Comparative Analysis of CARO, 2016 and CARO, 2015

The Ministry of Corporate Affairs had set up a Committee on 16th September, 2015 to re-examine the existing CARO, 2015 and recommend matters for inclusion in the statement to be attached with Auditor’s Report under Section 143(11) of Act, 2013 for the financial year 2015-16 onwards.

Taking into consideration the recommendations submitted by the committee the Draft CARO, 2016 was placed on the MCA website for public comments. After taking the public comments into consideration MCA notified
CARO, 2016 on 29th of March, 2016, which replaces the Existing CARO, 2015 and brings some additional reporting by the Auditors on Fixed assets, Loans and investments, Managerial remuneration, Nidhi company, Related party transactions, Preferential allotment/private placement & Non-Cash Transaction.

 Most of the existing provisions also have been tweaked; this Article is a Comparative Study of both CARO,

 2016 & CARO, 2015.

PARTICULARS	CARO, 2016	CARO, 2015	REMARKS	
				
Effective from	It has not yet been published in	To come into force on the date of	CARO, 2016 has	
	the Gazatte of India.	its publication in Official Gazette	been notified by	
		i.e w.e.f 10.04.2015 for the	MCA on	
		financial year commencing on or	29/03/2016.	
		after 1st April, 2014.		
				
Applicable	Financial year commencing on or	Financial year commencing on or	Auditors Report for	
from	after 1st April, 2015.	after 1st April, 2014.	the Financial	
			Statements made	
			as on 31st March,	
			2016 will include	
			CARO, 2016	
			Report (If	
			Applicable to the	
			Company).	
				
Applicable to	Every company including a	To every company including a		
	foreign company as defined in	foreign company as defined U/s		
	clause {42) of section 2 of the	2(42) of Act, 2013		
	Companies Act, 2013 (18 of			
	2013).			

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Non	A) A banking company as defined

Applicability	in clause (c) of section 5 of the

Banking Regulation Act, 1949 (10

of 1949).

B) An insurance company as

defined under the Insurance Act,

1938.

C) a company licensed to operate

under section 8 of the Companies

Act 2013;

D) A One Person Company as

defined under clause (62) of
section 2 of the Companies Act
and a small company as defined
under clause (85) of section 2 of

the Companies Act, 2013.

E) a private limited company if

the following criteria’s are met:

i) not being a subsidiary or

holding company of a public
company, having a paid up
capital and reserves and
surplus not more than rupees
one crore as on the balance

sheet date and which

ii) does not have total

borrowings exceeding rupees
one crore from any bank OR
Financial institution at any point of
time during the financial year

iii) which does not have a total

revenue as disclosed in
Scheduled III to the Companies
Act, 2013 (including revenue from

discontinuing operations)
exceeding rupees ten crore
during the financial year as per
the financial statements.

a)	a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949. 

b)	an insurance company as defined under the Insurance Act, 1938 

c)	a company licensed to operate under section 8 of the Companies Act ,2013 (earlier in CARO 2003 Section 25 of the Act,1956) 

d)	A private limited company with: 

(i)	paid up capital and reserves not more than rupees 50 lac; 

(ii)	which does not have loan outstanding exceeding rupees 25 lac from any bank or financial institution; 

(iii)	Does not have a turnover exceeding Rs. 5 crore at any point of time during the financial year. 

Ø	Under the CARO, 2015, Private Limited Companies having Paid up share capital of Rs. 50 Lakh were not required to follow CARO the limit has NOW INCREASED TO RS. 1 CRORE. 

Ø	The other criteria for exemption under CARO, 2015 was company does not have loan outstanding exceeding Rupees 25 Lakhs from any Bank or Financial Institution, The same has NOW 

INCREASED TO RS. ONE CRORE. 

Ø	The Limit of Turnover was Rs. 5 crore under CARO, 2015. Same has 

NOW INCREASED TO RS. 10 CRORES. 

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(1) Fixed	(a) whether the company is

Assets	maintaining proper records

Physical	showing full particulars, including

Verification &   quantitative details and situation

records of      of fixed assets;

(b) whether these fixed assets

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;

(c) Whether title deeds of

immovable properties are held in
the name of the company. If not,
provide details thereof.

a)	whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets; 

b)	whether these fixed assets 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; 

An Additional

Requirement of Reporting by the Auditor that the Title Deeds of the Immovable Properties is held in the name of the company or not is also needed to be provided.

(2) Inventories  Whether physical verification of

Physical	inventory has been conducted at

Verification &   reasonable intervals by the
records	management and whether any
material discrepancies were
noticed and if so, how they have

been dealt with in the books of
account

(a)	whether physical verification of inventory has been conducted at reasonable intervals by the management; 

(b)	are the procedures of physical verification of inventory followed by the management reasonable and adequate in relation to the size of the company and the nature of its business. If not, the inadequacies in such procedures should be reported; 

(c)	whether the company is maintaining proper records of inventory and whether any material discrepancies were noticed on physical verification and if so whether the same have been properly dealt with in the books of account; 

The Requirement of checking the reasonability and adequacy in relation to the process followed for physical verification in relation to the size of the company and nature of the business has been removed.

