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Companies (Auditors Report) Order, 2020 (CARO 2020) - Additions, Omissions and Alterations

Rashish Gangadharani 
on 14 December 2020

LinkedIn


In exercise of the powers conferred by sub-section (11) of section 143 of the Companies Act, 2013 and in supersession of the Companies (Auditor's Report) Order, 2016, the Central Government, after consultation with the National Financial Reporting Authority constituted under section 132 of the Companies Act, 2013, has issued Companies (Auditor’s Report) Order, 2020 on 25th February 2020.

Every report made by the auditor under section 143 of the Companies Act on the accounts of every company audited by him, to which this Order is applicable, shall contain the matters specified in paragraphs 3 and 4 of the order, as may be applicable for the financial year commencing from 1st April 2019. However, MCA has announced that CARO 2020 will apply for financial years commencing from 1st April 2020 instead of financial years commencing on or after 1st April 2019.

This Order shall not apply to the auditor’s report on consolidated financial statements except clause (xxi) of paragraph 3 (discussed later)

Applicability

It shall apply to every company including a foreign company as defined in clause (42) of section 2 of the Companies Act, 2013, except–

  • A Banking Company
  • An Insurance Company
  • Company licensed to operate under Section 8 of the Companies Act, 2013
  • A One Person Company
  • A Small Company (i.e., Companies (other than a public company) with paid-up capital less than/equal to Rs. 50 lakh and with a last reported turnover which is less than/equal to Rs. 2 Crore)
  • A Private Company other than a subsidiary or holding company of a public company having a paid-up capital and reserves and surplus not more than Rs. 1 Crore as on the balance sheet date and which does not have total borrowings exceeding Rs. 1 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 Scheduled III to the Companies Act (including revenue from discontinuing operations) exceeding Rs. 10 Crore during the financial year as per the financial statements
Companies (Auditors Report) Order, 2020 (CARO 2020) - Additions, Omissions and Alterations

Additions, Omissions, and Alterations in new CARO 2020

CARO 2016

CARO 2020

Additions, Omissions, and Alterations

Clause No.

Clause No.

Matters to be included in Auditor’s Report (Para 3 of CARO, 2020)

(i)(a)

(i)(a)

(A) whether the company is maintaining proper records showing full particulars, including quantitative details and situation of Property, Plant and Equipment;

"Fixed Assets" changed to "Property, Plant & Equipment"

-

(B) whether the company is maintaining proper records showing full particulars of intangible assets;

Newly inserted

(i)(b)

(i)(b)

whether these Property, Plant, and Equipment have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of account;

"Fixed Assets" changed to "Property, Plant & Equipment"

(i)(c)

(i)(c)

whether the title deeds of all the immovable properties (other than properties where the company is the lessee and the lease agreements are duly executed in favor of the lessee) disclosed in the financial statements are held in the name of the company, if not, provide the details thereof in the format specified;

Clarification provided relating to lease agreements

-

(i)(d)

whether the company has revalued its Property, Plant and Equipment (including Right of Use assets) or intangible assets or both during the year and, if so, whether the revaluation is based on the valuation by a Registered Valuer; specify the amount of change, if the change is 10% or more in the aggregate of the net carrying value of each class of Property, Plant and Equipment or intangible assets;

Newly inserted

-

(i)(e)

whether any proceedings have been initiated or are pending against the company for holding any Benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder, if so, whether the company has appropriately disclosed the details in its financial statements;

Newly inserted

(ii)

(ii)(a)

whether physical verification of inventory has been conducted at reasonable intervals by the management and whether, in the opinion of the auditor, the coverage and procedure of such verification by the management is appropriate; whether any discrepancies of 10% or more in the aggregate for each class of inventory were noticed and if so, whether they have been properly dealt with in the books of account;

Now, the auditor is required to provide an opinion on whether the coverage and procedure of verification by the management is appropriate. Also, a material discrepancy has been clearly defined (i.e., 10% or more).

-

(ii)(b)

whether during any point of time of the year, the company has been sanctioned working capital limits in excess of five crore rupees, 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

Newly inserted

(iii)

(iii)

whether during the year the company has made investments in, provided any guarantee or security or granted any loans or advances in the nature of loans, secured or unsecured, to companies, firms, Limited Liability Partnerships or any other parties, if so,-

Loans given to parties other than those covered in the register maintained under section 189 of the Companies Act, 2013 are also now covered. Also, Investments made, Guarantee and Security provided are also covered now.

