Rules 11 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 11 lists the "other matters" on which the auditor's report must give views and comments, in addition to what the Act requires: the impact of pending litigation, provisions for foreseeable losses, delays in transfers to the Investor Education and Protection Fund, management's representations on funds routed through intermediaries and funding parties, dividend compliance, and the audit trail. Rule 12 deals with branch audit. This article follows the rules as amended up to G.S.R. 359(E) dated 30 May 2025 (in force 14 July 2025) per the MCA e-book. Later amendments should be checked.
Under rule 11 the auditor's report must also say, among other things, whether the company has disclosed the impact of pending litigation, made provision for material foreseeable losses, delayed transfers to the Investor Education and Protection Fund, complied with section 123 on dividend, and, for financial years commencing on or after 1 April 2022, used accounting software with an audit trail (edit log) that was operated throughout the year and not tampered with. Clause (e) adds the management representations on funds advanced to intermediaries and received from funding parties. Rule 12 makes the branch auditor report to the company's auditor.
Rule 11: the clauses
The auditor's report includes his views and comments on the following matters:
| Clause | Matter |
|---|---|
| (a) | Whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement |
| (b) | Whether the company has made provision, as required under any law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts |
| (c) | Whether there has been any delay in transferring amounts required to be transferred to the Investor Education and Protection Fund by the company |
| (d) | Omitted (the former clause on Specified Bank Notes) |
| (e) | The three-part intermediary and funding-party reporting, below |
| (f) | Whether the dividend declared or paid during the year is in compliance with section 123 of the Companies Act, 2013 |
| (g) | Audit trail (edit log) of the accounting software, below |
Clause (d) was omitted by the Amendment Rules of 2021, so the lettering jumps from (c) to (e). Clauses (e) and (g) came into effect from 1 April 2021.
Clause (e): intermediaries and funding parties
- (i) Whether the management has represented that, on the basis of its knowledge and belief and other than as disclosed in the notes to the accounts, no funds have been advanced, loaned or invested (from borrowed funds, share premium or any other sources or kind of funds) by the company to or in any other person or entity, including foreign entities ("Intermediaries"), with the understanding, recorded in writing or otherwise, that the Intermediary shall, directly or indirectly, lend or invest in other persons or entities identified by or on behalf of the company ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
- (ii) Whether the management has represented, on the same footing, that no funds have been received by the company from any person or entity, including foreign entities ("Funding Parties"), with the understanding that the company shall, directly or indirectly, lend or invest in other persons or entities identified by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
- (iii) Whether, based on such audit procedures as the auditor has considered reasonable and appropriate in the circumstances, nothing has come to the auditor's notice that has caused him to believe that the representations under (i) and (ii) contain any material misstatement.
The Schedule III side of this is explained in Funding Party Under Schedule III: Inbound Funds and Pass-Through.
Clause (g): the audit trail
Clause (g) asks whether the company, in respect of financial years commencing on or after 1 April 2022, has used accounting software for maintaining its books of account that has a feature of recording an audit trail (edit log) facility, which has been operated throughout the year for all transactions recorded in the software, has not been tampered with, and has been preserved by the company as per the statutory requirements for record retention. The company's own duty on the software is in rule 3 of the Accounts Rules, which applies from a different date; see Rules 1 to 3 of the Accounts Rules. The two dates are as printed in the two rules and should not be confused. A fuller discussion is in Electronic Books of Account: Daily Backup on Servers in India and the Audit Trail.
Rule 12: branch audit
- 12(1). For section 143(8), the duties and powers of the company's auditor with reference to the audit of the branch, and of the branch auditor, if any, are as contained in section 143(1) to (4).
- 12(2). The branch auditor submits his report to the company's auditor.
- 12(3). The provisions of section 143(12), read with rule 13 of these rules, on reporting of fraud by the auditor also extend to the branch auditor to the extent that it relates to the branch concerned. (The printed rule says "rule 12" in this place; the fraud reporting rule is rule 13.)
For the fraud-reporting rule, see Rules 13 and 14. The Act's treatment of auditors' powers and duties is in Section 143: Auditor Powers and Duties, and the form of a standalone report is in Independent Auditor's Report Format for Standalone Financial Statements. The CARO Order has its own reporting layer; see Paragraphs 1, 2 and 4 of CARO 2020.
A worked example
Evergreen Textiles Limited (invented) has a year commencing after 1 April 2022. Its auditor's report covers, in its "other matters" section: the disclosure of pending litigation; provision for a long-term contract; no delay in IEPF transfers; the management representations on intermediaries and funding parties, with the auditor's statement that nothing has come to his notice to suggest a material misstatement; dividend compliance with section 123; and a statement that the accounting software had an audit trail operated throughout the year, with no tampering. The company has a branch audited by a separate branch auditor, who submits his report to Evergreen's auditor. Our financial and legal due diligence service can help a management team prepare representations that match its notes to the accounts.
Practical points
- Prepare the management representation letter on intermediaries and funding parties early in the audit cycle.
- Track IEPF transfer dates through the year, not at year-end.
- Test the accounting software's audit trail, including the preservation of the edit log, before the auditor does.
- Give the branch auditor a clear timetable so the report reaches the company's auditor in time.
Need help with the auditor's report?
Rule 11 turns several operating matters into reporting points: a missed IEPF transfer, a dividend contrary to section 123 or a disabled audit trail shows up in the report. We can prepare the supporting schedules and representation letters through our financial and legal due diligence service.
Key takeaways
- Rule 11 has six live clauses: (a), (b), (c), (e), (f) and (g); clause (d) is omitted.
- Clause (e) asks about management representations on intermediaries and funding parties, with an auditor's statement.
- Clause (g) asks about the audit trail for financial years commencing on or after 1 April 2022.
- Dividend compliance with section 123 is reported in clause (f).
- The branch auditor reports to the company's auditor (rule 12(2)).
Read next
- Section 143: Auditor Powers and Duties
- Independent Auditor's Report Format for Standalone Financial Statements
- Funding Party Under Schedule III: Inbound Funds and Pass-Through
- Rules 13 and 14: fraud reporting in ADT-4 and cost auditor remuneration
Disclaimer: Based on the Companies Act, 2013 rules (and the Companies (Auditor's Report) Order, 2020) named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.