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3) Reporting Whether the company has on repayment granted any loans, secured or

of loans unsecured to companies, firms, granted by the Limited Liability partnerships or Company other parties covered in the

register maintained under section 189 of the Companies Act, 2013. If so,

(a)	Whether the terms and conditions of the grant of such loans are not prejudicial to the company’s interest; 

(b)	whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are regular 

(c)	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. 

Whether the company has granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act. If so,

(a)	whether receipt of the principal amount and interest are also regular; and 

(b)	if overdue amount is more than rupees one lakh, whether reasonable steps have been taken by the company for recovery of the principal and interest; 

Ø	The Clause has been expanded and it NOW includes the auditor to report on the Loans given by the Company to companies, firms, Limited Liability partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013. 

Ø	The auditor will now also report that whether the terms and conditions of the grant of such loans are not against the interest of the company. 

Ø	The limit for overdue amount of 
Rs. 1 lakh has been done away with. The auditor will NOW report in case of ANY amount is overdue for MORE THAN 90 DAYS and whether the company has taken reasonable steps to recover the principal and interest. 

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4) Compliance	In respect of loans, investments,	No Such Provision.	The Auditor’s	
of section 185	guarantees and security whether		Report has now	
and 186 of the	provisions of Section 185 and 186		been extended to	
Companies	of the Companies Act, 2013 have		cover Loan given	
Act, 2013	been complied with. If not,		by the company	
	provide details thereof.		to its Directors	
			and Loans	
			investment by the	
			Company.	
			This is to bring	
			more transparency	
			and also is a	
			significant step	
			towards	
			implementation of	
			these two vital	
			provisions of the	
			Companies Act,	
			2013.	
				
5) Acceptance	in case the company has	In case the company has	No Change in the	
of Deposits	accepted deposits, whether the	accepted deposits, whether the	Provision.	
	directives issued by the Reserve	directives issued by the Reserve		
	Bank of India and the provisions	Bank of India and the provisions		
	of sections 73 to 76 or any other	of sections 73 to 76 or any other		
	relevant provisions of the	relevant provisions of the		
	Companies Act, 2013 and the	Companies Act and the rules		
	rules framed thereunder, where	framed there under, where		
	applicable, have been complied	applicable, have been complied		
	with? If not, the nature of such	with? If not, the nature of		
	contraventions be stated; If an	contraventions should be stated;		
	order has been passed by	If an order has been passed by		
	Company Law Board or National	Company Law Board or National		
	Company Law Tribunal or	Company Law Tribunal or		
	Reserve Bank of India or any	Reserve Bank of India or any		
	court or any other tribunal,	court or any other tribunal,		
	whether the same has been	whether the same has been		
	complied with or not?	complied with or not?		

6)Cost	Whether maintenance of cost

Records	records has been specified by the

Central Government under sub-
section (1) of section 148 of the
Companies Act, 2013 and
whether such accounts and
records have been so made and

maintained.

Where maintenance of cost	No Change in the

records has been specified by     Provision.
central Government under sub-
section (l) of section 148 of the
Companies Act, whether such
accounts and records have been

made and maintained.

7) Payment of (a) whether the company is statutory Dues regular in depositing undisputed

statutory dues including

•	provident fund, 

•	employees’ state insurance, 

•	income-tax, 

•	sales-Lax, 

•	service tax, 

•	duty of customs, 

Is the company regular in depositing undisputed statutory dues including

•	provident fund, 

•	employees’ state insurance, 

•	income-tax, 

•	sales-tax, 

•	wealth tax,(ABOLISHED) 

•	service tax, 

The requirement of Reposting by Auditor regarding transfer to IEPF in accordance with the Provisions of the Companies Act, 2013 has now been removed and comes as a relief to the corporates. The Term Wealth Tax has also been

OMITED since the

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•	duty of excise, 

•	value added tax, 

•	cess 

•	and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at 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 by the auditor. 

(b) Where dues of income tax or sales tax or service tax or duty of customs or duty of excise or value added tax have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned.
•	
duty of customs, 

•	duty of excise, 

•	value added tax, 

•	cess and 

•	any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at 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 by the auditor. 

b) in case dues of –

•	income tax or 

•	sales tax or 

•	wealth tax or 

•	service tax or 

•	duty of customs or 

•	duty of excise or 

•	value added tax or 

•	cess 

have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned.

c) Whether the amount required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act, and rules made there under has been transferred to such fund within time.

same has now been ABOLISHED.

8)	No Such Provision.	Whether in case of a company	The Provision has	
Accumulated		which has been registered for a	now been	
losses		period not less than five years, its	removed.	
		accumulated losses at the end of		
		the financial year are not less		
		than fifty per cent of its net worth		
		and whether it has incurred cash		
		losses in such financial year and		
		in the immediately preceding		
		financial year.		