-

(iii)(a)

whether during the year the company has provided loans or provided advances in the nature of loans, or stood guarantee, or provided security to any other entity [not applicable to companies whose principal business is to give loans], if so, indicate-

(A) the aggregate amount during the year, and the balance outstanding at the balance sheet date with respect to such loans or advances and guarantees or security to subsidiaries, joint ventures, and associates;

(B) the aggregate amount during the year, and the 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;

Newly inserted

(iii)(a)

(iii)(b)

whether the investments made, guarantees provided, security is given and the terms and conditions of the grant of all loans and advances in the nature of loans and guarantees provided are not prejudicial to the company’s interest;

Investments made and  Guarantees and Security provided are also covered now

(iii)(b)

(iii)(c)

in respect of loans and advances in the nature of loans, whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are regular;

No alteration

(iii)(c)

(iii)(d)

if the amount is overdue, state the total amount overdue for more than ninety days, and whether reasonable steps have been taken by the company for recovery of the principal and interest;

No alteration

-

(iii)(e)

whether any loan or advance in the nature of loan granted which has fallen due during the year, has been renewed or extended or fresh loans granted to settle the overdue of existing loans given to the same parties, if so, 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];

Newly inserted

-

(iii)(f)

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, the aggregate amount of loans granted to Promoters, related parties as defined in clause (76) of section 2 of the Companies Act, 2013;

Newly inserted

(iv)

(iv)

in respect of loans, investments, guarantees, and security, whether provisions of sections 185 and 186 of the Companies Act have been complied with, if not, provide the details thereof;

No alteration

(v)

(v)

in respect of deposits accepted by the company or amounts which are deemed to be deposited, whether the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act and the Rules made there under, where applicable, have been complied with, if not, the nature of such contraventions be stated; if an order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or any other tribunal, whether the same has been complied with or not;

Deemed deposits are also covered now

(vi)

(vi)

whether maintenance of cost records has been specified by the Central Government under sub-section (1) of section 148 of the Companies Act and whether such accounts and records have been so made and maintained;

No alteration

(vii)(a)

(vii)(a)

whether the company is regular in depositing undisputed statutory dues including Goods and Services Tax, provident fund, employees' state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, cess, and any other statutory dues to the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as on the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated;

Goods and Service Tax has been added

(vii)(b)

(vii)(b)

where statutory dues referred to in sub-clause (a) have not been deposited on account of any dispute, then the amounts involved and the forum where the dispute is pending shall be mentioned (a mere representation to the concerned Department shall not be treated as a dispute);

Since it is mentioned that "Statutory dues covered in sub-clause (a) above" therefore, Goods and Service Tax, Provident Fund, and Employees' State Insurance will also be covered now

-

(viii)

whether any transactions not recorded in the books of account have been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (43 of 1961), if so, whether the previously unrecorded income has been properly recorded in the books of account during the year;

Newly inserted

(viii)

(ix)(a)

whether the company has defaulted in repayment of loans or other borrowings or in the payment of interest thereon to any lender, if yes, the period and the amount of default to be reported as per the format specified

In place of "financial institution, bank, Government or dues to debenture holders", the words “any lender” is substituted

-

(ix)(b)

whether the company is a declared wilful defaulter by any bank or financial institution or other lenders;

Newly inserted

(ix)

(ix)(c)

whether term loans were applied for the purpose for which the loans were obtained; if not, the amount of loan so diverted and the purpose for which it is used may be reported;

Earlier it was covered under clause (ix) along with reporting requirement related to money raised by way of IPO & FPO

-

(ix)(d)

whether funds raised on a short term basis have been utilized for long term purposes, if yes, nature and amount to be indicated;

Newly inserted

-

(ix)(e)

whether the company has taken any funds from any entity or person on account of or to meet the obligations of its subsidiaries, associates or joint ventures, if so, details thereof with nature of such transactions and the amount in each case;

Newly inserted

-

(ix)(f)

whether the company has raised loans during the year on the pledge of securities held in its subsidiaries, joint ventures, or associate companies, if so, give details thereof and also report if the company has defaulted in repayment of such loans raised;

Newly inserted

(ix)

