Applicable from: Audit of financial statements for the financial year commencing on or after 1st April 2019.
Based on the government’s objective to strengthen the corporate governance framework and to improve the overall quality of reporting by the auditors, MCA has proposed significant changes in the CARO 2020.
Some of the clauses are re-introduced in the CARO 2020 and some clauses are updated with respect to current changing market conditions. Based on the current market scenario and in the wake of recent corporate frauds through CARO 2020, MCA has put additional responsibility on the auditor to report with respect to the loan related disclosures and the Company’s internal audit system.
Now, let’s summarise the changes as suggested by the CARO 2020 (comment on 50 matters in CARO 2020 including sub-clauses, as against 21 matters in CARO 2016):
|Assets and losses related disclosure changes
|Loans and Advances related disclosure changes
|Companies Act and other regulatory changes
|1. Proper records of intangible assets
2. Re-valuation of PPE and intangible assets and whether the change is more than 10%
3. Format with respect to the immovable properties whose title deeds has not been executed
4. Discrepancies of 10% or more noticed during the physical verification of inventory
5. Disclosure of cash losses in the financial year and immediately preceding financial year.
|1. Sanction of working capital limited more than 5 crores at any point of the year from banks and FIs and whether the quarterly returns filed by the Company with such banks or FIs are in agreement.
2. If the Company has made investment, provided guarantee / security / loans / advances to LLP or any other party then:
3. Disclosure of the default in repayment of loans and other borrowings done by the Company to any lender (format prescribed).
4. Disclosure in case the Company is a declared wilful defaulter by bank / FIs/ other lenders.
5. Utilisation of the term loan for which it is obtained and disclose the amount if so diverted.
6. Disclosure of the funds raised for short term purposes but used for long term purposes
7. Disclosure of the funds raised by the Company to pay the obligations of JVs/subsi/associates.
8. Details of loans raised and default thereby during the year on the pledge of securities held in JVs / subsi / associates.
|1. Proceedings against the Company under Benami Transaction (prohibition) Act, 1988 and rules thereunder
2. Details of report filed under section 143(12) of Companies Act, 2013
3. In case a Company is CIC then the fulfilment of criteria of a CIC (exempted/unregistered).
4. Indicate the number of CIC, if the group has more than one CIC.
5. Existence of material uncertainty relating to going concern.
6. Transfer of unspent amount in compliance with section 135 of Companies Act, 2013 to:
7. Reporting in consolidated audit report for the qualification or adverse remarks made by the respective auditors in the standalone audit report.
|1. Disclosure of surrendered income during the year under IT Act, 1961.
2. Consideration of any whistle blower complaint during the year and details thereon.
3. Appropriate internal audit system and consideration of internal auditor’s report.
4. Consideration of issues raised by the outgoing auditor.
5. Defaults made by Nidhi Companies on payment of interest on deposits or repayment for any period.
In my views, changes as proposed under CARO 2020 will led to greater transparency and faith in the financial affairs of the companies. Though, it is the responsibility of auditors to report on matters prescribed in CARO but the companies would get affected as they need to provide the underlying information. Moreover, these revisions to enhance reporting requirements are intended to bridge the expectation gap and will provide useful information to users about the underlying financial statements and the findings of the auditor.
Source: CARO 2020 MCA notification, news articles and help from my colleagues.
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