CH05P02-CARO

MCQ--CARO 1

As per CARO, 2020, the auditor is required to report whether the company is required to be registered undersection 45-IA of the Reserve Bank of India Act, 1934. If so, whether the registration has been obtained.

(CNO-CARO.230)

• a) Under Clause (xi) of paragraph 3 of the CARO, 2020,

• b) Under Clause (xvi) of paragraph 3 of the CARO, 2020,

• c) Under Clause (xv) of paragraph 3 of the CARO, 2020,

• d) Under Clause (xiv) of paragraph 3 of the CARO, 2020,

MCQ--CARO 2

As per Clause (i)(c) of Paragraph 3 of the CARO, 2020, the auditor is required to report on:

(CNO-CARO.080)

• a) whether the title deeds of all the immovable properties (other than properties where the company is the lessee and the lease agreements are duly executed in favour of the lessee) disclosed in the financial statements are held in the name of the company, if not, provide the required details

• b) whether the company has entered into any non-cash transactions with directors or persons connected with him

• c) whether any fraud by the company or any fraud on the Company by its officers or employees has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated.

• d) whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets;

MCQ--CARO 3

DCHI Ltd is in the business of optics and imaging products. It is a wholly owned subsidiary of Japanese company, DCHJ Ltd. DCHI Ltd has many expatriates (Expats) working in the company whose tenure range from 2 to 5 years. During the course of audit of financial statements of the company, the statutory auditors observed that the company has not been deducting and depositing the TDS (tax deducted at source) on salaries of expats. The auditors assessed that the impact of this can be significant as the company has many expats and salary amount is significant. Management explained that TDS on salary of expats would lead to unnecessary hassles to the expats and they serve the company only for a short period. How should the auditors of DCHI Ltd deal with this matter?

(CNO-CARO.140)

• a) Considering this as a statutory non-compliance, the auditor should look at the significance of the matter and accordingly should report the same in CARO.

• b) Considering this as a statutory non-compliance, the auditor should look at the significance of the matter and accordingly should consider reporting this in the main report along with CARO.

• c) The auditor should agree to the management’s view as the expats are temporary workers and this may not be convenient for the management.

• d) Since the matter relates to statutory liability only, the reporting requirements do not arise till the time this becomes disputed.

MCQ--CARO 5

LM Ltd. had obtained a Term Loan of rupees 300 lakhs from a bank for the construction of a factory. Since there was a delay in the construction activities, the said funds were temporarily invested in short term deposits. Under which clause of the auditor is required to report

(CNO-CARO.160)

• a) Under Clause (viii) of paragraph 3 of the CARO, 2020,

• b) Under Clause (xi) of paragraph 3 of the CARO, 2020,

• c) Under Clause (x) of paragraph 3 of the CARO, 2020,

• d) Under Clause (ix) of paragraph 3 of the CARO, 2020

MCQ--CARO 6

One of your team members has recently qualified as a chartered accountant and joined your team to audit a portfolio of audit clients who are private companies. One of the clients Surrey Pvt. Ltd. is a hotel in the small town near Jaipur. The revenue generated for the current year ended is Rs.10.5 crores and the entity is not a holding or subsidiary of any public company. The owner of the business Mr. Hazelwood runs this family business from last 10 years. Your team member is keen to know whether Surrey Pvt. Ltd is required to comment on the matter prescribed under CARO 2020. Which of your explanations to him are correct?

(CNO-CARO.040)

• a) The entity’s revenue exceeds Rs.10 crores. Hence, no need to comment on the matter prescribed under CARO 2020.

• b) The entity is not a holding or subsidiary of any public company, hence no need to comment on the matter prescribed under CARO 2020.

• c) The entity’s revenue for the year is Rs.10.5 cr which exceed the limit of Rs.10 cr. Hence, the entity has to provide the comment on the matter prescribed under CARO 2020.

• d) The entity is not a holding or subsidiary of any public company, hence there is a need to comment on the matter prescribed under CARO 2020

MCQ--CARO 7

Which of the following company is not exempted from reporting under CARO, 2020?