(x)(a)

whether money raised by way of an initial public offer or further public offer (including debt instruments) during the year were applied for the purposes for which those are raised, if not, the details together with delays or default and subsequent rectification, if any, as maybe applicable, be reported;

Term loan removed from this sub-clause and inserted as Clause (ix)(c)

(xiv)

(x)(b)

whether the company has made any preferential allotment or private placement of shares or convertible debentures (fully, partially or optionally convertible) during the year and if so, whether the requirements of section 42 and section 62 of the Companies Act, 2013 have been complied with and the funds raised have been used for the purposes for which the funds were raised, if not, provide details in respect of amount involved and nature of non-compliance;

Reporting requirement related to Compliance with Section 62 has been added

(x)

(xi)(a)

whether any fraud by the company or any fraud on the company has been noticed or reported during the year, if yes, nature and the amount involved is to be indicated;

Only the words “fraud by the company” has been retained. Words “by its officers or employees” have been omitted.

-

(xi)(b)

whether any report under sub-section (12) of section 143 of the Companies Act has been filed by the auditors in Form ADT-4 as prescribed under rule 13 of Companies (Audit and Auditors) Rules, 2014 with the Central Government;

Newly inserted

-

(xi)(c)

whether the auditor has considered whistle-blower complaints, if any, received during the year by the company;

Newly inserted

(xi)

-

-

Clause omitted in CARO 2020

(xii)

(xii)(a)

whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of 1: 20 to meet out the liability;

No alteration

(xii)

(xii)(b)

whether the Nidhi Company is maintaining ten percent unencumbered term deposits as specified in the Nidhi Rules, 2014 to meet out the liability;

No alteration

-

(xii)(c)

whether there has been any default in payment of interest on deposits or repayment thereof for any period and if so, the details thereof;

Newly inserted

(xiii)

(xiii)

whether all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act where applicable and the details have been disclosed in the financial statements, etc., as required by the applicable accounting standards;

No alteration

(xiv)

-

-

Inserted as Clause (x)(b)

-

(xiv)(a)

whether the company has an internal audit system commensurate with the size and nature of its business;

Newly inserted

-

(xiv)(b)

whether the reports of the Internal Auditors for the period under audit were considered by the statutory auditor;

Newly inserted

(xv)

(xv)

whether the company has entered into any non-cash transactions with directors or persons connected with him and if so, whether the provisions of section 192 of Companies Act have been complied with;

No alteration

(xvi)

(xvi)(a)

whether the company is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934 (2 of 1934) and if so, whether the registration has been obtained;

No alteration

-

(xvi)(b)

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;

Newly inserted

-

(xvi)(c)

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 fulfill the criteria of a CIC, and in case the company is an exempted or unregistered CIC, whether it continues to fulfill such criteria;

Newly inserted

-

(xvi)(d)

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;

Newly inserted

-

(xvii)

whether the company has incurred cash losses in the financial year and in the immediately preceding financial year, if so, state the amount of cash losses;

Newly inserted

-

(xviii)

whether there has been any resignation of the statutory auditors during the year, if so, whether the auditor has taken into consideration the issues, objections or concerns raised by the outgoing auditors;

Newly inserted

-

(xix)

on the basis of the financial ratios, aging and expected dates of realization of financial assets and payment of financial liabilities, other information accompanying the financial statements, the auditor’s knowledge of the Board of Directors and management plans, whether the auditor is of the opinion that no material uncertainty exists as on the date of the audit report that company is capable of meeting its liabilities existing at the date of the balance sheet as and when they fall due within a period of one year from the balance sheet date;

Newly inserted

-

(xx)(a)

whether, in respect of other than ongoing projects, the company has transferred the unspent amount to a Fund specified in Schedule VII to the Companies Act within a period of six months of the expiry of the financial year in compliance with the second proviso to sub-section (5) of section 135 of the said Act;

Newly inserted

-

(xx)(b)

whether any amount remaining unspent under sub-section (5) of section 135 of the Companies Act, pursuant to an ongoing project, has been transferred to a special account in compliance with the provision of sub-section (6) of section 135 of the said Act;

Newly inserted

-

(xxi)

whether there have been any qualifications or adverse remarks by the respective auditors in the Companies (Auditor's Report) Order (CARO) reports of the companies included in the consolidated financial statements, if yes, indicate the details of the companies and the paragraph numbers of the CARO report containing the qualifications or adverse remarks.

Newly inserted

 

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