As per Ministry of Corporate Affairs (MCA) Order dated 25th February, 2020, CARO 2020 was applicable for the financial year 2019-20 onwards. It was subsequently amended vide its order dated 24th March, 2020 for the deferment of CARO 2020 from financial year 2019-20 to 2020-21. MCA has further deferred the applicability of CARO 2020 from financial year 2020-21 to 2021-22 vide its order dated 17th December, 2020.
In exercise of the powers conferred by sub-section (11) of section 143 of the Companies Act, 2013 (“CA, 2013”), the Central Government has made an order [i.e. Companies (Auditor’s Report) Second Amendment Order, 2020] vide Number S.O. 4588(E) dated 17th December 2020, to amend the Companies (Auditor’s Report) Order, 2020 (“CARO, 2020”), and determine the applicability date of CARO, 2020.
By the above said amendment, the MCA has changed the applicability date of CARO, 2020 to the financial years commencing on or after the 1st April, 2021. So, CARO 2020 will be applicable from Financial Year 2021-22. Companies (Auditor’s Report) Order, 2016 (“CARO, 2016”) will continue to be applicable for Financial Year 2020-21.
In the background of the CARO, it is stated that Section 143(11) of the CA, 2013 requires that the Auditor’s Report of specified class of companies should include a statement on the prescribed matters. The sub-section 11 of Section 143 of the CA, 2013 may be read as under:-
“(11). The Central Government may, in consultation with the National Financial Reporting Authority, be general or special order, direct, in respect of such class or description of companies, as may be specified in the order, that the auditor’s report shall also include a statement on such matters as may be specified therein.”
These reporting requirements have been prescribed under theCompanies (Auditor’s Report) Order, 2015 (“CARO, 2015”) issued by the MCA on 10th April, 2015. Thereafter on the basis of recommendation of Committee set up by MCA, CARO, 2016 had been issued on 9th February 2016.To curb corporate fraud & scams, the MCA has now further issued CARO, 2020 vide Number S.O. 849(E), dated on 25th February 2020.
It is submitted that 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, 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, the Central Government, after consultation with the National Financial Reporting Authority constituted under section 132 of the Companies Act, 2013, has made CARO, 2020.
It is submitted that under the para 2 of the CARO, 2020, the date of applicability of the said order is mentioned which may be read as under-
“2. Auditor’s report to contain matters specified in paragraphs 3 and 4. – 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 applies, for the financial years commencing on or after the 1st April, 2019, shall in addition, contain the matters specified in paragraphs 3 and 4, as may be applicable.”
As mentioned above, CARO, 2020 would be applied for the financial years commencing on or after the 1st April 2019. However, MCA has vide its order number S.O. 1219(E) dated 24th March 2020 announced that CARO, 2020 would applies, for the financial years commencing on or after the 1st April, 2020 instead of financial years commencing on or after the 1st April, 2019. Decision is been take considering recent Outbreak of Corona Virus.
Non-Applicability of CARO, 2020.
CARO, 2020 shall apply to every company including a foreign company as defined in clause (42) of section 2 of the Companies Act, 2013, except–
Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.