Page 212 - CA Final PARAM Digital Book.

Part III – Case Discussion
➢ In this case, K Ltd. has defaulted in repayment of dues for three years. Application for rescheduling
will not change the default position.

Part IV – Conclusion
➢ Hence the auditor has to report in his audit report that the Company has defaulted in its
repayment of dues to the bank to the extent of ₹ 120 lakhs.

QNO Cl 9--Default in Repayment (Re-schedulement Case Study) Old Course –(N22R)
404.500 TITANIUM CNO—CARO.200
Gautam Limited had borrowed ₹ 1000 crore from XYZ Bank, the principal of which was repayable after 5
years and interest was payable at the end of each year. For 4 years, Gautam Limited paid the interest
amount on time. Gautam Limited defaulted the 5th instalment of interest payment and principal which
was due on June 30, 2021. On March 31, 2021, Gautam Limited approached XYZ bank and MNO bank to
restructure the existing liability. As a result, the existing principal and outstanding and overdue interest
was restructured into a new loan amounting to ₹ 1,100 crore. The management did not provide any
disclosure for the default on the loan on the belief that the old loan ceased to exist and the new loan has
maturity after 5 years.
During the statutory audit for the financial year 2021-22, KP & Co. identified this transaction and
obtained the relevant documents and understanding. Based on the underlying documents, it was
identified that the said restructuring agreement was approved and signed on April 8, 2022, by both of
the banks. As a result, on March 31, 2022, the restructuring was still not approved.
In the light of the above scenario, kindly guide the statutory auditors in the reporting of this transaction.
Answer As per Clause 3(ix) of CARO 2020, the auditor is required to report whether the company has defaulted in
repayment of loans or other borrowings or in the payment of interest thereon to any lender, if yes, the
period and the amount of default to be reported as per the format below.

Nature of Name of Amount not Whether No. of days Remarks, if any
borrowing, lender paid on due principal or delay or
including debt date interest unpaid
securities
lender wise
details to be
provided in
case of
defaults to
banks,
financial
institutions
and
Government.

In the given case, the company Gautam Limited defaulted in payment of the principal amount of the loan
due of ` 1000 crore on 30 June 2021 and the interest instalment of ` 100 crore. The said default continued
till the end of the year and on 8 April 2022, a restructuring agreement was signed by the banks and
company for re-structuring the outstanding loan. Moreover, no disclosure was provided by the company
with respect to the said matter.

Hence the auditor is required to report the same matter under Clause (ix) of Para 3 of CARO 2020, i.e.,
whether the company has defaulted in repayment of loans or other borrowings or in the payment of
interest thereon to any lender, if yes, then provide the details of the period and the amount of default.
Also, the auditor needs to consider the impact of such non-disclosure and the non-compliance with the
financial reporting framework and accordingly the auditor needs to either issue a qualified opinion or an
adverse opinion as per SA 705, “Modifications to the Opinion in the Independent Auditor’s Report”.

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