Group 13: CARO & Company Audit

30 original descriptive cases. Descriptive mix: 5 at 3 marks, 19 at 5 marks, 6 at 10 marks.

Original practice, not ICAI questions, official suggested answers or an official examiner scheme. Equivalent correct work is credited within the stated caps. Public practice availability is not full official question-bank completion.

Chart supplement: the mapped current ICAI Module9 does not contain CARO/company-auditor provisions, so the official live India Code Act text is linked instead. Current-law completeness is not claimed: prescribed thresholds, exemption notifications and later rules require separate verification before use. CARO source-date hold: older PIB/ICSI summaries show superseded commencement dates; the later ICAI announcement says FY2021-22 onwards. Its small-company thresholds are historical and are not used as current law.

AUD-G13-D001 · 3 marks

A firm name is not a licence for every partner A proposed firm has six partners practising in India, four qualified chartered accountants. The company wants a non-CA partner to sign the statutory audit report merely because the appointment is in the firm's name. Assume there is no separate disqualification and the appointment procedure is otherwise valid. Required: Apply the qualification rule, firm eligibility and signing restriction. (3 marks)

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Marks	Credit	Case application / answer
1	Apply the chartered-accountant qualification rule.	Section 141(1) requires a person appointed as auditor to be a chartered accountant.
1	Apply the majority-of-partners condition for appointment by firm name.	Four of the six partners practising in India are qualified; the supplied firm satisfies this condition, subject to other eligibility checks.
1	Restrict acting and signing to CA partners.	Section 141(2) does not authorise the proposed non-CA partner to act and sign merely because the firm is eligible.

Non-credit errors

Firm eligibility does not make every partner eligible to sign.

Official concept source: Companies Act 2013 references 141(1)-(2)

AUD-G13-D002 · 5 marks

Disqualification arises after appointment An individual statutory auditor of an ordinary non-government company becomes its employee during the term. Management offers to disclose the employment in a note, keep the auditor until the next AGM and treat it as a resignation only if the auditor objects. Required: Explain the legal status, vacancy and ordinary vacancy-filling route. Assume no resignation occurred. (5 marks)

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Marks	Credit	Case application / answer
1	Identify the employee disqualification.	Section 141(3)(b) bars an officer or employee of the company from appointment as its auditor.
1	Apply the subsequent-disqualification consequence.	Under 141(4), the appointed auditor must vacate office when the disqualification is incurred; the note cannot cure it.
1	Identify the statutory casual vacancy.	The vacation is deemed a casual vacancy, not merely a management preference to retain the incumbent.
1	Apply the ordinary company vacancy route.	Section 139(8)(i) requires the Board to fill this supplied non-CAG vacancy within 30 days.
1	Distinguish resignation-specific approval.	The additional general-meeting approval within 3 months of Board recommendation applies where the vacancy results from resignation; that supplied trigger is absent here.

Non-credit errors

Disclosure is not an exemption from disqualification.
Do not invent a resignation to invoke its special route.

Official concept source: Companies Act 2013 references 141(3)(b),141(4),139(8)(i)

AUD-G13-D003 · 5 marks

Five calendar years is not the complete appointment description At the first AGM of a non-government company, members appoint an eligible firm. The secretary says the Board's verbal selection is enough, no written consent or certificate is needed and there is no Registrar filing because the audit report will identify the firm. Required: State five appointment requirements or corrections under section 139(1). (5 marks)

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Marks	Credit	Case application / answer
1	Identify appointment by members at the first AGM.	The supplied AGM appointment is the statutory route, not a substitution by informal Board selection.
1	Describe tenure by AGM conclusions.	Office runs from conclusion of that meeting until conclusion of its sixth AGM, subject to applicable rotation/other provisions; do not replace this with an arbitrary calendar expiry.
1	Obtain written consent before appointment.	A verbal willingness is not the required written consent.
1	Obtain the prescribed compliance certificate, including 141 criteria.	Eligibility must be certified as required; appointment does not waive the certificate.
1	Inform the auditor and file notice with the Registrar within 15 days of the appointing meeting.	Identification in the eventual audit report does not fulfil the separate notice requirement.

Non-credit errors

No claim that annual ratification is required: the former first proviso is omitted in the live Act text.

Official concept source: Companies Act 2013 references 139(1)

AUD-G13-D004 · 5 marks

A resignation vacancy is not just an empty chair An auditor resigns from an ordinary company whose auditor is not appointed by CAG. The Board appoints an eligible replacement within 30 days, then says that closes the matter and that the successor's audit report will serve as the predecessor's resignation statement. Required: Correct five parts of the proposed process. (5 marks)

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Marks	Credit	Case application / answer
1	Recognise the Board vacancy-filling responsibility.	Section 139(8)(i) requires filling within 30 days; the supplied appointment meets that time element.
1	Obtain company approval in a general meeting for this resignation vacancy.	Board action alone does not complete the resignation-specific approval.
1	Apply the 3 month period from Board recommendation.	The general meeting is to be convened within 3 months of that recommendation, not from the successor report date.
1	Limit successor tenure to conclusion of next AGM.	This casual-vacancy appointment is not automatically a fresh 139(1) tenure until the sixth AGM.
1	Require the resigning auditor to file the prescribed statement within 30 days with company and Registrar.	Section 140(2) requires reasons and other relevant facts; the successor report is not a substitute. No CAG filing is added for this supplied ordinary company.

Non-credit errors

No Board-only closure of a resignation vacancy.

