Page 307 - CA Final PARAM Digital Book.

(II) Other Income 18 100
(III) Total Income 10000

On going through details of head “other expenditure” in expenses side of statement of profit and loss, it is
noticed that there is an expenditure relating to manpower outsourcing cost amounting to ₹ 99.50 crores
included under “other expenditure”.

Does it meet the requirements of Division III of Schedule III of Companies Act, 2013?
Answer An NBFC is preparing financial statements in accordance with requirements of Division III of Schedule III of
Companies Act, 2013 has to separately disclose by way of note any item of “other expenditure” exceeding 1%
of total income.

The said expenditure of ₹ 99.50 crore does not exceed 1% of total income. Hence, it meets requirements of
Division III of Schedule III of Companies Act, 2013.

QNO NBFC CARO Reporting New Course – (SM23)
525.500 TITANIUM CNO -- Unique

Abhimanyu Finance Ltd. is a Non-Banking Finance Company and was in the business of accepting public
deposits and giving loans since 2015. The company was having net owned funds of ₹ 1,50,00,000/-(one
crore fifty lakhs) and was not having registration certificate from RBI and applied for it on 30th March
2023. The company appointed Mr. Kabra as its statutory auditors for the year 2022-23. Advise the auditor
with reference to auditor procedures to be taken and reporting requirements on the same in view of
CARO 2020?
Answer As per Clause (xvi) of Paragraph 3 of CARO 2020, the auditor is required to report that “whether the
company is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934 and if so,
whether the registration has been obtained.”

The auditor is required to examine whether the company is engaged in the business which attract the
requirements of the registration. The registration is required where the financing activity is a principal
business of the company. The RBI restrict companies from carrying on the business of a non-banking
financial institution without obtaining the certificate of registration.

Audit Procedures and Reporting:
(i) The auditor should examine the transactions of the company with relation to the activities
covered under the RBI Act and directions related to the Non-Banking Financial Companies.

(ii) The financial statements should be examined to ascertain whether company’s financial assets
constitute more than 50 per cent of the total assets and income from financial assets constitute
more than 50 per cent of the gross income.

(iii) Whether the company has net owned funds as required for the registration as NBFC.

(iv) Whether the company has obtained the registration as NBFC, if not, the reasons should be
sought from the management and documented.

(v) The auditor should report incorporating the following:-

(1) Whether the registration is required under section 45-IA of the RBI Act, 1934.
(2) If so, whether it has obtained the registration.
(3) If the registration not obtained, reasons thereof.

In the instant case Abhimanyu Finance Ltd. is a Non-Banking Finance Company and was in the business of
accepting public deposits and giving loans since 2015. The company was having net owned funds of ₹
1,50,00,000/-(one crore fifty lakhs) which is less in comparison to the prescribed limit i.e. 2 crore rupees and
was also not having registration certificate from RBI (though applied for it on 30th March 2021). The auditor
is required to report on the same as per Clause (xvi) of Paragraph 3 of CARO 2020.
www.auditguru.in PARAM 14.38 | P a g e