Page 206 - CA Final PARAM Digital Book.

QNO Cl 2--Physical Verification (50%) Old Course – (M05E, M11R, M16R, N16M, SM17, PM17, N19M, SM21)
393.000 TITANIUM CNO—CARO.060
Physical verification of only 50% of items of inventory has been conducted by the company. The balance

50% will be conducted in next year due to lack of time and resources.
Answer Part I -- Relevant Standards & Laws
Clause (ii) of Para 3 of CARO, 2020
Part II -- Requirements of Relevant Standards & Laws
Requirements of Clause (ii) of Para 3 of CARO, 2020
➢ Physical Verification of Inventory:
Clause (ii) of Para 3 of CARO, 2020 requires
whether physical verification of inventory has been conducted at reasonable intervals by the
management and whether, in the opinion of the auditor, the coverage and procedure of such
verification by the management is appropriate; whether any discrepancies of 10% or more in the
aggregate for each class of inventory were noticed and if so, whether they have been properly
dealt with in the books of account.

Physical verification of inventory is the responsibility of the management which should verify all
material items at least once in a year and more often in appropriate cases.

The auditor in order to satisfy himself about verification at reasonable intervals should examine
the adequacy of evidence and record of verification.
Part III – Case Discussion
➢ Company conducted physical verification of only 50% of items of inventory and balance 50% will
be conducted in next year due to lack of time and resources.
Part IV – Conclusion
➢ In the given case, the above requirement of CARO, 2020 has not been fulfilled as such and the
auditor should point out the specific areas where he believes the procedure of inventory
verification is not reasonable. He may consider the impact on financial statement and report
accordingly.

QNO Statutory Dues - Multiple Issues Old Course – (N20E)
399.500 TITANIUM CNO—CARO.160
As an auditor, how will you report under CARO in each of the following situation?

(i) Since more than seven months, payment of electricity bills to company established under statue is
outstanding.

(ii) The company had imported goods 5 years back and were placed in bonded warehouse till the end of
financial year under Audit. The company has not paid import duty as goods have not been removed from
such warehouse. The company has also not paid rent and interest expenditure payable on the amount of
custom duty.

(iii) The company has received income tax assessment order along with demand notice from Assessing
officer. The company has not paid dues payable as the same is not acceptable to the company. The
company has neither preferred appeal against the order nor an application for rectification of mistake
has been made. The company has just merely represented to the Assessing Officer.

(iv) The company in view of voluminous pay-roll data consistently follows the method of making lump
sum deposit of estimated amount of ESI collections and adjust the excess or deficit against next
following months’ deposit and the difference of the said amount always remains insignificant.
Answer Clause (vii) (a) of Para 3 of CARO, 2020 requires the auditor to state in his report Whether the
company is regular in depositing undisputed statutory dues including Goods and Services Tax,
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 as on the last day of the financial year

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