Official concept source: Companies Act 2013 references 139(8)(i),140(2)

AUD-G13-D005 · 10 marks

Rotation review with misleading shortcuts A listed company proposes the following succession plan. Its individual auditor has completed one five-consecutive-year term and will be reappointed immediately. Alternatively, a firm that has completed two such five-year terms will be reappointed for one more year. A third proposed firm has a common partner with the outgoing firm whose tenure expired in the immediately preceding financial year. Management says switching the signing partner resets firm tenure and that rotation means an auditor cannot resign or be removed. Assume the supplied completed terms are correctly counted and section 139(2) applies. Required: Evaluate the three appointments, the two shortcuts and the statutory safeguards. (10 marks)

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Marks	Credit	Case application / answer
1	Apply rotation to the listed company.	The question expressly supplies a listed company, so 139(2) applies without guessing a prescribed-class threshold.
1	Limit an individual to one five-consecutive-year term.	The incumbent has exhausted the supplied permitted individual term.
1	Apply individual cooling-off.	The individual is not eligible for reappointment to the same company for 5 years from completion, so immediate reappointment fails.
1	Limit a firm to two five-consecutive-year terms.	The proposed extra year exceeds the supplied completed two-term limit.
1	Apply firm cooling-off.	The completed firm cannot be reappointed to the same company for 5 years from completion.
1	Apply the common-partner restriction.	The third firm falls within the supplied common-partner/outgoing-tenure condition; it cannot be appointed to the same company for 5 years.
1	Distinguish partner/team rotation from audit-firm rotation.	Members may resolve partner/team rotation under 139(3); changing the signer is not a statutory reset of completed firm tenure.
1	Preserve removal and resignation rights.	The rotation subsection expressly does not prejudice the company right to remove or auditor right to resign, subject to relevant procedures.
1	Use the eligible replacement route rather than relabel a prohibited continuation.	Screen any alternative firm for the statutory eligibility and rotation conditions; do not approve the supplied disqualified options.
1	Keep the conclusion confined to the supported facts.	The supplied listed-company status and completed terms resolve these cases; there is no universal claim that every company must rotate on these terms.

Non-credit errors

Signer change does not reset firm tenure.
Rotation does not prohibit all resignation or removal.

Official concept source: Companies Act 2013 references 139(2)-(4)

AUD-G13-D006 · 3 marks

Removal is not a Board email An ordinary company wants to remove its statutory auditor before the term expires. The Board proposes emailing a termination and obtaining Central Government approval afterwards. Required: Explain the section 140(1) safeguards. (3 marks)

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Marks	Credit	Case application / answer
1	Require previous Central Government approval in the prescribed manner.	Later approval does not fulfil the stated prior-approval requirement.
1	Require a company special resolution.	A Board email is not the required resolution for removal before expiry.
1	Give the auditor a reasonable opportunity of being heard before action.	The supplied plan omits the hearing safeguard and must not be treated as completed removal.

Non-credit errors

No Board-only removal or retrospective-approval cure.

Official concept source: Companies Act 2013 references 140(1)

AUD-G13-D007 · 5 marks

Records exist outside the registered office A manufacturing company denies access to vouchers stored at a logistics office and asks the auditor to rely only on a ledger export. It has unsecured-looking advances, journal-only settlements and personal expenses charged to revenue. The auditor proposes limiting inquiries to whether the trial balance balances. Required: Apply access and inquiry duties to these facts. (5 marks)

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Marks	Credit	Case application / answer
1	Assert access at all times to books and vouchers wherever kept.	Section 143(1) is not limited to the registered office; the off-site location is no ground to refuse access.
1	Require information and explanations necessary for audit duties.	The export alone does not prevent requesting underlying vouchers and officers explanations.
1	Inquire into security and prejudicial terms of secured loans/advances.	Investigate the supplied security concerns and relevant terms; do not declare every advance unlawful merely from appearance.
1	Inquire whether merely book-entry transactions are prejudicial.	Journal-only settlements need substance inquiry, not acceptance because entries balance.
1	Inquire whether personal expenses were charged to revenue.	Balancing the trial balance does not answer the supplied personal-expense issue.

Non-credit errors

Access rights do not themselves prove that sufficient evidence was obtained.

Official concept source: Companies Act 2013 references 143(1)(a),(b),(e)

AUD-G13-D008 · 5 marks

No cash receipt behind cash allotment The records describe a cash share allotment, but bank evidence shows no cash received. Loans are shown as deposits. A non-investment, non-banking company also sold securities below acquisition cost. Management says the auditor need not inquire because all three entries were Board-approved. Required: Apply the statutory inquiries and explain the limit of Board approval. (5 marks)

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Marks	Credit	Case application / answer
1	Inquire whether cash was actually received for the stated cash allotment.	The supplied bank evidence requires investigating the mismatch rather than accepting the label.
1	If cash was not received, inquire whether the books and balance-sheet position is correct, regular and not misleading.	No-cash status prompts the stated assessment, not an invented conclusion that shares are always void.
1	Inquire whether loans and advances are shown as deposits.	The supplied classification needs the 143(1)(d) inquiry; Board approval is not a substitute.
1	Inquire into securities sold below purchase price for this company.	The question expressly excludes investment and banking company exceptions to 143(1)(c).
1	Do not equate approval with compliance or a predetermined opinion.	Resolve evidence, accounting and reporting effects from the actual facts; the inquiry list is not a mechanical instruction to issue an adverse opinion.

Non-credit errors

Do not extend the specific securities inquiry to its excluded classes.

