City Online Services Ltd Auditor Reports

TO THE MEMBERS OF CITY ONLINE SERVICES LIMITED

Report on the Audit of the Financial Statements Qualified Opinion

We have audited the accompanying financial statements of City Online Services Limited (the Company"), which comprise the Balance Sheet as at March 31,2025, the statement of Profit and Loss, the statement of Changes in Equity and the statement of Cash Flows for the year then ended on that date and notes to the financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the "Basis for Qualified Opinion" section of our report, the aforesaid financial statements give the information required by the Companies Act, 2013(the "Act") in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with Companies (Indian Accounting Standards) Rules 2015, as amended, ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the company as at March 31,2025,its Profit, its total comprehensive income,changes in equity and its cash flows for the year ended on that date.

Basis for Qualified Opinion

1. There is a difference in the revenue reported as per the books of account as compared with the revenue reported in the GST Returns filed with the GST Authorities, thereby resulting in under-reporting of Revenue to the Authorities by Rs. 94.77 Lakhs.

2. There is a difference between the Input as per the books of account and the Input Tax Credit as per GST Returns, which amounts to Rs. 5.72 Lakhs (net). Input Tax Credit (ITC) is being claimed solely based on entries appearing in GSTR-2B, without adequate verification to ensure that the underlying Input Tax Credit is genuinely related to the Companys business operations or not.

3. As of 31st March 2025, we have identified unbilled revenue amounting to ?17.86 lakhs. This represents services that have been rendered, but invoices have not yet been issued.

We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India ("ICAI") together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAIs Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.

Going Concern

The company is having a negative net-worth of Rs 7.51 Lakhs as on 31st March 2025. The management of the company has represented that in case of need, the promoters shall infuse the required capital/loan for furtherance of operations. Hence, the financial statements are prepared on a Going Concern basis.

Our opinion on the financial statements is not modified in respect of the above matters.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended March 31, 2025. Except for the matters described in the Basis for Qualified Opinion section, we have determined that there are no Key Audit Matters to communicate in our report.

Emphasis of Matter

We draw attention to the following matters:

1. Note 12 to the financial statements represents the balance amounting to Rs. 54.06 Lakhs under the head "Financial Assets- Trade Receivables" regarding amount receivable from sundry debtors as on the Balance Sheet date is subject to confirmations and reconciliations and consequential adjustments, if any.

2. Note 23 to the financial statements represents the balance amounting toRs. 266.03 Lakhs under the head "Financial Liabilities - Trade

Payables" regarding amount payable to sundry creditors as on the Balance Sheet date is subject to confirmations and reconciliations and consequential adjustments, if any.

3. Note 25 to the financial statements represents the balance amounting toRs.231.97 Lakhs under the head "Other Current Liabilities" regarding "Statutory Liabilities" in the nature of TDS, GST, PF, ESI & PT are remaining unpaid as on the balance sheet date.

Our opinion on the financial statements is not modified in respect of the above matters.

Other Information

The Companys Board of Directors is responsible for the other information. The other information comprises the information included in the Companys Board of DirectorsReport, but does not include the financial statements and our auditors report thereon.

Our opinion on the financial statements does not cover the other information, and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements, or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management for the Financial Statements

The Companys Board of Directors are responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these financial statements that give a true and Fair view of the financial position, financial performance, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian accounting standards ("IND AS") specified under section 133 of the Act.

This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the management and the Board of Directors are responsible for assessing the Companys ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Board of Directors are also responsible for overseeing the financial reporting process of the Company.

Auditors Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the adequacy and operating effectiveness of the companys internal controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management and Board of Directors.

• Conclude on the appropriateness of the management and Board of Directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Companys ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure, and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatement in the financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in

(i) Planning the scope of our audit work and in evaluating the results of our work; and

(ii) To evaluate the effect of any identified misstatement in the financial statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditors Report) Order, 2020 ("the Order"), issued by the Central Government of India in terms of subsection (11) of section 143 of the Act, we give in the "Annexure A", a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

As required by Section 143(3) of the Act, based on our audit we report that:

(a) We have sought and obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

(c) The balance sheet, the statement of profit and loss, the statement of changes in equity and the statement of cash flows dealt with by this Report are in agreement with the books of account.

