Under CARO 2003 the auditor’s report should include report about maintenance of proper recording relating to____

 Options:

a) Fixed assets and cost b) Fixed assets, cost and investments c) Fixed assets , cost investments and inventories d) Fixed assets, cost and inventory

The Correct Answer Is:

c) Fixed assets , cost investments and inventories

Correct Answer Explanation (c): Fixed assets, cost investments, and inventories

The correct answer is (c) Fixed assets, cost investments, and inventories under the Companies (Auditor’s Report) Order, 2003 (CARO 2003).

This order was issued by the Ministry of Corporate Affairs in India and is designed to ensure that companies maintain proper records and reporting standards in various areas, primarily for the benefit of shareholders and other stakeholders.

Let’s delve into the reasons for this correct answer and explain why the other options are not accurate:

• Fixed Assets: Proper recording and maintenance of fixed assets are essential because they represent a significant part of a company’s capital and affect its financial health. Auditors need to ensure that these assets are accurately recorded and valued.
• Cost: Cost refers to the overall expenses incurred by a company in its operations. Proper recording of costs is crucial to understand the financial health and profitability of a company. Auditors need to verify that costs are accurately recorded in the financial statements.
• Investments: Investments are a vital aspect of a company’s financial health. Proper recording and reporting of investments are necessary to assess the company’s financial position and its ability to generate returns from these investments.
• Inventories: Inventories are a significant component of a company’s current assets. Proper recording and valuation of inventories are crucial for assessing a company’s liquidity and ability to meet its short-term obligations.

Now, let’s examine why the other options are not correct:

Option (a): Fixed assets and cost

This option only covers fixed assets and cost, leaving out investments and inventories. Auditors must examine investments and inventories to provide a comprehensive assessment of a company’s financial health.

Excluding investments and inventories from the auditor’s report could lead to an incomplete understanding of the company’s financial position.

y omitting investments from the auditor’s report, there is a lack of assessment of the company’s investment strategy and potential returns from investments. This could be crucial information for shareholders and stakeholders to evaluate the company’s diversification and risk management strategies.

Option (b): Fixed assets, cost, and investments

This option includes fixed assets, cost, and investments but leaves out inventories. As mentioned earlier, inventories are a crucial aspect of a company’s current assets, and their proper recording is essential. Omitting inventories from the auditor’s report would result in an incomplete evaluation of the company’s financial health.

As mentioned earlier, inventories are a crucial component of a company’s current assets. Proper recording and valuation of inventories are essential for assessing a company’s liquidity and its ability to meet its short-term obligations.

Excluding inventories from the auditor’s report could result in an incomplete evaluation of the company’s financial position.

Option (d): Fixed assets, cost, and inventory

This option covers fixed assets, cost, and inventory, but it excludes investments. Investments are a vital part of a company’s financial portfolio, and their proper recording and valuation are necessary for assessing the company’s investment strategy and its potential returns.

Excluding investments from the auditor’s report would lead to an incomplete evaluation of the company’s financial position.

In conclusion, the correct answer (c) covers a comprehensive set of financial elements that auditors need to evaluate to provide a complete and accurate assessment of a company’s financial health.

Proper recording and reporting of fixed assets, cost, investments, and inventories are essential for the transparency and accuracy of financial statements, ensuring that shareholders and stakeholders have the information they need to make informed decisions about the company’s performance and prospects.

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