LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Caro applicability

Akshay J. (student) (37 Points)

25 September 2016

WHAT ARE THE CRITERIA FOR COMPANY AUDIT REPORT? (CARO) APPLICABILITY?

Reply
Follow
Share

1 Replies

Avishek Tibrewal (Chartered Acccountant) (37 Points)
Replied 26 September 2016

The Order applies to all companies except certain categories of companies specifically exempted from the application of the Order.

The Order also applies to foreign companies as defined in clause (42) of section 2 of the Act. According to the aforesaid section, a “foreign company” means:

Any company or body corporate incorporated outside India which -

(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b) conducts any business activity in India in any other manner

In the case of a foreign company, wherever under any of the provisions of the Act, an audit under Chapter X of the Act is required to be carried out, the Order would be applicable.

The Order is also applicable to the audits of branch(es) of a company since sub-section 8 of section 143 of the Act read with Rule 12 of the Companies (Audit and Auditors) Rules, 2014 clearly specifies that a branch auditor has the same duties in respect of audit as the company’s auditor. It is, therefore, necessary that the report submitted by the branch auditor contains a statement on all the matters specified in the Order, as applicable to the company, except where the company is exempt from the applicability of the Order, to enable the company’s auditor to consider the same while complying with the provisions of the Order.

Companies Not Covered by the Order

The Order provides that it shall not apply to: (i) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);

(ii) an insurance company as defined under the Insurance Act, 1938 (4 of 1938);

a company licensed to operate under section 8 of the Act;

(iv) a One person Company as defined under clause (62) of section 2 of the Act and a Small Company as defined under clause (85) of the section 2 of the Act; and

(v) a private limited company, not being a subsidiary or holding company of a public company, having a paidup capital and reserves and surplus not more than rupees one crore as on the balance sheet date and which does not have total borrowings exceeding rupees one crore from any bank or financial institution at any point of time during the financial year and which does not have a total revenue as disclosed in Schedule III to the Act, (including revenue from discontinuing operations) exceeding rupees ten crores during the financial year as per the financial statements.

The Order specifically exempts banking companies, insurance companies and companies which have been licensed to operate under section 8 of the Act. The Order also exempts One Person Company and a Small Company from its application. The applicability of the Order would be based on the status of the company as at the balance sheet date. It may also be noted that in case a company is covered under the definition of small company, it will remain exempted from the applicability of the Order even if it falls under any of the criteria specified for private company.

The specific exemption under the Order is given to companies licensed under section 8 of the Act. However, it would appear that in view of the provisions of section 465 of the Act, the exemption would also extend to companies licensed to operate under section 25 of the Companies Act 1956.

A private limited company, in order to be exempt from the applicability of the Order, must satisfy all the conditions mentioned above collectively. In other words, even if one of the conditions is not satisfied, a private limited company’s auditor has to report on the matters specified in the Order.