Official concept source: Companies Act 2013 references 143(1)(c),(d),(f)

AUD-G13-D009 · 5 marks

Bare negatives in the statutory report The report says "information not received", "proper books not maintained" and "branch report dealt with" but gives no reasons, missing-information details or description of how the branch report was used. It says the statutory section is addressed to management, not members. Required: Correct five reporting defects. Assume the ordinary relevant reporting provisions apply. (5 marks)

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Marks	Credit	Case application / answer
1	Address the statutory audit report to members.	Section 143(2) requires reporting to members on accounts examined and relevant financial statements; management is not the substituted statutory audience.
1	State whether necessary information and explanations were sought and obtained.	A bare phrase obscures the full 143(3)(a) requirement.
1	Give details of information not obtained and its effect on the financial statements.	The negative answer needs the specified details and effect, not only a label.
1	Explain negative or qualified statutory answers with reasons.	Section 143(4) applies; the books answer needs supported reasons rather than an unexplained tick.
1	State receipt of the other auditor branch report and the manner of dealing with it.	Section 143(3)(c) requires the manner, not merely the uninformative phrase dealt with.

Non-credit errors

Negative statutory answers are not a substitute for considering the appropriate financial-statement opinion.

Official concept source: Companies Act 2013 references 143(2)-(4)

AUD-G13-D010 · 10 marks

Company-report checklist with an unfinished evidence file For a company to which the relevant section 143(3) requirements apply, the audit file has these unresolved matters: ledger-to-statement differences; an unassessed accounting policy; a possibly disqualified director under 164(2); control testing incomplete; unreceived branch returns and an unread branch-auditor report; transactions potentially harming company functioning; and account-maintenance reservations. Management asks for a clean checklist because the financial statements balance. Assume no exemption from the supplied internal-financial-controls reporting requirement, and no established conclusion on the unresolved matters. Required: Set out an evidence-based completion/reporting response, separating the statutory items from the overall opinion. (10 marks)

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Marks	Credit	Case application / answer
1	Reconcile balance sheet and profit-and-loss figures with books and returns.	Section 143(3)(d) is not fulfilled merely by a balancing statement; investigate the supplied differences.
1	Assess compliance with accounting standards.	The unresolved policy must be evaluated for 143(3)(e), not silently marked compliant.
1	Evaluate the supplied director-disqualification question under 164(2).	Report the supported 143(3)(g) conclusion; possibly disqualified is not proof that the director is disqualified.
1	Assess adequacy of IFC with reference to financial statements.	The question supplies applicability; evaluate the actual system rather than all operational controls or an assumed exemption.
1	Assess operating effectiveness of those controls.	Incomplete testing cannot be converted into a supported positive 143(3)(i) statement.
1	Resolve whether proper books and adequate returns from unvisited branches were received.	Section 143(3)(b) addresses both matters; unreceived returns need investigation and appropriate reporting.
1	Read the other auditor branch report and state how it was dealt with.	The supplied unread report cannot be described as evaluated under 143(3)(c).
1	Assess and report relevant adverse-functioning observations/comments.	Section 143(3)(f) concerns actual supported financial transactions/matters with adverse functioning effects, not every speculative worry.
1	Address account-maintenance reservations and reasons for negative/qualified statutory answers.	Apply 143(3)(h) and 143(4); do not hide the reservations in an unexplained clean checklist.
1	Form the overall report/opinion from resolved evidence and applicable requirements.	Under 143(2), consider Act, standards and other required matters. Neither arithmetic agreement nor an unresolved checklist justifies automatically unmodified or automatically adverse opinion.

Non-credit errors

No unconditional IFC reporting claim across all company classes.
No clean answers without evidence, and no automatic adverse opinion for every checklist issue.

Official concept source: Companies Act 2013 references 143(2)-(4)

AUD-G13-D011 · 3 marks

Categories before numerical tests The file contains three entities whose legal status is verified for the audit year: a section 8 licensed company, a qualifying one-person company and a foreign company that meets none of the Order exemptions. The assistant says CARO is mandatory for the first two because they have large revenues and never applies to the third because it is foreign. Required: Correct each conclusion under paragraph 1(2). (3 marks)

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Marks	Credit	Case application / answer
1	Apply the section 8 category exemption.	Its supplied licensed status is an exempt category, not a revenue-based disqualification from that exemption.
1	Apply the verified OPC category exemption.	The supplied qualifying OPC status is exempt; do not impose the separate private-company numerical route on it.
1	Include foreign companies unless exempt.	Paragraph 1(2) includes foreign companies; the supplied non-exempt foreign company is within scope.

Non-credit errors

No assumption that every foreign company is exempt or every large OPC is covered.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 1(2);guidance 11-14

AUD-G13-D012 · 5 marks

Exemption values exactly at the limits A private company is neither a holding nor subsidiary company of a public company and does not qualify for any separate category exemption. Its paid-up capital plus reserves/surplus at the balance-sheet date is Rs 1 crore; aggregate bank/FI borrowing never exceeds Rs 1 crore during the year; total ScheduleIII revenue including discontinued operations is Rs 10 crore. All amounts/classification are independently verified. Management asks whether equality defeats the specific private-company exemption. Required: Apply all conditions and conclude under the reproduced CARO 2020 wording. (5 marks)

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Marks	Credit	Case application / answer
1	Check the relationship condition.	The supplied absence of public-company holding/subsidiary status satisfies this condition.
1	Apply not-more-than Rs 1 crore capital/reserves/surplus at balance-sheet date.	Exactly Rs 1 crore does not exceed the stated limit.
1	Apply no borrowing exceeding Rs 1 crore at any time in the year.	The supplied aggregate peak equal to Rs 1 crore satisfies the condition; it is not a year-end-only test.
1	Apply total revenue not exceeding Rs 10 crore including discontinued operations.	Exactly Rs 10 crore meets the supplied revenue condition.
1	Require the conditions collectively and conclude on this supplied route.	All are satisfied, so this private-company exemption applies; category-exemption status and figures were supplied, not inferred from obsolete small-company thresholds.

