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Clause 3(v) asks whether the company complied with the deposit rules, including for amounts that are only treated as deposits, and with any order passed against it. Clause 3(vi) asks whether cost records required under section 148(1) are made and maintained. This article explains how the ICAI Guidance Note says to approach both.
It is explained from the ICAI Guidance Note on the Companies (Auditor's Report) Order, 2020 (Revised 2022 Edition, July 2022). CARO 2020 applies to audits of financial years commencing on or after 1 April 2021. Later amendments to the Order, Schedule III and the laws named should be checked.
For deposits the auditor tests compliance with sections 73 to 76 and the Deposit Rules, looks for amounts that have become deemed deposits, and checks whether any tribunal, court or RBI order has been obeyed. For cost records the auditor does only a general review and reports whether the specified records exist, whatever the position on cost audit. If cost records are not specified for the company, the clause is not applicable.
The Order's wording is in the live clause iii to vi explainer. Advance registers, deposit registers and cost records all belong in sound books of accounts compliance. The preceding clauses are in our clauses 3(iii) and 3(iv) article.
Clause 3(v): deposits (paragraph 57)
What is covered
The GN reads "deposit" through section 2(31) and Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014: a receipt of money as deposit, loan or otherwise, other than the categories excluded. The clause also reaches amounts that are deemed to be deposits. Section 73 stops companies (other than banking companies, NBFCs and others the Central Government specifies) from inviting, accepting or renewing public deposits except as the section and Rules allow, and section 76 lets certain public companies accept deposits from non-members. NBFCs and housing finance companies follow their own regulators' deposit norms, so for such a company the auditor states that sections 73 to 76 and the Rules do not apply. Our section 73 explainer and Deposit Rules guide cover the Act and Rules.
Deemed deposits
The GN lists the receipts in the course of business that can become deemed deposits under the Rules, and the time limits attached. In plain terms, it covers:
| Receipt | When it can become a deposit (as the GN reports the Rule) |
|---|---|
| Advance for goods or services | Not appropriated within 365 days (the limit does not apply to an advance in legal proceedings) |
| Advance for an immovable property | Not adjusted against the property under the agreement |
| Security deposit for performance of a contract | Treated as a category of receipts the Rule covers |
| Advance under long-term capital goods projects | As covered by the Rule |
| Advance for future warranty or maintenance | If the period exceeds common business practice or five years, whichever is less |
| Advance allowed by a sectoral regulator or government direction | As covered by the Rule |
| Subscription advance for publications | Until adjusted against supply |
| Refundable amounts where the company lacks the permission to deal | Deemed deposits |
The GN adds that an amount becomes a deemed deposit on the expiry of fifteen days from the date it falls due for refund, and that application money for securities that cannot be allotted within sixty days, and is not refunded within fifteen days after that, is also treated as a deposit. Read the Rule itself for each category before concluding.
Audit procedures
- Obtain an understanding of sections 73 to 76 and the Rules, and test all their requirements, not only the limits. With very large numbers, examine the acceptance system and records, and test a reasonable sample; a checklist helps.
- Get the list of business receipts (advances, security deposits) and assess each against the deemed deposit categories. Examine Form DPT-3 where filed. The GN also records that the return-of-deposits part of DPT-3 attracts an auditor's certificate, and that the amended form covers a return of deposits, particulars of transactions not considered deposits, or both.
- Test internal controls that keep deposits within limits, accepting that daily testing is not possible and a reasonable test check is justified.
- Ask management about non-compliance and about any order of the CLB, NCLT, RBI, a court or another tribunal, and take a written representation on both points.
Reporting
If there is a contravention of the sections, Rules or RBI directions, the auditor states that they have not been complied with and describes the nature of the contravention. If an order exists, the auditor examines the steps taken to comply. If the company has not complied, the report says so and gives the nature of the contravention.
Clause 3(vi): cost records (paragraph 58)
Section 148(1) lets the Central Government direct that particulars of materials, labour and other costs be included in the books of account of specified classes of companies, and the Companies (Cost Records and Audit) Rules, 2014 give the classes and the CRA-1 format. Section 148(2) deals with cost audit for classes meeting prescribed net worth or turnover. See our section 148 explainer and the rule posts on cost audit thresholds and CRA-1 and appointing the cost auditor.
Making the report
The GN distinguishes the two verbs: cost accounts or statements are "made", while records on materials, labour and overheads are "maintained". The auditor reports whether this has been done even if no cost audit has been ordered.
- Get a written representation: are cost records required for any product or service, and are accounts and records regularly made and maintained?
- Check whether the Central Government has specified cost records for the company. If only some products or activities are specified, limit procedures to those.
- Obtain the list of books and records made and maintained.
- Do a general review, not a detailed examination. Refer to the records as far as needed for the financial statement audit.
- If cost audit applies, obtain the previous year's cost audit report, note any qualification and ask management whether it was addressed this year. Include this in the representation letter.
The GN suggests a wording that describes the extent of review (a broad review, with a prima facie conclusion). The auditor should make the limited nature of the work clear in the report. If records are missing or incomplete, comment suitably. If cost records are not specified for the company, the clause is not applicable and the report says so.
A worked example
Cedar Paints Limited received Rs 40 lakh from a dealer in April 2024 as an advance for supplies. By March 2026 only Rs 10 lakh had been supplied against it, and no legal proceedings are pending. The auditor assesses the balance against the 365-day advance rule, concludes that part of the advance has become a deemed deposit, checks DPT-3, and reports the non-compliance and its nature. For clause 3(vi), the company's paint products are in the notified list, so the auditor gets the representation, reviews the cost records broadly and notes the cost auditor's comments from last year.
Need help with deposit and cost record compliance?
Deemed deposits and cost record gaps are easier to fix during the year than at audit. TaxClue's books of accounts compliance team can review advances, deposit registers and cost records against the Rules with you.
Key takeaways
- Test all of sections 73 to 76 and the Rules, not only the limits.
- Review advances and security deposits against the deemed deposit categories and the time limits.
- Report non-compliance with any CLB, NCLT, RBI, court or tribunal order with its nature.
- Cost records need a general review with a written representation, whether or not cost audit applies.
- If cost records are not specified, report the clause as not applicable.
Read next
- CARO 2020 clauses 3(vii) and 3(viii) in practice: statutory dues and tax assessments
- CARO 2020 clauses 3(iii) and 3(iv) in practice
- Companies Deposits Rules, 2014 guide
- Section 148: cost audit
Disclaimer: Based on the Companies (Auditor's Report) Order, 2020 as explained in the ICAI Guidance Note on CARO 2020 (Revised 2022 Edition), as consulted on 3 October 2026. CARO applies to financial years commencing on or after 1 April 2021; later amendments to the Order, Schedule III and the laws referred to should be checked. This article is general information, not legal advice; check the official text before acting.