Dear Sir, please help me out with this question :
AB Finance Ltd. a non banking financial entity is having a net owned funds of Rs. 1.89 crores as on 31st March 2017. Due to expansion of business and for enhancing certain fund based facilities to customers, it was converted to a banking company on 20th March, 2018. Auditor,while considering additional reporting requirements u/s 143(11) seeks information regarding some discrepancies in inventory and asks management to provide records of physical verification. Management makes a view that since reporting on inventory is out of the scope of audit, there is no compulsion on part of auditor to report on additional matters u/s 143(11). Auditor expresses adverse opinion in the statement of observations considering that reporting is compulsory for the Financial Year 2017-18.Explain.
We have to see status of entity as on balance sheet date, for exemption purpose if its regarding banking status of entity.
In present case on 31st march its a bank, so it will be exempt from caro reporting, no reporting required under Sec 143(11).
now if there is material discrepancy in inventory, management has to give full explanation and share all evidences asked. Not giving records may lead to modification.
so though caro may not be applicable but management has to give all details, there contention is not entirely true.
if there is material misstatement auditor should qualify or give disclaimer and if there is lack of evidence then they should qualified or disclaimer