Non-credit errors

Do not turn not-exceeding into strictly-below.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 1(2)(v);guidance 14,18-24

AUD-G13-D013 · 5 marks

Year-end borrowing hides a mid-year breach A private company meets the capital/reserves, revenue and public-company relationship conditions of the specific private exemption, with no other category exemption. Two banks had Rs 0.65 crore and Rs 0.45 crore simultaneously outstanding mid-year. Each later fell to Rs 0.30 crore by year-end. Management tests each bank separately and relies on the closing total. Required: Compute the relevant peak and correct the exemption decision. (5 marks)

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Marks	Credit	Case application / answer
1	Aggregate bank/FI borrowings, not one bank at a time.	The simultaneous Rs 0.65 crore and Rs 0.45 crore balances must be combined.
1	Compute the supplied relevant peak Rs 1.10 crore.	Rs 0.65+Rs 0.45=Rs 1.10 crore, greater than Rs 1 crore.
1	Apply the any-point-of-time condition.	The mid-year peak matters even though year-end total is Rs 0.60 crore.
1	Recognise one failed conjunctive condition is sufficient.	The other supplied satisfied conditions do not cure the borrowing breach.
1	Conclude CARO applies on the supplied exemption facts.	This private route fails and no separate exemption exists; do not infer an overall audit opinion from applicability alone.

Non-credit errors

No per-bank or closing-balance-only exemption calculation.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 1(2)(v);guidance 14,22

AUD-G13-D014 · 5 marks

Discontinued revenue is not discarded A private company meets the relationship, capital/reserves and borrowing conditions, but has continuing revenue Rs 9.5 crore and discontinued-operation revenue Rs 0.8 crore disclosed under ScheduleIII. It is expressly not in any other exempt category. The assistant removes discontinued revenue and declares exemption. Required: Apply the revenue condition and explain the consequence. (5 marks)

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Marks	Credit	Case application / answer
1	Use total revenue disclosed in ScheduleIII.	The CARO private-company condition is not restricted to continuing revenue.
1	Include discontinued-operation revenue.	The wording explicitly includes that supplied Rs 0.8 crore amount.
1	Compute total Rs 10.3 crore.	Rs 9.5+Rs 0.8=Rs 10.3 crore, exceeding Rs 10 crore.
1	Apply the collective condition requirement.	Other satisfied conditions cannot compensate for excess total revenue.
1	Conclude this company is within CARO scope on supplied facts.	The specific private exemption fails and no separate category exemption exists; do not infer small-company status from an old book threshold.

Non-credit errors

No omission of discontinued revenue.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 1(2)(v);guidance 14,24

AUD-G13-D015 · 10 marks

Consolidated CARO mapping without opinion shortcuts A group has verified CARO-applicable parent P and subsidiary S, exempt company E and component L whose CARO report is not yet issued at the principal report date. P's standalone CARO paragraph 3(vii) is unfavourable and S's 3(ix) reports a borrowing default, while S's financial-statement opinion is unmodified. Management wants all 21 standalone clauses copied into the consolidated report, omitsP because only subsidiaries count, and omitsS because its opinion is unmodified. Required: Build the consolidated clause(xxi) response, including source and missing-report limits. (10 marks)

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Marks	Credit	Case application / answer
1	Apply the consolidated-report exception.	The Order does not apply to CFS except paragraph 3(xxi); do not copy every standalone clause as a statutory CFS CARO requirement.
1	Obtain CARO reports for covered companies included in CFS.	Use the supplied parent/component report population rather than financial-statement opinion labels alone.
1	Include P standalone standalone unfavourable CARO answer.	The parent is a company included in CFS and is not excluded just because it is the parent.
1	Include S reported CARO default remark.	An unmodified financial-statement opinion does not erase the supplied unfavourable clause answer.
1	Identify the affected companies.	Name P and S in the clause(xxi) mapping.
1	Give the relevant CARO paragraph numbers.	Identify P 3(vii) and S 3(ix), not only generic references to their financial-statement reports.
1	Distinguish CARO remarks from SA 705 opinion modification.	The clause terminology refers to specific unfavourable/qualified CARO answers, not only qualified/adverse financial-statement opinions.
1	Exclude E from an invented CARO-report requirement.	Its supplied category exemption means no CARO report is demanded merely because it is consolidated.
1	Identify L and disclose its report not issued by the principal report date.	Guidance requires clearly naming the component and stating this limitation rather than pretending its report was reviewed.
1	Do not claim the mapping by itself settles the consolidated opinion.	Evaluate separate audit-evidence/reporting effects under applicable standards; paragraph 3(xxi) is not a clean-opinion guarantee.

