CCI Online Learning
What do you want to learn today?
     
CIBIL

Upgrad

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

CARO 2020 - The devil is in the detail!

Prateek Mankad 
on 31 October 2020

LinkedIn


In the last article, we dealt with the applicability of CARO 2020 and covered the practical aspects to be kept in mind by companies and their auditors as they go about finalizing their audit opinion on the consolidated financial statements for the year ending 31 March 2021. In this article, we deal with the reporting requirements related to assets.

Maintaining full particulars of property, plant, and equipment ('PPE')

CARO 2020 largely retains the principles on which the reporting requirements in respect of property plant and equipment, hitherto referred to as fixed assets, from the requirement of CARO 2016.

Maintaining full particulars of intangible assets

The requirement to report on whether full particulars of intangible assets is maintained is a new requirement of CARO 2020 and this was not required to be covered by auditors under CARO 2016.

CARO 2020 - The devil is in the detail

Physical verification of assets

The requirement to comment on physical verification of PPE at reasonable intervals also largely remains unchanged.

More importantly, the ICAI Guidance Note gives clarifications on the reporting requirements under these clauses and also requires the auditors to comment on intangible assets, non-current assets held for sale (defined under Ind AS 105), investment property (defined under Ind AS 40) and additionally, in case of physical verification the right of use assets (defined under Ind AS 116).

Although the order only mentions PPE and intangible assets, the ICAI Guidance Note provides clarification that auditors must also consider investment property, non-current assets held for sale, and right-of-use assets.. no wonder it is said that the devil is in the detail!

Title deeds of immovable properties

The clause related to commenting on whether title deeds of immovable properties are held in the name of the company continues to be largely unchanged in CARO 2020, although there may be additional audit effort involved in implementing the ICAI Guidance Note.

In the current credit environment, keeping in mind the ICAI Guidance note, auditors may send out confirmations to lenders in respect of any property that is mortgaged as security, although it may be acceptable if these are verifiable from online records.

Interestingly, although CARO2020 does not cast direct responsibility for reporting in case of properties where the company is lessee and lease agreements are duly executed in favor of lessee, it appears that the ICAI Guidance note may require exceptions noted in these as well as a matter of prudence.

 

Management should conduct a timely self-audit of CARO 2020 and aim to identify and correct any such exceptions in a timely manner, at the same time provide for an adequate time for discussion with the auditors

Two new clauses related to reporting in respect of assets

CARO 2020 introduces two new clauses in respect of reporting on property. One of them is applicable to companies that have a policy of applying the revaluation model to PPE or intangible assets and the other clause is to provide a factual comment on whether the company has made appropriate disclosures in financial statements if there are any proceedings are initiated for holding any Benami property under the Benami Transactions (Prohibition) Act, 1988.

In summary, in order to avoid a last-minute rush on CARO2020 reporting, it is of utmost importance to carefully consider not just the order itself but also the fine print in the ICAI Guidance Note and start work on CARO2020.. this timely stitch, will surely save nine

 

Catch the first article here

The author is a Chartered Accountant, an alumnus of IIM Bangalore, and Co-founder of World of Financial Reporting, a firm founded after over a decade of experience in audit and financial reporting advisory with a leading accounting firm. He can also be reached at prateekmankad@worldoffinrep.com.


Tags :



Category Audit
Other Articles by -
Prateek Mankad 

Report Abuse

LinkedIn



Comments




Grant Thornton

Companies Act

Bajaj Finserve

Upgrad

Upgrad


Popular Articles


loading

CCI Articles

submit article

Stay updated with latest Articles!





GST Live Class    |    x