(d) In our opinion, the aforesaid financial statements comply with the IND AS specified under section 133 of the Act, read with the Companies (Indian Accounting Standards) Rules, 2015 as amended.

(e) On the basis of the written representations received from the directors as on March 31,2025, taken on record by the Board of Directors, none of the directors are disqualified as on March 31,2025, from being appointed as a director in terms of Section 164 (2) of the Act.

(f) With respect to the adequacy of the internal financial controls over financial reporting of the company and the operating effectiveness of such controls, refer to our separate Report in "Annexure B". Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the companys internal financial controls over financial reporting.

(g) With respect to the matter to be included in the Auditors Report under Section 197(16) of the Act, as amended:

In our opinion, and according to the information and explanation given to us, the remuneration paid by the company to its directors during the year is in accordance with the provisions of section 197 of the Act.

(h) With respect to the other matters to be included in the Auditors Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company does not have any pending litigations that would impact its financial position.

ii. The Company did not have any long-term contracts, including derivative contracts, for which there were any material foreseeable losses.

iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company during the year ended 31st March 2025.

iv. (a) The management has represented that, to the best of its knowledge and belief, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other persons or entities, including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever ("Ultimate Beneficiaries") by or on behalf of the Company, or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

(b) The management has represented, that, to the best of its knowledge and belief, no funds have been received by the Company from any persons or entities, including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the company shall, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries. (This option is to be used when the Company has not received funds in the capacity of intermediary)

(c) Based on audit procedures that has been considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub-clause (a) and (b) contain any material misstatement.

v. The Company has neither declared nor paid any dividend during the year.

vi. Based on our examination, which included test checks, the Company has used accounting software for maintaining its books of accounts for the financial year ended March 31,2025 which has a feature of recording Audit trail (Edit Log) facility, and the same has operated throughout the year for all relevant transactions recorded in the software. Further, during our audit, we did not come across any instance of the audit trail feature being tampered with. Additionally, the audit trail has been preserved by the Company as per the Statutory requirements for record retention.

ANNEXURE‘ATOTHEINDEPENDENTAUDITORSREPORT

(Referredto ‘Report on Other Legal and Regulatory Requirements section of

our report to the Members of CITY ONLINE SERVICES LIMITED on the

Financial Statements for the year ended 31st March, 2025)

i. Inrespect of the Companys Property, Plantand Equipment and Intangible Assets:

(a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the Company is maintaining proper records showing full particulars, including quantitative details and the situation of property plant & equipment and intangible assets.

(b) As informed to us, the Company has not performed a physical verification of its entire Property, Plant, and Equipment. There exists a difference of Rs.6,30,440 between the balance shown in the Fixed Asset Register and the balance recorded in the accounting books, reconciliation of which is under progress.

(c) According to the information and explanations given to us, we report that there is no Immovable property of Land and buildings which are freehold or lease hold held in the name of the company as of the Balance Sheet date 31st March 2025. There fore, Clause 3(i)(c) of the Order is not applicable to the Company and hence not commented upon.

(d) According to the Information and explanations given to us, the Company has note valued any of its Property, Plantand Equipment (including right- of-use assets) or Intangible Assets during the year. Therefore, the Clause 3(i)(d) of the Order is not applicable to the Company and hence not commented upon.

(e) According to the Information and explanations given to us, there are no proceedings initiated or are pending against the Company for holding any Benami property under the Benami Transactions (Prohibition) Act,1988 (45of1988) and rules made thereunder. Therefore, the Clause 3(i)(e) of the Order is not applicable to the Company and hence not commented upon.

ii. (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, there is no inventory lying with the company as on the balance sheet date. Therefore, the Clause 3(ii)(a) of the order is not applicable to the company.

(b) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the Company has been sanctioned working capital from banks or financial institutions, which is less than Rs.5crores on the basis of security of current assets. Therefore, Clause 3(ii)(b) of the Order is not applicable to the Company and hence not commented upon.

iii. According to the information & explanation given to us and on the basis of our examination of records of the company, the Company has granted advances in the nature of Loans to Companies during the year of which:

(a) Based on the audit procedures performed, during the year the company has provided advances in the nature of loans. The details are as follows:

PARTICULARS	AMOUNT IN RS.
Aggregate amount during the year:
- Related	30,000
- Other than subsidiaries	-
Balance outstanding as at balance sheet:
- Related	14,97,104
- Other than subsidiaries	-

(b) According to the information and explanations given to us and on the basis of our examination of the records of the company, in case of loans and advances, which are in the nature of loans, there is no interest levied, therefore the terms and conditions of the grant of loans and advances are prejudicial to the companys interest.