Non-credit errors

No parent omission or unmodified-opinion-only filter.
No claim that a missing component CARO report was obtained.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 2 proviso,3(xxi);guidance 26-27,91

AUD-G13-D016 · 3 marks

Unavailable records and a blank CARO answer For an applicable CARO clause the team cannot obtain records needed to express an opinion. For another clause it has an unfavourable supported finding. It proposes a dash for the first and "No" without explanation for the second. Required: Apply paragraph 4 and distinguish the overall audit opinion. (3 marks)

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Marks	Credit	Case application / answer
1	State inability on the specified matter with reasons.	A dash hides the unavailable-records limitation required to be explained under 4(2).
1	State the basis for the unfavourable or qualified answer.	The supported finding needs the 4(1) basis, not onlyNo.
1	Evaluate overall opinion implications separately.	Specific CARO answer/inability is not automatically a disclaimer/adverse opinion on the statements; assess evidence/materiality/pervasiveness and reporting requirements.

Non-credit errors

No unexplained blank or automatic whole-statement opinion.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 4;guidance 92-95

AUD-G13-D017 · 5 marks

PPE evidence cannot be replaced by a stock count The company has PPE records with no location or quantity detail, no full intangible-asset particulars and no management PPE-verification programme. The assistant proposes signing clause(i) because management counted inventory and total fixed assets match the ledger. Required: Apply the separate clause(i)(a)-(b) duties. (5 marks)

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Marks	Credit	Case application / answer
1	Check proper PPE records with full particulars.	Ledger totals alone do not establish proper detailed records.
1	Include quantitative details and situation of PPE.	Missing quantity/location information must be addressed under(i)(a)(A).
1	Check separate proper intangible-asset records with full particulars.	The tangible-asset ledger does not prove(i)(a)(B) compliance.
1	Assess management PPE physical verification at reasonable intervals.	An inventory count is not PPE verification and no programme is supplied.
1	Report material verification discrepancies and proper dealing in books where found.	Establish evidence before answering; do not invent no discrepancies when management verification is absent.

Non-credit errors

Inventory count is not a substitute for PPE verification.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(i)(a)-(b)

AUD-G13-D018 · 5 marks

Title deed held by the promoter A building disclosed in the statements has a title deed in a promoter's name. A second property is leased, with the lease agreement duly executed in the company favour. Management says both can be excluded merely because the company uses them. Required: Apply clause(i)(c), including reporting details and exception. (5 marks)

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Marks	Credit	Case application / answer
1	Check company-name title for disclosed immovable properties.	Use alone does not exempt the promoter-held building.
1	Apply the duly-executed lessee exception to the second property.	The supplied qualifying leased property is excluded from this title-deed test, not all occupied properties.
1	Identify description, gross carrying value and holder name.	These are required fields for the promoter-held building; obtain values rather than invent them.
1	Identify whether the holder is promoter/director/relative/employee and the period held.	The supplied promoter connection is reported, with the supported holding period.
1	State the reason for non-company title, including dispute where applicable.	Investigate and report actual reasons/dispute status; ownership use alone is not a reason to omit.

Non-credit errors

No broad exception for every leased or occupied property without the supplied executed-agreement condition.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(i)(c)

AUD-G13-D019 · 5 marks

Revaluation exactly 10 percent Under a revaluation model, a class of PPE changes from net carrying value Rs 80 lakh to Rs 88 lakh. Another class is unchanged. Management wants the total across both classes used to dilute the change and says a non-registered valuer's report is sufficient. Assume the figures are properly determined and this is revaluation, not first-time adoption fair valuation. Required: Apply clause(i)(d), calculate and explain the reporting boundary. (5 marks)

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Marks	Credit	Case application / answer
1	Identify revaluation during the year, including relevant PPE/ROU/intangible coverage.	The supplied PPE revaluation is within the clause, not a cost-model impairment or first-adoption label.
1	Check whether based on valuation by a Registered Valuer.	The supplied non-registered report cannot be silently described as registered valuation.
1	Compute change Rs 8 lakh and 10 percent.	(88-80)/80=10%; identify Rs 8 lakh increase.
1	Apply the inclusive 10 percent-or-more trigger by each class net carrying value.	Equality meets the trigger; the unchanged other class cannot dilute this class result.
1	Specify the change and actual valuer finding without an automatic opinion jump.	Report the supported clause facts; separately assess accounting/evidence effects and overall opinion.

Non-credit errors

No total-all-classes denominator or strictly-more-than10percent trigger.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(i)(d);guidance 45

AUD-G13-D020 · 10 marks

Inventory classes and sanctioned working capital Management counts inventory but its instructions omit a warehouse, and unexplained discrepancies are Rs 4 lakh against raw-material book value Rs 40 lakh and Rs 1 lakh against finished-goods Rs 50 lakh. It nets the classes and says no 10 percent issue exists. Banks sanctioned working-capital limits of Rs 3 crore and Rs 2.5 crore simultaneously on current-asset security; only Rs 1 crore was used. Quarterly bank returns differ from books. Assume amounts are comparable verified values, and CARO applies. Required: Apply clause (ii)(a)-(b), calculations and reporting corrections. (10 marks)

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Marks	Credit	Case application / answer
1	Assess management physical verification at reasonable intervals.	A statement that a count occurred does not establish that interval requirement.
1	Assess coverage and procedure appropriateness.	The omitted warehouse directly challenges coverage and needs investigation.
1	Compute raw-material discrepancy 10 percent.	Rs 4/Rs 40=10%; equality meets the threshold.
1	Compute finished-goods discrepancy 2 percent.	Rs 1/Rs 50=2%; this class alone does not meet 10 percent.
1	Apply class-by-class value testing rather than netting.	Do not dilute the raw-material 10 percent by combining the two class denominators.
1	Assess proper treatment of the reportable discrepancy in the books.	Unexplained differences cannot be assumed properly dealt with; investigate adjustment/treatment.
1	Aggregate sanctioned working-capital limits Rs 5.5 crore.	Rs 3+Rs 2.5=Rs 5.5 crore, exceeding Rs 5 crore on the supplied current-asset security.
1	Use sanction at any time, not utilisation as the trigger.	Only Rs 1 crore used does not remove (ii)(b) on these facts.
1	Compare quarterly returns/statements filed with books.	The supplied differences require checking actual submissions and the corresponding books.
1	Report disagreement details and supported coverage/discrepancy conclusions.	Give actual details under(ii)(b) and relevant(ii)(a) findings, not an invented clean answer or automatic opinion on all statements.

