Investment Valuation in India

The importance of internal audit has been well acknowledged in Companies (Auditor Report) Order, 2003 (CARO 2003), pursuant to which auditor of a company is required to comment on the fact that the internal audit system of the company is commensurate with the nature and size of the company’s operations. However, CARO 2003 did not mandate that an internal audit should be conducted by the internal auditor of the company. CARO 2003 acknowledged that an internal audit can be conducted by an individual who is not in appointment by the company. The 2013 Act now moves a step forward and mandates the appointment of an internal auditor who shall either be a chartered accountant (CA) or a cost accountant (CMA), or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company. The class or classes of companies which shall be required to mandatorily appoint an internal auditor as per the draft ...

FOREIGN EXCHANGE FORWARD CONTRACTS An enterprise having exposure to multiple currencies by virtue receivable and payables (e.g. import and export) is likely to be worried about the exchange rate fluctuations that may result in gains and losses in the future. In order to hedge its position and to avoid the losses due to foreign exchange rate changes, the enterprise may enter into a forward exchange contract to manage the amount of the reporting currency required or available at the settlement date of transaction. Generally Accepted Accounting Principles (GAAP) and International Financial reporting Standards (IFRS) provides that the difference between the forward rate and the exchange rate at the date of the transaction should be recognised as income or expense over the life of the contract. Further the profit or loss arising on cancellation or renewal of a forward exchange contract should be recognised as income or as expense for the period. Example: Suppose MSD Ltd needs USD 500,0...

Companies (Auditors Report) Order, 2003 [CARO 2003] ‘CARO’ is applicable to every company including a foreign company as defined in section 591 of the Companies Act, 1956 (‘the Act’), except to: - a banking company, - an insurance company, - a company licensed to operate under section 25 of the Act and - to private company meeting all of the following conditions:     -- paid up capital and reserves not more than Rs.50 lacs     -- has not accepted any public deposit     -- does not have a loan outstanding from any bank or financial institution of Rs.10 lacs or more     -- does not have a turnover > Rs.5 crores The Order deals with the matters to be contained in the Auditor’s report under Sec 227 of the Companies Act, 1957. Fixed Assets Whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets Whether these fixed assets have been p...