(c) The schedule of repayment of principal and payment of interest has not been stipulated.

(d) According to the information and explanation given to us there is no repayment schedule, using which overdue for more than 90 days can be obtained therefore, the provision of Clause 3 (iii) (d) is not commented upon.

(e) According to the information and explanations given to us, there is no repayment schedule on the basis of which we can determine that the loans that fell due during the year has been renewed, extended, or a fresh loan has been granted to settle the existing dues. Hence, commenting on Clause 3 (iii) (e) is not required.

(f) According to the information and explanations given to us and on the basis of our examination of the records, the company has not granted loans or advances in the nature of loans either repayable on demand or without specifying any terms or period of repayment to related parties as defined in clause (76) of section 2 of the Companies Act, 2013.

iv. In our opinion and according to the information and explanations given to us and on the basis of our examination of the records of the company, the Company has complied with the provisions of section 185 and 186 of the Act, with respect to the loans and investments made.

v. According to the information and explanations given to us, the Company has not accepted deposits during the year and does not have any unclaimed deposits as at 31st March, 2025 and therefore, the provisions of clause 3 (v) of the Order are not applicable to the Company.

vi. According to the information and explanations given to us, Maintenance of Cost records as prescribed by the Central Government under section 148(1) of the Companies Act, 2013, is not applicable to the company and accordingly, clause (vi) of paragraph 3 of the order is not applicable to the company.

vii. According to the information and explanations given to us and on the basis of our examination of books of accounts, the company is not regular in depositing undisputed statutory dues.

a) As at 31st March 2025, the following are the undisputed statutory dues payable for a period of more than 6 months from the date they become payable:

Name of the Statue	Nature of Dues	Amount (Rs.)
Employees Provident Fund and Miscellaneous Act, 1952	-	7,45,926.40
Professional Tax	-	3,23,173.00
Income-Tax Act, 1961	TDS deducted amount	32,22,838.28
GST Act,2017	-	2,00,07,475.46

b) According to the information and explanation given to us, the company has no statutory dues which have not been deposited on account of disputes.

viii. According to the information and explanations given to us and on the basis of our examination of the records, the company has not surrendered or disclosed any transaction, previously unrecorded in the books of account, in the tax assessments under the Income Tax Act, 1961 as income during the year. Accordingly, the requirement to report on Clause 3 (viii) of the Order is not applicable to the Company.

ix. The Company has raised money by way of term loans which were applied for the purpose for which it was raised.

a) The company has not defaulted in repayment of loans or other borrowings or in the payment of interest thereon to a lender.

b) According to the information and explanations given to us, the company has not been declared a willful defaulter by any bank or financial institution, or any other lender.

c) According to the information and explanations given to us and on the basis of the examination of records of the company, the term loans were applied for the purpose for which the loans were obtained.

d) According to the information and explanations given to us and on the basis of the examination of records of the company, no funds raised on short term basis have been utilized for long-term purposes.

e) According to the information and explanations given to us and on the basis of the examination of records of the company, the company has not taken any funds from any entity or a person on account of or to meet the obligations of its subsidiaries, Associates or Joint ventures.

f) According to the information and explanations given to us and on the basis of the examination of records of the company, the company has not raised loans during the quarter on the pledge of the securities held in its subsidiaries, Joint ventures or Associate companies.

x. a) According to the information and explanations given to us and on the basis of the examination of records of the company, no money was raised by the way of initial public offer or further public offer (including debt instruments) and hence not commented upon.

b) According to the information and explanations given to us, the company has not made any preferential allotment or private placement of shares or convertible debentures (fully, partially optionally convertible) during the year. Accordingly, Clause (x)(b) of the Order is not applicable and hence not commented upon.

xi. a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, based upon the audit procedures performed for the purpose of reporting the true and fair view of the Financial Statements, we report that no fraud by the Company or no material fraud on the Company by the officers and employees of the Company has been noticed or reported during the year. Accordingly, Clause (xi)(a)of the Order is not applicable and hence not commented upon.