Non-credit errors

No netting classes or borrowing-utilisation substitution for sanctioned-limit test.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(ii);guidance 47-48

AUD-G13-D021 · 5 marks

Renewed overdue loans do not disappear A manufacturing company grants loans to a subsidiary and unrelated parties. Some repayments have no stipulated schedule; principal is overdue for 120 days. A fresh loan to the same borrower settled an old loan due during the year, and another loan is repayable on demand to a promoter. The team says every balance is current after refinancing and gives no clause (iii) details. Assume the company is not principally in the business of lending and CARO applies. Required: Apply five loan-reporting requirements to these facts. (5 marks)

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Marks	Credit	Case application / answer
1	Report loan/advance/guarantee/security amounts with the required party split.	Clause (iii)(a) distinguishes subsidiary/JV/associate amounts and other-party amounts, including aggregate during-year and balance-date outstanding; obtain actual data.
1	Assess whether relevant terms/transactions are prejudicial and whether repayment/interest schedules are stipulated and receipts regular.	A missing schedule needs the supported (iii)(c) answer; a current balance label does not establish favourable terms or regular receipts.
1	Report overdue amounts exceeding 90 days and reasonable recovery steps.	The supplied 120 day overdue falls within (iii)(d); verify amounts and actual recovery efforts rather than deleting history.
1	Report renewal/extension/fresh settlement of due loans.	Clause (iii)(e) requires aggregate dues so settled and percentage to total loans/loan-like advances granted during the year; obtain denominator and amounts.
1	Report demand/no-term loans, including promoter/related-party amounts.	Clause (iii)(f) requires aggregate amount, relevant percentage and promoter/related-party amount; demand status is not an exemption.

Non-credit errors

No refinancing erasure of reporting history or invented amounts.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(iii)(a)-(f)

AUD-G13-D022 · 5 marks

Labels do not settle three statutory checks A CARO-applicable company has a loan and guarantee needing sections 185/186 review, an amount independently established to be a deemed deposit, and a product class for which cost records are specified by the Central Government under 148(1). It claims a Board minute proves compliance, that only receipts labelled deposits count, and that ordinary ledger books suffice as cost records. Assume relevant provisions apply; do not decide exemptions from unprovided data. Required: Explain the clause (iv)-(vi) work and reporting. (5 marks)

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Marks	Credit	Case application / answer
1	Check 185/186 compliance for covered loans/investments/guarantees/security.	A Board minute alone is not evidence of every applicable condition; obtain support for the supplied loan and guarantee.
1	Give details where those provisions are not complied with.	Clause (iv) requires actual non-compliance details, not a blanket opinion that every loan is prohibited.
1	Include independently established deemed deposits in (v).	The receipt label does not exclude the supplied deemed-deposit amount; check relevant RBI directives/Act provisions/rules where applicable.
1	Address deposit contraventions and compliance with relevant adjudicating orders.	Report nature of verified contraventions and whether a supplied applicable order was followed; do not invent an order.
1	Check prescribed cost accounts/records made and maintained under (vi).	The specified 148(1) coverage is supplied; ordinary totals do not establish these records. This check does not assert that a full cost audit is always required.

Non-credit errors

No deposit-label exemption or automatic cost-audit requirement.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(iv)-(vi)

AUD-G13-D023 · 3 marks

Benami proceedings are not a conviction finding A CARO-applicable company has proceedings initiated for holding alleged benami property. Management omits financial-statement details because no final adverse order exists, while the assistant proposes calling the company convicted. Required: Apply clause (i)(e) and the evidence limits. (3 marks)

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Marks	Credit	Case application / answer
1	Check proceedings initiated or pending against the company for holding benami property.	A final order is not the only trigger; the supplied initiated proceeding is within the clause.
1	Assess appropriate disclosure of details in the financial statements.	Evaluate the omission against the supplied proceeding rather than exempting it for lack of final decision.
1	State supported proceeding/disclosure facts without declaring guilt.	The allegation and initiation are not a conviction finding. Separately evaluate financial-statement/reporting effects.

Non-credit errors

Neither no-final-order exemption nor an invented conviction.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(i)(e);guidance 46

AUD-G13-D024 · 5 marks

A letter is not automatically a tax dispute Undisputed statutory dues were repeatedly paid late. At year-end one unpaid item has been outstanding for exactly six months and another for seven months from its payable date. A further amount is unpaid with only a representation letter to the department, no actual dispute proceeding. The team says nothing is reportable until every item exceeds six months. Required: Apply clause (vii) regularity, ageing and dispute distinctions. (5 marks)

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Marks	Credit	Case application / answer
1	Report regularity of depositing undisputed dues.	Repeated late deposits matter to (vii)(a), even when an item is not in the specified year-end ageing table.
1	Apply more-than-six-months to specified outstanding year-end arrears.	Exactly six months does not meet that age threshold; the seven-month item does.
1	Indicate the supported extent of aged outstanding arrears.	Report actual seven-month amount/date details after verification, not an invented number or all late-paid amounts as closing arrears.
1	Distinguish a mere representation from a dispute.	The clause explicitly says a mere representation to the department is not a dispute, so the letter alone does not move the amount into (vii)(b).
1	For genuine disputes, report amount and forum pending.	Establish actual dispute status before using (vii)(b); the report is not limited to cases where all dues pass the six-month test.

