Companies exempted from application of CARO 2003 does not include_
Options:
| a) a banking company b) an insurance company c) a private limited company with paid up capital and reserves not more than fifty five lakh d) a licensed company |
The Correct Answer Is:
c) a private limited company with paid up capital and reserves not more than fifty five lakh
Correct Answer Explanation: c) a private limited company with paid up capital and reserves not more than fifty five lakh
The Companies (Auditor’s Report) Order, 2003 (CARO 2003) is a regulatory framework in India that outlines the auditor’s report for companies. It provides specific guidelines and requirements that auditors must follow while preparing their reports.
The exemption criteria specified under CARO 2003 are crucial in determining which companies are relieved from certain reporting obligations. Let’s delve into the details of each option to understand why the given answer is correct and why the other options are not.
The correct answer is (c) a private limited company with paid-up capital and reserves not more than fifty-five lakh. According to CARO 2003, such companies are indeed exempted from the application of certain reporting requirements.
The exemption is based on the financial strength of the company, as reflected in its paid-up capital and reserves.
The correct option, (c) a private limited company with paid-up capital and reserves not more than fifty-five lakh, is in line with the exemption criteria specified under CARO 2003. This provision recognizes that smaller private limited companies with limited financial resources may face challenges in complying with certain reporting requirements.
By setting a threshold for paid-up capital and reserves, the order aims to ease the regulatory burden on these companies, allowing them to focus on their core operations.
This exemption is a practical approach that acknowledges the varying financial capacities of companies and ensures that the reporting standards remain relevant and proportionate to their size and resources.
Consequently, option (c) reflects the nuanced consideration of financial strength in determining the applicability of CARO 2003, aligning with the regulatory intent of promoting efficient and targeted reporting standards for different classes of companies.
Now, let’s explore why the other options are not correct:
a) A banking company:
CARO 2003 does not exempt banking companies from its application. Banking companies are an integral part of the financial sector, and their operations and financial statements are subject to stringent auditing standards to ensure transparency and accountability.
The nature of their business, involving public funds and financial transactions, necessitates comprehensive reporting to safeguard the interests of stakeholders. Therefore, option (a) is not correct as banking companies are not exempted from CARO 2003.
b) An insurance company:
Similarly, insurance companies are not exempted from the provisions of CARO 2003. The order applies uniformly across various sectors to maintain consistency and reliability in financial reporting.
Insurance companies, dealing with risk management and financial services, are subjected to the same audit scrutiny as other companies to ensure the accuracy and completeness of their financial disclosures. Consequently, option (b) is not correct.
d) A licensed company:
The term “licensed company” is too broad and lacks specificity in the context of CARO 2003. The order provides exemptions based on financial criteria such as paid-up capital and reserves rather than the general licensing status of a company.
Licensing can pertain to various regulatory aspects, and CARO 2003 focuses on financial parameters to determine exemption. Without specific financial criteria outlined in the option, it is not possible to conclude whether a licensed company is exempt or not.
Therefore, option (d) is not correct due to its lack of clarity regarding the specific financial conditions for exemption.
In summary, CARO 2003 primarily bases exemptions on financial parameters, such as paid-up capital and reserves, to ensure that companies meeting certain criteria are relieved from specific reporting requirements. The incorrect options (a, b, and d) are not aligned with these financial criteria and, therefore, are not exempted from the application of CARO 2003.
Related Posts
- A state Government spent rupees fifty lakhs on renovation of Raj Bhavan’ for its Governor. In the C & AG’s opinion this expenditure was more than what occasion demanded? It is an exampled of –
- Which of following will not affect audit in a CIS environment?
- Price policy mainly benefits - October 1, 2022
- The three major types of ethical issues include except? - October 1, 2022
- The shortest distance between any two dots of the same color is called ………………. - October 1, 2022