Changes in Companies (Auditor's Report) Order 2020 (CARO 2020)

In order to bring more transparency & faith in Financials statements of companies, The ministry of corporate affairs introduce the new set of Companies (Auditor's Report) Order, 2020.

In contrast with CARO 2016, Now the Auditor have to report more disclosures on core aspects of financials statement such as: loan defaults, cash losses, Immovable properties etc. Moreover, the CARO 2020 is applicable for the eligible companies for the financial year commencing on or after the 1st April 2019.

Earlier, there was 16 clauses to which auditor have to report while doing statutory audit of company. Now CARO 2020 notified 21 clauses out of which at least 10 new clauses are there.

In this article, we are providing the summary of NEW & MODIFIED CLAUSES of CARO 2020 as follows:

	New Clause	Modified Clause	Text of CARO 2020
Non-Current Assets	Report on Intangible Assets		To Maintain proper records showing full particulars of all Intangible Assets.
	Revaluation of Assets		Whether the company has revalued its assets (i.e. PPE, Intangible Assets, Right of use Assets) by a registered Valuer. If so, whether specifies the amount of change if the change is 10% or more in the aggregate of the net carrying value of each class of Assets.
		Clarification for Non-disclosure of Lease Properties	Auditor need not to provide the details by the reason of not having Title deeds in the name of company for such properties where the company is the lessee and the lease agreements are duly executed in favor of lessee.
	Report on Benami Transactions		Whether any proceedings have been initiated or pending against the company for holding any Benami property under Benami Transaction Act. if so, whether the company has appropriately disclosed the details in its financial statements.
Inventories & Other Current Assets	Working Capital Limit more than Rs. 5 Crore		Whether during any point of time of the year, the company has been sanctioned working capital limits in excess of Rs. 5 crore, in aggregate, from banks or financial institutions on the basis of security of current assets; whether the quarterly returns or statements filed by the company with such banks or financial institutions are in agreement with the books of account of the Company, if not, give details.
Inventories & Other Current Assets		Materiality has been defined as 10% or more and Auditors Opinion on Procedure & Coverage	Auditor has to specifically comment whether, in their opinion the coverage & procedure adopted by company for physical verification of Inventories is appropriate. whether the amount of change if the change is 10% or more in the aggregate of each class of inventory were noticed and if so, whether they have been properly dealt with the books of account.
Investments, Loans & Advances, Guarantee or Security by Company	To Report in detail on the investments made by the company in, any guarantee or security provided or any loans or advances in the nature of loans granted.		The aggregate amount during the year, and balance outstanding at the balance sheet date with respect to such loans or advances and guarantees or security to subsidiaries, joint ventures and associates
			The aggregate amount during the year, and balance outstanding at the balance sheet date with respect to such loans or advances and guarantees or security to parties other than subsidiaries, joint ventures and associates
		Investments, Guarantees and Securities has been Covered Now	Whether the Terms & Conditions of the grant of all loans & Advances, Investments made, guarantee or security provided are not prejudicial to the Company’s Interest.
	Loan granted which has fallen due during the year, has been renewed or extended or fresh loans granted to settle the overdues of existing loans given to the same parties		Specify the aggregate amount of such dues renewed or extended or settled by fresh loans and the percentage of the aggregate to the total loans or advances in the nature of loans granted during the year [not applicable to companies whose principal business is to give loans]
	Loans are granted either repayable on demand or without specifying the terms		Whether the company has granted any loans or advances in the nature of loans either repayable on demand or without specifying any terms or period of repayment, if so, specify the aggregate amount, percentage thereof to the total loans granted, aggregate amount of loans granted to Promoters and related parties.
Deposits		Widens the Scope of Reporting where Deemed Deposits has been Covered now	Whether the company follows directives issued by RBI and provisions of Section 73 to 76 of Companies Act 2013 in respects of deposits or the amount which are deemed to be deposits accepted by the company.