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9) Default in      Whether the company has repayment of    defaulted in repayment of loans or dues                    borrowings to a financial

institution, bank, government or dues to debenture holders?

If yes, the period and amount of default to be reported. (in case of defaults to banks, financial institutions, and government, lender wise details to be provided).

a)	Whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holders? 

b)	If yes, the period and amount of default to be reported. 

This Provisions comes tough for companies Defaulting Repayment of Loans (And not any other dues) to Banks, Financial Institutions, Govt. or to Debenture Holders.

The additional requirement under CARO, 2016 is that the Auditor will now give the lender wise details in case the default is in payment to a financial institution and banks.

10) Corporate   Whether moneys raised by way Guarantee        of public issue/ follow-on offer given for          (including debt instruments) and other’s loan    term loans were applied for the

purposes for which those are raised. If not, the details together with delays / default and subsequent rectification, if any, as may be applicable, be reported.

Whether term loans were applied   Earlier under

for the purpose for which the          CARO, 2015 only
loans were obtained.	money raised by
TERM LOANS
were taken into

consideration but

the same has now
been revised to
include money
raised by Public
issue & Debt
Instruments.
The delay for not
application of the
term loan and
money raised by
other means will
also be reported

by the Auditors.

11) Reporting   Whether any fraud by the

of fraud              company or any fraud on the Company by its officers/ employees has been noticed or reported during the year; If yes, the nature and the amount involved be indicated.

Whether any fraud on or by the    CARO, 2016 now

company has been noticed or      includes Fraud by
reported during the year; If yes,    the Officers or
the nature and the amount	employees of the
involved is to be indicated.	company.
Earlier the

provision was not

specific.

12) Managerial	Whether managerial	No Such Provision.	The clause is	
Remuneration	remuneration has been paid /		newly inserted	
	provided in accordance with the		and deals with	
	requisite approvals mandated by		reporting of	
	the provisions of section 197 read		auditor regarding	
	with schedule V to the		Managerial	
	Companies Act? If not, state the		remuneration	
	amount involved and steps taken		paid by Company	
	by the company for securing		under section 197	
	refund of the same.		of the act.	

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13) Nidhi	Whether the Nidhi Company has   No such Provision.	A similar	
Company	complied with the Net Owned	provision was	
	Fund in the ratio of 1:20 to meet	there under the	
	out the liability and whether the	CARO, 2003. It	
	Nidhi Company is maintaining	deals compliance	
	10% unencumbered term	with the special	
	deposits as specified in the Nidhi	statute for chit	
	Rules, 2014 to meet out the	funds and mutual	
	liability.	funds and has	
		been re-enforced.	

14) Related       Whether all transactions with the   No such Provision.

Party	related parties are in compliance
Transactions	with Section 188 and 177 of
Companies Act, 2013 where
applicable and the details have
been disclosed in the Financial
Statements etc as required by the

accounting standards.

Newly inserted to keep a check by auditor on RPT.

15) Private	Whether the company has made	No such Provision.	Similar provision	
Placement /	any preferential allotment /		was present in	
Preferential	private placement of shares or		CARO, 2003 which	
Allotment	fully or partly convertible		was regarding	
	debentures during the year under		report by Auditor	
	review and if so, as to whether		compliance of the	
	the requirement of Section 42 of		provisions in	
	the Companies Act, 2013 have		relation to	
	been complied and the amount		preferential	
	raised have been used for the		allotment , The	
	purposes for which the funds		same has now	
	were raised. If not, provide details		been re-inserted in	
	thereof.		CARO, 2016 with	
			an additional report	
			by auditor on	
			Compliances with	
			regards to	
			Provisions of	
			Section 42 i.e	
			Private Placement.	
				
16) Non-cash	Whether the company has	No such Provision.	Newly Inserted.	
transactions	entered into any non-cash			
	transactions with directors or			
	persons connected with him and			
	if so, whether provisions of			
	Section 192 of Companies Act,			
	2013 have been complied with.			
				
17)	Whether the company is required	No such Provision.	Newly Inserted.	
Registration	to be registered under section 45-			
with Reserve	IA of the ReserveBank of India			
Bank of India	Act, 1934 and if so, whether the			
	registration has been obtained.			

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18) Internal	No such Provision.	Is there an adequate internal	Under CARO, 2015		
control		control system commensurate	The Auditors were		
System		with the size of the company and	required to report		
		the nature of its business, for the	on the Internal		
		purchase of inventory and fixed	Control System of		
		assets and for the sale of goods	the company for		
		and services.	Purchase of		
		Whether there is a continuing	Inventory & Fixed		
			Asstes and for the		
		failure to correct major	Sale of Goods &		
		weaknesses in internal control	Services.		
		system.	Same has now		
					
			been REMOVED		
			from CARO, 2016.