added tax which have not been deposited on account of any dispute.  As GST is a tax on supply of both goods and services,  in addition to the existing reporting, the reference to GST should also be included as follows:

 ".... income-tax, sales-tax,  service-tax, duty of customs, duty of excise, value added tax or goods and service tax which have.... ".