AZ Industries Ltd., an Indian pharmaceutical company having its corporate office in Mumbai is engaged in developing, manufacturing and globally…

CA Final · Advanced Auditing, Assurance and Professional Ethics · PYQS · September 2025
AZ Industries Ltd., an Indian pharmaceutical company having its corporate office in Mumbai is engaged in developing, manufacturing and globally marketing a broad range of pharma products. During the F.Y. 2024-25, in pursuit of company's research & development drive for developing their core product portfolios, two companies viz. KK Ltd., a wholly owned subsidiary company, and OP Ltd., a Jointly Controlled Entity, were amalgamated with AZ Industries Ltd. PPP & Associates, Chartered Accountants, are the principal auditors of the company. The audit of KK Ltd. and OP Ltd. was conducted by the respective auditors of those companies. The consolidated financial statements of AZ Industries Ltd. consists of financial statements and financial information of both these companies, to whom CARO 2020 is applicable. The auditors of the said companies have given qualifications in their CARO report on the standalone financial statements for the F.Y. 2024-25 as under: (1) In respect of wholly owned subsidiary company viz. KK Ltd, its auditor has qualified clause 3(xv) since the company has not complied with the provisions of Section 192 of the Companies Act, 2013 while entering into non-cash transactions with the director. (2) In respect of OP Ltd., being Jointly Controlled Entity, its auditor has made the adverse remark in clause 3(ix)(a) since the company has defaulted in repayment of loans to bankers. In respect of AZ Industries Ltd., the principal auditor has given adverse remark in the standalone financial statement of the company in respect of clause 3(i)(c) since the title deeds of some immovable properties were not held in the name of the company. The engagement partner, CA P, is in the process of finalizing the consolidated audit report. Guide CA P how he will report on the matters stated above in terms of the reporting requirements under paragraph 3 of CARO, 2020.

Suggested Answer and Working Notes:

Reporting requirement under paragraph 3 of CARO 2020: Clause (xxi) of Paragraph 3 of CARO 2020 requires the auditor to report whether there have been any qualifications or adverse remarks by the respective auditors in the Companies (Auditor's Report) Order (CARO) reports of the companies included in the consolidated financial statements, if yes, indicate the details of the companies and the paragraph numbers of the CARO report containing the qualifications or adverse remarks. In terms of Clause (xxi), the engagement partner CA P in the consolidated audit report shall provide the details of KK Ltd., OP Ltd. and AZ Industries Ltd., and the paragraph numbers of the respective CARO report containing the qualifications or adverse remarks, accordingly, text of those paragraphs is not required to be reproduced. Since Reporting under this clause is only required for those entities included in the consolidated financial statements to whom CARO 2020 is applicable, qualifications/adverse remarks given in AZ Industries Ltd.'s standalone CARO report are also required to be included while reporting on consolidated financial statements in addition to Subsidiary company and Jointly Controlled Entities. In view of the above, for the purpose of reporting the qualifications/adverse remarks, the engagement partner CA P, the principal auditor may report in the following manner in the consolidation audit report- S. No. Name of the Company Holding Co./ Subsidiary Associate/ Joint Venture Clause number of CARO Report which is Qualified or Adverse 1 AZ Industries Ltd. Holding Company (i)(c) 2 OP Ltd. Joint Controlled Entity (ix)(a) 3 KK Ltd. Wholly Owned Subsidiary Company (xv)

Topics: CARO 2020

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