Sec 2(85) - Small Company definition - applicability for 1st financial statements

[Vishwanath Pai]

Respected Members

A company was incorporated in June 2017 and has its first Financial Statements as on 31.03.2018. The issued share capital is Rs 18 Lakhs and turnover was Rs 3 crores for period ended 31.03.2018. Auditor of the company was of the view that it was a small company for period ended 31.03.2018 and hence there is no audit report on adequacy of  ICFR or CARO report. 

 As per section 2(85) "small company" means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than 16[ten crore rupees AND

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than 18[one hundred crore rupees

My view is that it was not a small company as the' immediate preceding financial year' (FY) is "period ended 31.3.2018' since we are signing of Nov 2018. The Auditor is of the vew that the 'immediate preceding FY'  is FY 2016-17 for 1st financial statements ended 31.3.2018, and since the company was not in existence then it will be considered a NIL.

Request learned members to kindly share their views.on what would be 'immediately preceding financial year' in above case.

Regards

Vishwanath

[Ramachandran V]

Your point of view is correct

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[Mukesh Kanazariya]

Auditors point of view is correct.

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Thanks and Regards,

Mukesh Kanazariya

[PREETI AGRAWAL]

i also agree with Mukesh

Regards,

Preeti Agrawal

Company Secretary

Cell No-9850084716

[Rinki Goyal]

Whenever an Auditor Signs a Balance sheet or do Audit it is always after 31st March, so immediately preceeding F.Y. means F.y ending just before his signing and Audit, hence view of  Viswanath is correct.

Regards,

Rinki Goyal,

Rinki Goyal & Associates.

PCS

Mumbai

[Ravindranath Tagore]

Small Company definition is different and CARO applicability is different.

CARO is applicable for the following types of companies:.

• Companies with a paid-up capital of more than Rs.100 lakhs.
• Companies having a borrowing of more than Rs.1 crore from any bank and financial institution at any point of time during the financial year.
• Companies which are a subsidiary or holding company.
• Companies which have a total revenue exceeding Rs.10 crore during the financial year

Hence, the auditor view is correct as CARO is not applicable as it has not attracted any of the above conditions. 

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[CS V Kartik]

Since this is going to be the first annual filing for the company, it will be determined as a large company since during the first FY 2017-18 (in your case), the company had a turnover beyond the thereshold limit. Hence it’s a large company.

You will also get an answer for this by prescrutinizing the form, if the system will insist for certification from a professional.

[Bala Sri]

Hello Mr. Vishwanath,

Your auditor is right.

Justification : The financial statements are pertaining to the year under reporting, although signed subsequent to the period. Whilst signing the FS, the year under review is the current year. 

whilst reporting under CARO, report should cover matters which needs coverage under audit. Therefore in this context, the immediate preceding fin. year should refer to the year prior to the year which is under review /audit.

Hope this helps.

Rgds

Bala Srini FCA., LL.B.

94498-27834