Companies (Auditor’s Report) Order, 2016 (CARO 2016)
CARO 2016 was made applicable from FY 2015-16 and the matters specified therein shall be included in each report made by the auditor under Section 143 of the Companies Act, 2013 on the account of every company to which CARO 2016 applies.
Section 143 (11) of the Act stipulates that the Central Government may order for the inclusion of statement on specified matter in the auditor’s report for specified class or description of companies. Accordingly, CARO 2016 is issued in pursuance of Section 143 (11) of Companies Act 2013 for inclusion of the matters specified therein in auditors’ report.
Hence, CARO 2016 should be complied by the statutory auditor of every company on which it applies.
CARO 2016 applicable to every company including a foreign company as defined in clause (42) of Section 2 of the Companies Act 2013.
CARO 2016 is not applicable on following companies:
(a) Banking company as defined under Section 5 (c) of the Banking Regulation Act, 1949.
(b) Insurance company as defined under the Insurance Act 1938.
(c) Company licensed to operate under Section 8 of the Companies Act 2013 (companies registered with charitable object).
(d) A one person company (OPC) as defined under clause (62) of Section 2 of Companies Act 2013 (OPC means a company which has only one person as a member).
(e) A small company under Section 2 (85) of the Companies Act, 2013.
(1) As per sec 2(85) of Companies Act 2013 small company means a company, other than a public company:
a) Paid up share capital of which does not exceed Rs. 50 lacs or such higher amount as may be prescribed which shall not be more than Rs. 5 crore, and
b) Turnover of which as per its last profit and loss account does not exceed Rs. 2 crore or such higher amount as may be prescribed which shall not be more than Rs. 20 crore.
(2) The following company shall not qualify as a small company:
a) A holding company or a subsidiary company.
b) A company registered under Section 8 of the Act.
c) A company or body corporate governed by any special act
(f) The auditor of following type of Private Companies are not required to comment on the matter prescribed under CARO 2016:
(1) A private company which is not holding or subsidiary company of a public company, and
(2) A private company having a paid up capital and reserve and surplus not more than Rs. 1 crore as on the balance sheet date, and
(3) A private company which does not have total borrowing exceeding Rs. 1 crore from any bank and financial institution at any point of time during the financial year, and
(4) A private company which does not have total revenue exceeding Rs. 10 crore during the financial year.
Note: Such revenue means revenue as disclosed in scheduled III to the Companies Act, 2013 and includes revenue from discontinuing operation.
Reporting on Internal Financial Control (IFC)
As per Sec 143(3)(i) of Companies Act 2013, the report of auditor should state as to whether the company has adequate Internal Financial Control System in place and the operating effectiveness of such controls.
Further, Rule 10A of Companies (Audit & Auditors) Rules 2014 states that:
a) For the financial years commencing on or after 1st April 2015, the report of the auditor should state about existence of adequate Internal financial controls and its operating effectiveness.
b) The auditor of a company may voluntarily include the statement referred to in this rule for the financial year commencing on or after 1st April 2014 and ending on or before 31st March 2015.
As per Notification No. GSR 464 (E) dated 5th June 2015 as amended by Notification No. GSR 583(E) dated 13th June 2016, this requirement shall not apply to a Private company-
a) which is one person company or a small company
b) which has turnover less than Rs. 50 crores as per latest audited financial statements and which has aggregate borrowings from banks or financial institutions or any body corporate at any point of time during the financial year less than Rs. 25 crores.
Applicability of Indian Accounting Standards (Ind AS)
| Date of Applicability | Entities covered | Criteria | Comparative Information |
| 1st April 2015 | Voluntary application of Ind AS from 1st April 2015 (Not allowed by NBFC, Banking & Insurance companies) |
– | 31 March 2015 or thereafter |
| Phase I- 1st April 2016 |
Any Company (along with its holding, subsidiary , associate & Joint Venture) (excluding NBFC, Insurance Companies and Banking Companies ) |
If Net Worth is Rs. 500 Crores or above, (whether listed or unlisted). (Net worth is to be checked on 31st March 2014 & onwards). |
31 March 2016 or thereafter |
| Phase II – 1st April 2017 |
Any Company (along with its holding, subsidiary , associate & Joint Venture) (excluding NBFC, Insurance Companies and Banking Companies ) |
1. Listed Companies (Requirement of listing is to be checked on 31st March 2017) (Net worth is to be checked on 31st March 2014 & onwards) 2. An unlisted company with net worth of Rs. 250 crores or more. |
31 March 2017 or thereafter |
| 1st April 2018 | Non Banking Finance Company (NBFC), its subsidiary, associate, Joint venture | Net worth Is Rs. 500 Crores or more (Net worth is to be checked on 31st March 2016 & onwards) |
31 March 2018 or thereafter |
| 1st April 2018 | Banks (excluding Urban Cooperative banks and Regional Rural Banks) & Insurance Companies | – | 31 March 2018 or thereafter |
| 1st April 2019 | Non Banking Finance Company (NBFC), its subsidiary, associate, Joint venture | 1. Listed NBFCs 2. Unlisted NBFCs, whose Net worth Is less than Rs. 500 Crores, but Rs. 250 Crores or more (Net worth is to be checked on 31st March 2016 & onwards) |
31 March 2019 or thereafter |
- Any overseas subsidiary, associate, or Joint venture is not required to apply Ind AS.
- If any Indian company is subsidiary of foreign company, then Indian company will apply Ind AS (if applicable). Its foreign parent is not required to apply Ind AS.
- IRDA shall notify the separate set of IND AS for Banks & Insurance Companies with effect from 1st April 2018.
- NBFC includes core investment companies, stock brokers, venture capitalists, etc.
- Listed means – Listed in India or outside India
(Author Simran Katyal can be reached at [email protected])
Author Bio
Caveat : In notification Notification No. GSR 583(E) dated 13th June 2016. The word ‘or ‘ is used and not
‘and’. Hence a private company whose turnover less than Rs.50 Crore/- or Burrowing less than Rs.25 Crore/- IFC reporting is not applicable. Thank you the lucid presentation.
very lucid way of presentation. All doubts cleared in one go.
sir, when internal financial control report is applicable is mandatory
sir , i have one question for gst set off weather the GST settting off applicable January – 2019 month return
Really useful piece of information. Thanks for sharing.
If spare parts imported free of cost but the purchaser cleared the goods with duty+gst, whether he can claim input tax credit.Whether the assesable value will appear reflect in financial book.Example-1 lac foc material purchase -gst-.18thousand, & custom duty-10 thousand. . Whether Foc value 1 lac appear in profit and loss a/c.
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Is IFC once applicable than always applicable plz. clarify