Non-credit errors

No strictly-six-month inclusive trigger or letter-only dispute classification.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(vii)(a)-(b)

AUD-G13-D025 · 10 marks

Borrowing disclosures with purpose failures A CARO-applicable company has principal and interest defaults to two lenders, an actual declaration as a wilful defaulter, a term loan partly diverted to unrelated expenditure, short-term funds used for a long-term asset, funds raised to meet a subsidiary obligation, and a loan on pledged associate securities. It also surrendered previously unrecorded income during a tax assessment but has not assessed its recording in books. Management wants one statement: "All funds were used in business." Required: Map the supported findings to clauses (viii)-(ix) without making unsupported conclusions. (10 marks)

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Marks	Credit	Case application / answer
1	Check surrendered/disclosed previously unrecorded income and current-year recording.	Clause (viii) asks whether it was properly recorded; the tax surrender alone does not prove books are corrected.
1	Identify nature of borrowing and lender for defaults.	Obtain the (ix)(a) format information, with lender-wise details where required for bank/FI/Government defaults.
1	Separate principal/interest amounts unpaid on due date and delay/unpaid days.	The two supplied kinds of default need actual amounts and periods; a broad funds-use statement supplies neither.
1	Report verified wilful-defaulter status.	The supplied declaration supports (ix)(b); default alone would not justify inventing that status.
1	Assess term-loan application to its stated purpose.	Under (ix)(c), identify diverted amount and actual alternative use rather than accepting business use as equivalent to sanctioned purpose.
1	Identify short-term funds used for long-term purposes.	Clause (ix)(d) needs nature and amount; the long-term asset use is separately examined.
1	Identify funds taken to meet subsidiary/associate/JV obligations.	Clause (ix)(e) requires details, nature and amount for the supplied subsidiary arrangement.
1	Identify loans raised on pledged subsidiary/JV/associate securities.	Clause (ix)(f) applies to the supplied associate-securities loan and needs its actual details.
1	Check and report default on the pledged-securities loan if any.	Do not assume this loan defaulted merely because other loans did; establish its own repayment facts.
1	Explain supported unfavourable answers and assess overall audit effects separately.	Paragraph 4 reasons and applicable financial-statement reporting cannot be replaced by a one-line all-business-use claim or an automatic adverse opinion.

Non-credit errors

No invented pledged-loan default, amounts or purpose compliance.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(viii),(ix)(a)-(f),4

AUD-G13-D026 · 5 marks

Whistle-blower complaint is not an optional inbox A CARO-applicable company received a whistle-blower complaint during the year. It also has a verified fraud on the company by an outsider and a filed statutory Form ADT-4 report. The assistant will discuss only employee fraud, ignore complaints unless proven, and say the financial audit necessarily detects every fraud. Assume the ADT-4 filing fact is verified; this question does not ask for unprovided monetary thresholds or filing deadlines. Required: Apply clause (xi) and the limits of assurance. (5 marks)

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Marks	Credit	Case application / answer
1	Address fraud by the company or on the company noticed/reported during the year.	The outsider fraud on the company is not excluded from (xi)(a) merely because the person is not an employee.
1	State nature and amount of verified fraud.	Obtain supported details for the clause rather than inventing an amount or equating every allegation with proved fraud.
1	Address whether a 143(12) report was filed in ADT-4 with the Central Government.	The supplied verified filing supports the (xi)(b) answer; clause scope is not permission to invent reporting thresholds.
1	Consider whistle-blower complaints received during the year.	Clause (xi)(c) is not conditional on complaint already being proved; investigate/evaluate the supplied complaint.
1	Do not promise detection of every fraud or an automatic opinion response.	State supported audit/reporting conclusions and separately consider implications; fraud risk and reporting do not make the audit an absolute guarantee.

Non-credit errors

No employee-only restriction on CARO fraud-by/on wording.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(xi)(a)-(c);Act 143(12)separately scoped

AUD-G13-D027 · 5 marks

Internal reports and connected transactions A CARO-applicable company has related-party transactions, a director-connected non-cash asset exchange, and an internal-audit system far smaller than its expanded business. Statutory auditors have not considered the current-period internal reports. Management says Board approval and appointment of one internal auditor complete clauses (xiii)-(xv). Assume the cited statutory requirements apply; exact exemptions are not in issue. Required: Set out five separate checks. (5 marks)

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Marks	Credit	Case application / answer
1	Check applicable 177/188 compliance for all related-party transactions.	Board approval alone is not evidence of all the supplied requirements.
1	Check required related-party disclosures under applicable accounting standards.	Legal approval does not replace financial-statement disclosure.
1	Assess whether internal-audit system is commensurate with size/nature.	Expansion challenges adequacy; mere appointment is not proof of (xiv)(a).
1	Consider internal-auditor reports for the period under audit.	The supplied unread reports leave (xiv)(b) unanswered; this does not require blind adoption of their conclusions.
1	Check 192 compliance for director/connected-person non-cash transactions.	The supplied exchange requires the (xv) check; a generic Board approval claim does not complete the statutory review.

