ABC Ltd. has made loans to (i) X, who is a Director of the Company, (ii) Y and Co. in which Y a relative of X, is a partner and (iii) LM Private Ltd., which is the subsidiary of ABC Ltd. Discuss briefly your duties as the Statutory Auditor of ABC Ltd

Auditing and Assurance Revision Questions and Answers

Answer

As per sec 101 of the Companies Act 2063, No company shall make any loan or provide any financial assistance to its officer, substantial shareholders or officer, shareholder of a holding company or a close relative of such person nor shall it give any guarantee or provide security in respect of any loan borrowed such officer or shareholder or close relative from any other person.
Provided, however, that this provision shall not apply to any loan or facility to be made or provided to any employee of a company in accordance with the rules of the company or to any loan made or guarantee given any bank or financial institution in the ordinary course of business transaction, except as prohibited the prevailing law. Therefore, the auditor has the following responsibilities:

 In case of loan to Director, the Auditor has to report regarding the non-compliance with the Companies Act.
 In case of loan to Y & Co, the Auditor has to report regarding the non-compliance with the Companies Act and also impact of Related Party Disclosures.
 There being however no prohibition against a public company making loans to its subsidiary.



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