(CNO-CARO.040)

• a) Banking company.

• b) Insurance company.

• c) Company licensed to operate under section 8 of the Companies Act, 2013.

• d) Private limited company having paid up capital of Rs. 5 crores.

MCQ--CARO 8

Kinfin Private Limited had taken overdrafts from three banks (Bank A, Bank B and Bank C) with a limit of ` 40 lacs each against the security of fixed deposit it had with those banks and an unsecured overdraft from a financial institution (Financial Institution X) of ` 36 lacs. As on 30th October 2020, the management used the overdraft fully of the A & C bank to the tune of ` 40 lacs each. However, the overdraft of second bank (Bank B) was not used until 31st December, 2021. On 31st December, 2021, Management took overdraft of B bank and very next day management paid the overdraft of C bank as the rate of interest charged by Bank C on overdraft facility was 15% whereas, the rate of interest charged by Bank B was 12%. As at 31st March 2022 only overdraft of Bank A and Bank B were used fully, overdrafts of Bank C and Financial Institution X were unused. The paid-up capital and reserves of the company as at that date was ` 85 lacs and its revenue for the financial year ended on 31st March 2022 was ` 8.95 crore. The management of the company is of the opinion that CARO, 2020 is not applicable to it because turnover and paid-up capital werewithin the limits prescribed. With respect to the loans, management was of the view that the total outstanding as at 31st March 2022 is less than the prescribed limit. The company further contended that loan limit is to be reckoned per bank or financial institution and not cumulatively. Comment.

(CNO-CARO.040)

• a) The CARO 2020 is applicable to the company as the turnover of the company exceeds the prescribed limit.

• b) The CARO 2020 is not applicable to the company as the turnover of the company does not exceeds the prescribed limit.

• c) The CARO 2020 is not applicable to the company as the borrowing of the company does not exceeds the prescribed limit.

• d) The CARO 2020 is applicable to the company as the borrowing of the company exceeds the prescribed limit

MCQ--CARO 9

While reporting under clause (ii) of Paragraph 3 of CARO 2020, which of the following is correct:

(CNO-CARO.090)

• a) The 10% threshold for reporting must be applied on a gross basis before adjusting excesses and shortages within the class of an inventory and must be based on value for each class of Inventory.

• b) The 10% threshold for reporting must be applied on a gross basis before adjusting excesses and shortages within the class of an inventory and must be based on value for all classes of Inventory.

• c) The 10% threshold for reporting must be applied on a net basis after adjusting excesses and shortages within the class of an inventory and must be based on value for each class of Inventory.

• d) The 10% threshold for reporting must be applied on a net basis after adjusting excesses and shortages within the class of an inventory and must be based on value for all classes of Inventory

MCQ--CARO 10

Refer the image

(CNO-CARO.140)

• a) 3.10 lakh

• b) 0.65 lakh.

• c) 3.65 lakh.

• d) 2.70 lakh

MCQ--CARO 11

KFintech Pvt Ltd was having paid-up share capital and reserves of ` 150 lakh including paid-up share capital of ` 90 lakh at the end of FY 20-21. During FY 21-22, KFintech borrowed ` 80 Lakh from Bank A and ` 140 Lakh from Bank B. The amount borrowed from Bank B was repaid during the same FY.For FY 20-21 the turnover of the company was ` 1,850 lakh. Select the appropriate option with respect to the applicability of CARO 2020:

(CNO-CARO.040)

• a) CARO 2020 will be applicable as the paid-up capital and reserves exceeding the limit specified in the Order i.e., one crore rupees.

• b) CARO 2020 will be applicable as the company has paid-up capital and reserves exceeding the limit specified in the Order i.e., one crore rupees and have total borrowings exceeding one crore rupees from any bank or financial institution at any point of time during the financial year.

• c) CARO 2020 will not be applicable as the company repaid the amount borrowed from bank B before the end of the financial year and hence, the borrowings do not exceed the limit specified in the Order.

• d) CARO 2020 will not be applicable as the company will fall under the exemption provided in the Order for Small Company as per section 2(85) of the Companies Act 2013.