Question ID : 44957

Sec 185 & 186 of companies Act 2013

A director has taken a loan from the company and the company is a pvt limited small company with capital 10 lakh no borrowings .The amount taken by the director is deposited in April 2025.would like to know the applicability of sec and the disclosures in Audit report and DR and notes to accounts

Answer ID : 86054

1. Disclosure in Statutory Audit Report (CARO, 2020) Assuming CARO, 2020 is applicable (private company, small company – usually CARO is applicable unless specifically exempt). (a) CARO Clause 3(iii) – Loans to Directors / Related Parties Auditor must report: Whether company has granted any loans or advances in the nature of loans to directors Terms and conditions Whether prejudicial to company’s interest Whether repayments are regular Amount overdue, if any ?? Adverse reporting required. (b) CARO Clause 3(iv) Auditor must report: Whether provisions of Sections 185 and 186 have been complied with. ?? Clear qualification / adverse remark stating non-compliance with Section 185. 2. Disclosure in Auditor’s Main Report (SA 700 / SA 705) Since this is: Non-compliance with law Directly prohibited transaction Auditor must evaluate materiality: Likely audit opinion impact If amount is material ? Qualified Opinion If amount is highly material / pervasive ? Adverse Opinion At minimum: ?? Qualification paragraph under “Basis for Qualified Opinion” 3. Disclosure in Directors’ Report Mandatory disclosure Under Section 134(3) read with Rule 8: Particulars of contracts or arrangements with related parties in Form AOC-2 Loan to director = Related Party Transaction ?? Disclosure in AOC-2 is mandatory, even though transaction is non-compliant. Also advisable: Specific disclosure of non-compliance with Section 185 Management explanation / corrective steps (repayment, compounding, etc.) 4. Disclosure in Notes to Accounts (a) Related Party Disclosures (AS 18 / Ind AS 24) Name of director Nature of relationship Amount of loan outstanding Terms (interest-free or otherwise) Maximum outstanding during the year (b) Statutory Non-Compliance Under Significant Accounting Policies / Notes: Disclosure of non-compliance with Section 185 Impact on financial statements (if any) (c) Other disclosures If loan is interest-free ? disclosure of benefit to director If repayable on demand ? terms to be disclosed

Answer ID : 86058

i would like to clarify the question,capital was introduced at 10 ;akh later one director withdraw an amount of 9.52 lakh.i would like to know how we can report the same in audit report.no caro applicable.small company.no borrowings.the amount withdraw by director was later deposited in april 2025.

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