Transactions Recorded in Books of Accounts	Report on Undisclosed Transactions under Tax Assessment of Income Tax Act 1961		Auditor have to report the transactions not recorded in books but disclosed during the Tax Assessment during the Year (IF Any). Also if there is any previously unrecorded transactions have been recorded in books during the year.
Loans & Borrowings by Company	Report the Wilful Defaulter		Whether the company is a declared wilful defaulter by any bank or financial institution or other lender
	Utilization of Short Term Funds		If funds raised for short term basis has been utilized for the purpose of long term, same needs to be reported
	Detail report of funds raised by company for its Subsidiaries, J.V. etc.		Any funds raised from any entiry to meet the obligation of its subsidiaries, associates or joint ventures
	New Format has been Specified for reporting of Defaults.	Word Any lender has been inserted in Place of Financial Institution, Banks, Govt, or dues to Debenture Holders.	Whether the Company has defaulted in repayment of loans or other Borrowings or interest thereon to Any Lender. IF yes, The Period and Amount of default to be reported in the Specified Format Given.
	Loans raised on pledge of securities held in its subsidiaries		If loan avails by pledge of securities held in its subsidiaries, associates or joint ventures, then details and defaults on such loans needs to be reported
Reporting Related to Fraud	Reporting Under Section 143(12)		Whether any report under section 143(12) of the Act has been filed by the auditors in Form ADT-4 with the Central Government
Reporting Related to Fraud	Reporting Under Section 143(12)		Whether the auditor has considered whistle-blower complaints, if any, received during the year by the company.
Nidhi Company	Defaults in Payment		Whether there has been any default in payment of interest on deposits or repayment thereof for any period and if so, the details thereof.
Internal Audit	Report on Internal Audit System		Whether the company has an internal audit system internal commensurate with the size and nature of its business. Also report whether the report of Internal Auditor is Considered by Statutory Auditor.
Financial Activities	Core Investment Company (CIC)		whether the company is a Core Investment Company (CIC) as defined in the regulations made by the Reserve Bank of India, if so, whether it continues to fulfil the criteria of a CIC, and in case the company is an exempted or unregistered CIC, whether it continues to fulfil such criteria.
			whether the Group has more than one CIC as part of the Group, if yes, indicate the number of CICs which are part of the Group
			whether the company has conducted any Non-Banking Financial or Housing Finance activities without a valid Certificate of Registration (CoR) from the Reserve Bank of India as per the Reserve Bank of India Act, 1934
Financial Position of Company	Cash Losses		Whether the Company has incurred Cash losses in current and previous financial year. If so, It needs to be reported
	Resignation of Statutory Auditor		When a new auditor has been appointed after resignation of previous auditor, then whether new auditor has considered the issues, concerns or objections raised by the previous auditors.
	Financial Ratios		Auditor requires to give a comment whether the company will be capable to meets its liabilities, existing on the balance sheet date as and when they fall due within 1 year. Moreover, Auditor also needs to Analyse Following in relation with above Financial ratios, Ageing of financial assets and financial liabilities, Expected realization of those assets and liabilities
Corporate Social Responsibility	Unspent Amount		pursuant to any ongoing project, has been transferred to special account in compliance with the provision of section 135(6) of the Act.
Corporate Social Responsibility	Ongoing Projects		Whether the company has transferred unspent amount to a Fund specified in Schedule VII to the Act within a period of 6 months of the expiry of the financial year in compliance with section 135(5) of the said Act
Consolidated Financial Statements	Opinion Remarks		Any qualification or adverse remark in respect of the CARO of any company included in the audit report on consolidated financial statements. If so, It needs to be report here along with paragraph number of CARO Report.

Concluding Remarks:

With the Intent to combat the corporate misdoings The government seems to put in place a stringent procedure to bring the several crucial transactions entered into by the company having nexus with financial risk in the company under regulatory scanner. Since CARO 2020 will be applicable with retrospective effect (i.e. 1st April 2019). So the Auditors have to analyze the heaps of documents & Information with due care.