Updated on: Sep 22nd, 2023
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19 min read
The Ministry of Corporate Affairs (MCA) has announced a new format of statutory audits of companies. The MCA has notified Companies (Auditor’s Report) Order, 2020 (CARO 2020) on 25 February 2020. The CARO 2020 replaces the earlier order, i.e. Companies (Auditor’s Report) Order, 2016.
CARO 2020 is a new format for the issue of audit reports in case of statutory audits of companies under Companies Act, 2013. CARO 2020 has included additional reporting requirements after consultations with the National Financial Reporting Authority (NFRA). NFRA is an independent regulatory body for regulating the audit and accounting profession in India. The aim of CARO 2020 is to enhance the overall quality of reporting by the company auditors.
CARO 2020 is applicable for all statutory audits commencing on or after 1 April 2021 corresponding to the financial year 2020-21. The order is applicable to all companies which were covered by CARO 2016. Thus, CARO 2020 applies to all the companies currently, including a foreign company. However, it does not apply to the following companies:
The auditor’s report (CARO 2020) shall include a statement on the following matters, namely:
In a case where the auditor’s answer to any of the requirements mentioned above is unfavourable or negative, then the auditor’s report shall also state the basis for such unfavourable or qualified answer. Also, in a case where the auditor is unable to express any opinion on any specific matter, the report shall indicate such fact along with the reasons as to why it is not possible for the auditor to give an opinion on the same.
1. Details of tangible and intangible assets
Description of a property | Gross carrying value | Held in the name of | Whether promoter, director or their relative or employee | Period held: indicate a range, where appropriate | Reason for not being held in the name of company* |
*indicate if in dispute |
2. Details of inventory and working capital
3. Details of investments, any guarantee or security or advances or loans given
4. Compliance in respect of a loan to directors
If the company has given any loans to directors or any other person in whom the director is interested, or made any investments, whether the company has made compliance with the provisions governing such loans, investments and guarantees.
5. Compliance in respect of deposits accepted
In case the company has accepted deposits or deemed deposits, whether the company has followed the directives of the RBI as under:
6. Maintenance of costing records
In case the company is required to maintain cost records, whether the records have been maintained during the year and non-compliance if any.
7. Deposit of statutory liabilities
Whether the company has:
8. Unrecorded income
Whether any transactions which are not recorded in the books of accounts have been disclosed or surrendered before the tax authorities as income during the year. The details of such income tax assessments should be disclosed. Whether such undisclosed income has been recorded in the accounts during the year.
9. Default in repayment of borrowings
In case the company has made any default in the repayment of loans to banks, government, debenture-holders, etc. then the amount and period of default. Below are the particulars that a company needs to enter:
Nature of borrowing including debt securities | Name of lender* | Amount unpaid on the due date | Whether interest or principal | Number of days of delay or unpaid | Auditor’s remarks, if any |
*details, lender-wise should be provided in case of defaults to financial institutions, banks, or Government |
10. Funds raised and utilisation
If the company has raised any funds from a initial public offer or further public offer (equity or debt capital), details of the funds applied for the purposes. Also, the details of default or delays and rectification measures taken. If the company made any private placement or preferential allotment of shares or convertible debentures (fully, partially or optionally convertible) during the year, whether the same is in accordance with section 42 and section 62 of the Companies Act, 2013. Whether the funds raised, have been used for the purposes they were raised and the non-compliance, if any.
11. Fraud and whistle-blower complaints
Has there been any fraud by the company or any fraud done on the company. If any such fraud has been noticed or reported any time of the year. If yes, nature and amount involved have to be reported. Whether the auditors of the company have filed a report in Form ADT-4 with the Central Government as prescribed under the Companies (Audit and Auditors) Rules, 2014. In case of receipt of whistle-blower complaints, whether the complaints have been considered by the auditor.
12. Compliance by a Nidhi
Compliance with provisions applicable to a Nidhi company:
13. Compliance on transactions with related parties
Whether the company has complied with the provisions of section 177 and 188 of the Companies Act, 2013 in respect of transactions with related parties. Also, whether appropriate disclosures are made in the financial statements.
14. Internal audit system
Does the company have an internal audit system in accordance with its size and business activities. Have the reports of the internal auditors been considered by the statutory auditor.
15. Non-cash transactions
In case the company has undertaken non-cash transactions with their directors or other persons connected to the directors, whether the restrictions imposed under section 192 of the Companies Act, 2013 are complied with.
16. Registration under Section 45-IA of RBI Act, 1934
17. Cash losses
Has the company incurred any cash losses in the financial year and the immediately preceding financial year, the amount of cash losses incurred.
18. Resignation of statutory auditors
Whether during the year, has there been any resignation of statutory auditors, if yes, has the auditor considered the objections, issues or concerns raised by the outgoing auditors.
19. Material uncertainty
Existence of any material uncertainty on the date of the audit report on an evaluation of:
20. Transfer to fund specified under Schedule VII of Companies Act, 2013
With respect to obligations under Corporate Social Responsibility, whether the company has transferred the unspent amount to a Fund specified in Schedule VII to the Companies Act within a period of 6 months from the expiry of the financial year. Whether any amount which remains unspent has been transferred to a special account in accordance with provisions of section 135 of the Companies Act, 2013.
21. Qualifications or adverse auditor remarks in other group companies
In case there have been any qualifications or adverse remarks in the audit reports issued by the respective auditors in case of companies included in the consolidated financial statements, to indicate the details of the companies and the paragraph numbers of the respective CARO reports containing the qualifications or adverse remarks.
All the above-stated clauses are mandatory to be reported on. Also, the disclosures are to be given appropriately.
As per the Ministry of Corporate Affairs (MCA) order dated 25 February 2020, CARO 2020 was applicable for the Financial Year (FY) 2019-20 onwards. Subsequently, the MCA amended the applicability of CARO 2020 from FY 2019-20 to 2020-21 through its order dated 17 December 2020. Thus, CARO 2020 is applicable from 1 April 2021.
The CARO 2020 contains 21 clauses, whereas CARO 2016 has only 16 clauses. In CARO 2020, seven new clauses have been inserted, and the existing clauses of CARO 2016 have been re-drafted to elicit detailed comments from the auditors.
Yes, it is applicable to foreign companies as defined under section 2(42) of the Companies Act, 2013. Section 2(42) of the Companies Act, 2013 defines a foreign company as a company or body corporate incorporated outside India having a place of business in India, whether by itself or through an agent, electronic mode or physically, and conducts any business activity in India in any other manner.
No. CARO 2020 is applicable to the audit reports of the companies registered under the Companies Act, 2013. Since LLP is registered under the Limited Liability Act, 2008, the CARO 2020 does not apply to them.
The CARO 2016 did not apply to the consolidated financial statements. But the CARO 2020 contains a clause that is now applicable to report on consolidated financial statements. According to this clause, where any adverse remarks or qualifications are highlighted by the auditors in their respective standalone companies’ CARO reports, then the details of such remarks should be mentioned by the auditors of the companies in their CARO reports of consolidated financial statements.
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Company Auditor’s Report Order (CARO), 2016 – Reporting Requirements
The Ministry of Corporate Affairs has introduced CARO 2020 for statutory audits of companies under Companies Act, 2013, with additional reporting requirements. Applicable from FY 2020-21, it excludes certain companies like one-person companies and banking companies. The order covers detailed reporting on various aspects like assets, investments, compliance, fraud, and more.