Salient Features
of CARO, 2020
(Companies
(Auditor’s Report) Order, 2020)
MINISTRY OF CORPORATE AFFAIRS vide notification dated 25th
February 2020, has published Companies (Auditor’s
Report) Order, 2020 in exercise of the powers
conferred by:
·
Section 143(11) of the
Companies Act, 2013 (18 of 2013) and
·
in supersession of the
Companies (Auditor's Report) Order, 2016, published in the Gazette of India,
Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O. 1228 (E),
dated the 29th March, 2016, except as respects things done
or omitted to be done before such supersession,
·
consultation with the
National Financial Reporting Authority constituted under section 132 of the
Companies Act, 2013
Ø Applicability:
It
shall come into force on the date of its publication in the Official Gazette.
Ø Companies covered under this Rule:
It shall apply to every company including a foreign company as
defined in clause (42) of section 2 of the Companies Act, 2013 (18 of 2013)
[hereinafter referred to as the Companies Act], except–
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);
iii)
a company licensed to operate under section 8 of the Companies
Act;
iv)
a One Person Company as defined in clause (62) of section 2 of
the Companies Act and a small company as defined in clause (85) of section 2 of
the Companies Act; and
v)
a private limited company, not being a subsidiary or holding
company of a public company, having a paid up capital and reserves and surplus
not more than one crore rupees as on the balance sheet date and which does not
have total borrowings exceeding one crore rupees 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 ten crore rupees
during the financial year as per the financial statements.
Link: of the MCA notification on CARO, 2020
CARO 2020
would necessitate enhanced due diligence and disclosures on the part of auditors of eligible companies and has
been designed to bring in greater transparency in the financial state of
affairs of such companies.
Ø The salient
features of the CARO, 2020 are as under:
- The CARO, 2020 includes certain additional
clauses, as compared to CARO, 2016, and the existing clauses of CARO, 2016
have been re-drafted to elicit detailed comments from the auditors.
- A specific format has been provided for
reporting the details of such immovable properties whose title deeds are
not held in the name of the company but are disclosed in the financial
statements.
- Disclosure of details of proceedings
against the company for holding Benami Property and whether the company
has disclosed the details in its financial statements.
- Discrepancies of 10% or more in the
aggregate of each class of inventory noticed during physical verification
of inventory would have to be reported.
- The auditor is to provide specific details
as to whether during any point of time of the year, the Company has been
sanctioned working capital limits in excess of Rs. 5 crores, in aggregate,
from banks or financial institutions on the basis of security of current
assets and whether the quarterly returns/statements filed by the Company
with such banks or financial institutions are in agreement with the books
of account of the Company.
- In clause 3(iii) of CARO, 2020, the auditor
is 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, secured or unsecured, to companies, firms, Limited
Liability Partnerships or any other parties during the year, that they are
not prejudicial to the interests of the company.
- A specific format has been prescribed to
report the period and the amount of default by the company in repayment of
loans or other borrowings or in the payment of interest thereon to any
lender.
- The auditor is required to render his
opinion on the basis of the financial ratios, ageing 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, 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 balance sheet
as and when they fall due within a period of one year from the balance
sheet date.
- The amount of cash losses incurred in the
financial year and in the immediately preceding financial year have to be
reported.
- The auditor has to take into consideration
the issues, objections or concerns raised by the outgoing auditors before
forming his opinion.
- The auditor is required to report about the
company if it is a declared wilful defaulter by any bank/ financial
institution/ other lender.
- The auditor would have to report as to
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 would have to be reported.
- The auditor is required to report as
whether any fraud by the company or any fraud on the Company has been
noticed or reported during the year; If yes, the nature and the amount
involved is to be indicated.
- The auditor is to consider whistle-blower
complaints received during the year by the Company in his audit.
- The auditor is to report if 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 RBI Act.
- The auditor is now required to indicate the
details of the subsidiary companies and the sub-clauses’ number containing
qualifications/adverse remarks by the respective auditors in the CARO
reports of the companies included in the consolidated financial
statements.
Source of the information:
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LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM OR
ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION.
