1. The Existence of CARO, 2016MCA was of the objective that there are certain particular issues which are important to be reported with the financial statements for certain entities as a part of their audit reports. The auditor of such prescribed entities is required to report on the points mentioned under this order after performing procedures for verification of the same.
2. Applicability of CARO 2016CARO 2016 is applicable to all the companies except the following (which) are specifically excluded from its purview:
A. Banking Companies
B. Insurance Companies
C. Companies registered for Charitable Purposes
D. One Person Company
E. Small Companies (Companies with Paid up capital less than or equal to Rs. 50 Lakhs and Last reported turnover less than or equal to Rs. 2 Crores)
F. The following Private Companies are also exempt from the requirements of CARO, 2016
i. Not a holding or subsidiary of a Public company
ii. Paid up Capital plus Reserves less than or equal to Rs. 1 Crore as at the reporting date
iii. Borrowings less than or equal to Rs. 1 Crore at any time during the year
iv. Revenue less than or equal to Rs. 10 Crores in the financial yearThe auditors of all other class or classes of companies are required to report on the matters specified in this order. This order applies to foreign companies also and thus, the auditors for such companies are also required to report on the matters specified in CARO, 2016.
3. Matters specified in CARO 2016The Company Auditor’s Report Order (CARO), 2016 includes the following matters on which the auditor is required to report mandatorily:
A. Fixed Assets
C. Loans given by Company
D. Loan to Directors and Investment by the Company
F. Cost records
G. Statutory Dues
H. Repayment of Loans
I. The utilisation of funds
J. Reporting of Fraud
K. Approval of Managerial Remuneration
L. Nidhi Company
M. Related Party Transactions
N. Private placement of Preferential Issues
O. Non-Cash Transactions
P. Registration under RBI Act
4. Reporting Requirement Under Each ClauseA brief of reporting requirements under each of the above clauses is hereunder:
A. Fixed Assets
i. Whether the company maintains proper records showing full particulars including details of quantity and situation of the fixed assets
ii. Whether physical verification of the fixed assets is conducted by the management at reasonable intervals
iii. If any material discrepancies were noticed on physical verification, whether it has been accounted for in books of accounts
i. Whether at reasonable intervals the management has conducted physical verification of inventory
ii. If any material discrepancies were noticed on physical verification, whether it has been accounted for in books of accounts
C. Loans given by CompanyWhether the company has granted any secured or unsecured loans to related parties. IF they have granted such loans, to check the following:
i. Whether the terms of such loans are not prejudicial to company’s interest
ii. Whether the repayment and its receipt are proper
iii. To report with loans repayment outstanding for more than 90 days and what is the recovery position
D. Loan to Directors and Investment by the CompanyWhether the loans and guarantees to directors are in order and in compliance with the limits prescribed.
E. DepositsWhether the company has accepted any deposits and if yes, have they followed RBI’s directives as under:
i. The provisions regarding acceptance of deposits under section 73 to 76 of the Companies Act, 2013 have been followed
ii. If the order is passed by the court or any other tribunal like RBI, CLB, etc
iii. In case of non-compliance, the nature of the same has to be reported
F. Cost RecordsIf Central Government has prescribed maintaining cost records, whether the same have been properly maintained or not.
G. Statutory DuesThe auditor shall report whether the company:
i. Is regularly depositing its statutory dues
ii. If not regular, statutory dues outstanding for more than 6 months should be disclosed
iii. If any taxes have not been deposited because of any dispute, the amount of dispute and the forum where the litigation is ongoing should be disclosed
H. Repayment of LoansIf the company has defaulted in repayment of loans to banks, government, debenture-holders, etc. then the amount and period of default is to be reported.
I. Utilisation of fundsIf any funds were raised under a public offer or loan, have they been applied to the purpose for which they were raised. Also, the auditor has to report in case of any delay and defaults.
J. Reporting of FraudIf any fraud by the company or its employees has occurred during the year. If yes, nature and amount involved have to be reported.
K. Approval of Managerial RemunerationWhether the limits prescribed under the Company’s Act 2013 for managerial remuneration have been adhered to. If not, the amount of excess amount involved and steps for recovery being taken have to be reported.
L. Nidhi CompanyIn case of a Nidhi company, whether the following have been complied with has complied with:
i. Maintain net owned funds to deposit in the ratio of 1:20 to meet out the liability
ii. Maintain 10% unattached term deposits to meet out the liability