Non-credit errors

No substitution of appointment for adequacy/report consideration.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(xiii)-(xv)

AUD-G13-D028 · 5 marks

A category label does not complete Nidhi and RBI reporting For the first entity, Nidhi status and CARO applicability are established for the supplied exercise; interest-default details are unresolved. For a second entity, RBI registration is legally required on supplied facts but no valid registration certificate is available. Its group also includes multiple CICs. This exercise asks the CARO 2020 reporting questions, not whether a 2022 book alone proves all current Nidhi/RBI regulatory rules. Required: Identify five reporting checks and avoid unsupported clean conclusions. (5 marks)

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Marks	Credit	Case application / answer
1	Check Nidhi net-owned-funds-to-deposits ratio specified in (xii)(a).	The clause asks 1:20 compliance; obtain actual figures rather than assume status alone meets the ratio.
1	Check the unencumbered term-deposit condition in (xii)(b).	The clause refers to 10 percent as specified in Nidhi Rules 2014; test applicable records/rules rather than claim blanket 2026 regulatory completeness from the older guide.
1	Check interest or repayment defaults for any period and give details.	The unresolved supplied default information prevents an invented no-default (xii)(c) answer.
1	Check required 45-IA registration obtained and financial/housing activities without valid CoR.	The supplied required-registration status needs evidence for (xvi)(a)-(b), not a category-based clean statement.
1	Check CIC status/continuing criteria and group multiple-CIC count where applicable.	Under (xvi)(c)-(d), obtain status, criteria and actual count; multiple group CICs is not itself proof every CIC breached a rule.

Non-credit errors

Do not infer current regulatory criteria or actual ratios/counts from labels.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(xii),(xvi)

AUD-G13-D029 · 5 marks

Cash loss and a one-year promise A CARO-applicable company has verified cash losses in both the current and preceding financial years. Its previous auditor resigned citing unresolved concerns. The successor wants to ignore those concerns and promise that every future liability will be paid for 12 months from the report date because the current ratio exceeds 1. Required: Apply clauses (xvii)-(xix), evidence and time boundaries. (5 marks)

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Marks	Credit	Case application / answer
1	Report cash-loss amounts for the current and immediately preceding years.	Obtain both verified amounts for (xvii), not only current-year accounting profit/loss.
1	Consider outgoing-auditor issues, objections or concerns on resignation.	Clause (xviii) does not allow ignoring them because a successor was appointed.
1	Evaluate (xix) using ratios, ageing, expected realisation/payment dates and relevant information/plans.	A current ratio above 1 alone does not establish the required conclusion.
1	Apply the specified liabilities/time boundary.	The test concerns liabilities existing at balance-sheet date falling due within 1 year from that date, assessed as of report date, not every new future liability for 12 months after signing.
1	Avoid a future-viability guarantee and assess separate going-concern reporting.	Make the supported material-uncertainty statement with reasons where applicable; it is not a promise of payment and does not replace SA 570 evaluation.

Non-credit errors

No report-date-shifted horizon or current-ratio-only guarantee.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(xvii)-(xix);guidance 82-84

AUD-G13-D030 · 10 marks

Funds raised and unspent CSR: a mixed reporting file A CARO-applicable company raised public-offer funds and made a private placement of convertible debentures. Some funds were diverted, and compliance with 42/62 is unresolved. Its CSR transfer requirements are assumed applicable: a non-ongoing-project unspent amount was retained beyond the quoted six-month financial-year-end period; an ongoing-project unspent amount sits in the general current account rather than the required special account. Management offers to label all amounts "earmarked" and sign an unexplained clean CARO response. The question tests the verified CARO 2020 clause wording, not current-law eligibility/thresholds or a calculated calendar deadline. Required: Give an evidence-based clause (x)/(xx) and paragraph 4 response with the necessary distinctions. (10 marks)

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Marks	Credit	Case application / answer
1	Trace public-offer proceeds to the purposes raised.	Clause (x)(a) includes IPO/further public offer including debt instruments; a generic earmarked label is not evidence of actual application.
1	Report verified public-offer misuse details with delays/default and rectification where applicable.	Obtain actual amounts, purposes and rectification facts; do not invent subsequent cure.
1	Identify private/preferential shares or convertible debentures within (x)(b).	The supplied convertible placement falls within the clause, not only an ordinary-share issue.
1	Check applicable 42/62 compliance.	Unresolved compliance cannot become a clean statutory answer merely by earmarking funds.
1	Check placement-fund use and state amount/nature of non-compliance where found.	Purpose verification is separate from issue-procedure compliance; obtain evidence for both.
1	Distinguish other-than-ongoing CSR projects under (xx)(a).	The supplied non-ongoing amount requires the quoted Schedule VII fund transfer, not an internal earmark.
1	Apply the quoted six-month period from financial-year expiry.	Retention beyond that supplied period fails the stated CARO transfer test; no arbitrary report-date clock is substituted.
1	Check ongoing-project special-account transfer under 135(6) through (xx)(b).	The supplied general account is not evidence of the required special-account transfer; verify applicable timing/records separately, without inventing a deadline.
1	Give the basis for supported unfavourable/qualified answers or inability.	Paragraph 4 requires reasons; unresolved 42/62 evidence is not a basis for an unexplainedYes.
1	Separate the specific CARO conclusions from the whole-statement opinion.	Evaluate accounting, disclosure, evidence and reporting effects separately; neither earmarking nor one failed transfer automatically decides every opinion conclusion.

Non-credit errors

No internal earmark as statutory fund/account transfer.
No invented statutory eligibility thresholds or calendar deadline.

Official concept source: CARO2020 / ICAI revised2022 guidance references Order 3(x),3(xx),4; CARO Order PDF pages246 and249