b) According to the information and explanation given to us and on the basis of our examination of the records of the Company, there is no fraud by the company or no material fraud on the company by the officers and employees of the company. Accordingly, filing of Form ADT-4 as prescribed under Rule 13 of Companies (Audit and Auditors) Rules 2014 with the Central Government is not required and hence Clause (xi) (b) of the Order is not applicable and not commented upon.

c) According to the information and explanations given to us, there were no whistle-blower complaints in the company. Therefore, the Para 3 (xi) (c) of the Order is not applicable to the Company and hence not commented upon.

xii. According to the information and explanations given to us and on the basis of our examination of the records of the Company, the Company is not Nidhi Company. Therefore, Clause (xii) (a), (b) and (c) of the Order is not applicable to the Company and hence not commented upon.

xiii. According to the information and explanations given to us and based on our examination of the records of the Company, transactions with the related parties are in compliance with sections 177 and 188 of the Act where applicable, and details of such transactions have been disclosed in the financial statements as required by the applicable accounting standards.

xiv. (a) According to the information and explanations given to us, the Company has an internal audit system commensurate with its size and the nature of its business.

(b) The internal audit report of the Company issued till the date of the audit report, for the period under audit have been considered by us.

xv. According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with directors or persons connected with him. Accordingly, Clause (xv) of the Order is not applicable and hence not commented upon.

xvi. (a) According to the information and explanations given to us and based on our examination of the records of the Company, the Company is not required to be registered under section 45-IA of the Reserve Bank of India Act 1934. Accordingly, Clause 3 (xvi)(a) of the order is not applicable.

(b) According to the information and explanations given to us and on the basis of our examination of the records of the company, the Company has not conducted any Non-Banking Financial or Housing Finance activities. Accordingly, Clause 3(xvi)(b) of the Order is not applicable.

(c) According to the information and explanations given to us and on the basis of our examination of the records of the company, the company is not a core investment company. Accordingly, Clause 3(xvi)(c) of the Order is not applicable and hence not commented upon.

(d) According to the information and explanations given to us and on the basis of our examination of the records of the company, neither the company nor its group of company is a core investment company. Accordingly, Clause 3(xvi)(d) of the Order is not applicable and hence not commented upon.

xvii. According to the information and explanations given to us and on the basis of our examination of the records of the company, the company has not incurred cash losses in the financial year. Hence, commenting on Clause (xvii) is not required.

xviii. According to the information and explanations given to us and on the basis of our examination of the records of the Company, there has been no resignation of the statutory auditors during the year. Accordingly, Clause 3 (xviii) of the Order is not applicable and hence not commented upon.

xix. On the basis of the financial ratios, ageing and expected dates of realization of financial assets and payment of financial liabilities, other information accompanying the financial statements, the auditors knowledge of the Board of Directors and management plans, we are of the opinion that no material uncertainty exists as on the date of the audit report that company is capable of meeting its liabilities existing at the date of balance sheet as and when they fall due within a period of one year from the balance sheet date.

xx. According to the information and explanation provided to us, and based on the examination of the records of the company. The company is not subject to compliance requirements with respect to Section 135 of The Companies Act, 2013. Therefore, Clause (xx) (a) & (b) of the Order is not applicable to the Company and hence not commented upon.

xxi There have been no qualifications or adverse remarks by the respective auditors in the Companies (Auditors Report) Order (CARO) reports of the companies included in the consolidated financial statements. Accordingly, reporting under Clause 3(xxi) of the Order is not applicable for the year.

ANNEXURE - B TO THE INDEPENDENT AUDITORS REPORT

(Referred to in our Report of even date)

Report on the Internal Financial Controls with reference to financial statements under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 ("the Act")

We have audited the internal financial controls over financial reporting of City Online Services Limited ("the Company") as of 31st March 2025, in conjunction with our audit of the financial statements of the Company for the year ended on that date.

Opinion

In our opinion, the Company has, in all material respects, adequate internal financial controls with reference to financial statements in place and such internal financial controls with reference to financial statements were operating effectively as at 31st March, 2025 based on the internal financial control with reference to standalone financial statements established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the ICAI.

Managements Responsibility for Internal Financial Controls

The Companys management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (ICAI). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors Responsibility

Our responsibility is to express an opinion on the Companys internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting were established and maintained, and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal controls based on the assessed risk.

The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Companys internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A companys internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal financial control over financial reporting includes those policies and procedures that

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

(3) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.