Page 205 - CA Final PARAM Digital Book.

Cl 1 & Cl 2 -- Revaluation & Loan Taken Against Old Course – (M22R)
QNO
392.200 Current Asset
TITANIUM CNO—CARO.040
Mr. Arjun was appointed as the engagement partner on behalf of Bhism & Co., a Chartered Accountant
Firm, for conducting statutory audit assignment of Sinwar Ltd., unlisted public company.

Mr. Brijesh, one of the senior engagement team members, was given the responsibility to audit the
matters as per the requirements of CARO, 2020 and in that connection, he made the following
observations, that may be relevant for reporting as per the said Order: -

Sr. Observations
No.

(a) One of the Plant and Equipment taken on a lease (‘right of use’ asset) by Sinwar Ltd. was
revalued based on the valuation by a registered valuer and the net carrying value of Plant and
Equipment in aggregate was changed from ₹ 4 crore to ₹ 4.45 crore.
(b) During the year under consideration, cash credit limit of ` 5.5 crore was sanctioned to Sinwar
Ltd. by DMC Bank based on the security of current assets which was reduced to ₹ 4.5 crore after
6 months. In this connection, quarterly returns have been filed by the company with the DMC
bank which are in agreement with Books of Accounts.

You are required to examine the contention of Mr. Brijesh regarding reporting of the above observations in
accordance with CARO 2020.
Answer Matters to be reported by Mr. Brijesh as per CARO, 2020 are as follows:-

(a) According to Clause (i) (d) of Para 3 of CARO 2020, the auditor is required to report whether the
company has revalued its Property, Plant and Equipment (including Right of Use assets) or intangible assets
or both during the year and, if so, whether the revaluation is based on the valuation by a Registered
Valuer; specify the amount of change, if the change is 10% or more in the aggregate of the net carrying
value of each class of Property, Plant and Equipment or intangible assets;

In the given situation, Sinwar Ltd. has revalued one of the Plant and Equipment taken on a lease (‘right of
use’ asset) based on the valuation by a registered valuer. The amount of change in the value of such Plant
and Equipment is ₹ 45 lakh. As the net carrying value of Plant and Equipment in aggregate was changed
from ₹ 4 crore to ₹ 4.45 crore i.e. change was 10% or more.

Thus, the auditor is required to report the amount of change of ₹ 45 lakh in accordance with Clause (i) (d)
of Para 3 of CARO 2020.

(b) As per Clause (ii) (b) of Para 3 of CARO 2020, the auditor is required to report whether during any point
of time of the year, the company has been sanctioned working capital limits in excess of five crore rupees,
in aggregate, from banks or financial institutions on the basis of security of current assets; whether the
quarterly returns or statements filed by the company with such banks or financial institutions are in
agreement with the books of account of the Company, if not, give details;

In the instant case, Sinwar Ltd. has been sanctioned a cash credit limit of ₹ 5.5 crore by DMC Bank during
the year under consideration, which is exceeding the prescribed limit of ₹ 5 crore based on the security of
current assets. Further, quarterly returns have also been filed by the company with the DMC bank in this
connection which is in agreement with Books of Accounts.

In view of the above, the auditor is required to report the same in accordance with Clause (ii) (b) of Para 3
of CARO 2020

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