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Audit Query---"depreciation"

yogesh (article assistant) (44 Points)

22 February 2010

Please help me regarding following query.....

As per circular issued by Department of Companies Affairs--The rates of depreciation provided in Schedule XIV of Companies Act,1956 are the minimum rate.It means that Management can provide depreciation at the rate which exceeds the rates mentioned in schedule XIV. But it will result in creation of a Secret Reserve(Hidden Reserve) which will destroy the true picture of financial statment ( Objective of a Company Audit).So what an auditor should do in such case(i.e. if management provide depreciation at a higher rate).Please also provide legal cases,circulars in this regard if any.

Thanks & Regards

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3 Replies

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 22 February 2010

How can it create a secret reserve?

And even if the management provide depreciation at higher rates than mentiones, they have to justify their decision. In this case, in absence of proper justification from management regarding the rates, the auditor may qualify the reposrt if he feels any malafide motive in such decision of the management.