Introduction:
The Central Government, in exercise of the powers conferred, under sub-section (11) of section 143 of the Companies Act, 2013 (Act), issued the Companies (Auditor’s Report) Order, 2020, (CARO 2020/Order) vide Order number S.O. 849(E) dated 25th February 2020 and was subsequently amended vide number S.O. 1219 (E) dated 24th March 2020, and was again amended vide number S.O. 4588 (E) dated 17th December 2020 to be finally applicable from 1st April 2021) CARO 2020 has included additional reporting requirements after consultations with the National Financial Reporting Authority (NFRA). NFRA is an independent regulatory body constituted under section 132 of the Companies Act, 2013, for regulating the audit and accounting profession in India. The aim of CARO 2020 is to enhance the overall quality of reporting by the company auditors.
Applicability of CARO 2020
“As far as the applicability is concerned, there is no change in the applicability criteria.
The order is applicable to all companies which were covered by CARO 2016. Accordingly, the order applies to all the companies except the following companies specifically excluded from its purview:
(i) One Person Company (OPC) as defined in clause (62) of section 2 of the Companies Act.
(ii) Small company as defined in clause (85) of section 2 of the Companies Act; (Companies with paid up capital less than/equal to Rs 50 lakh and with a last reported turnover (Preceding Year) is less than/equal to Rs 2 Crore).
(iii) Banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)
(iv) A company licensed to operate under section 8 of the Companies Act;
(v) An insurance company as defined under the Insurance Act, 1938 (4 of 1938);
The following private limited companies not being a subsidiary or holding company of a public company, are also exempt from the requirements of CARO, 2020: –
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 and;
Which does not have 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.
Whose borrowings is less than or equal to Rs 1 Crore at any time during the FY.
Applicability of the CARO Order on Consolidated Financial Statements:
The Order specifically provides that it shall not apply to the auditor’s report on consolidated financial statements except for clause (xxi) of paragraph 3.
This means that the auditor will need to give a CARO report on the consolidated financial statements with respect to clause (xxi) of the Order only. Thus, the auditor is not required to report on rest of the clauses of paragraph 3.
Reporting Requirements under CARO 2020.
Detailed Reporting Under Each Clause
Sl No |
CARO 2020 |
Key Changes & Interplay with reporting in Schedule III |
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(i) |
(a)(b)(c) |
(A)(B) |
Reporting on Property, Plant and Equipment’s and Intangible Assets:Whether the company is maintaining proper records showing full particulars, including quantitative details and situation of Property, Plant and Equipment;whether the company is maintaining proper records showing full particulars of intangible assets;whether these Property, Plant and Equipment 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;whether the title deeds of all the immovable properties (other than properties where the company is the lessee and the lease agreements are duly executed in favor of the lessee) disclosed in the financial statements are held in the name of the company, if not, provide the following details: |
1) The term Fixed assets has been replaced with PPE and disclosure requirement for Intangible Assets has been added.2) Reporting requirement, where Company is lessee and lease agreement is executed in favor of the Company has been dispensed with.3) Specific disclosure requirement given in case title deeds are not in name of the Company.Summary of disclosures requirements under Schedule III to the Companies Act, 2013 w,r,t [Clause 3(i)(c)]► Disclosure of details of title deeds of immovable properties (excluding leased properties) not held in the name of the company in the prescribed format.► Disclose company’s share – if jointly held |
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Description of Property |
Gross Carrying Value |
Held in name of |
Whether Pro-motor, Director or their relative or employees |
Period held- indicate range, where appropriate |
Reason for not being held in the name of Company* |
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* also indicate if in dispute |
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(d) |
whether the company has revalued its Property, Plant and Equipment (including Right of Use assets) or intangible assets or both during the year and, if so, whether the revaluation is based on the valuation by a Registered Valuer; specify the amount of change, if change is 10% or more in the aggregate of the net carrying value of each class of Property, Plant and Equipment or intangible assets; |
New sub-clause (d) has been inserted which requires specific reporting on revaluation of PPE, and Intangible assets.Summary of disclosures requirements under Schedule III to the Companies Act, 2013 w,r,t [Clause 3(i)(d)]Disclosure regarding revaluation of PPE/ intangible assets:► Amount of change due to revaluation (if change is 10% or more in the aggregate of the net carrying value of each class of PPE/ intangible assets)► Whether revaluation is based on valuation by a registered valuer defined under the Companies Act, 2013 |
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(e) |
whether any proceedings have been initiated or are pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder, if so, whether the company has appropriately disclosed the details in its financial statements; |
New sub-clause (e) has been inserted which requires specific reporting if any proceedings initiated or pending against the Company under Benami Transactions (Prohibition) Act, 1988 for holding Benami Property and its disclosure in financial statements.Summary of disclosures requirements under Schedule III to the Companies Act, 2013 w,r,t [Clause 3(i)(e)]Disclosure prescribed for proceeding initiated/ pending for holding any benami property e.g.:► Details of such property and amount thereof► Details of beneficiaries► If property is in the books, then reference to item in balance sheet► If property is not in the books, then the fact with reasons► Details of proceedings► Nature of proceedings, status of same and Company’s view |
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(ii) |
(a) |
Reporting on Inventory:whether physical verification of inventory has been conducted at reasonable intervals by the management and whether, in the opinion of the auditor, the coverage and procedure of such verification by the management is appropriate; whether any discrepancies of 10% or more in the aggregate for each class of inventory were noticed and if so, whether they have been properly dealt with in the books of account; |
1) Auditor now has to report on the procedure of physical verification adopted by the management and its appropriateness.2) Auditor now has to report for each class of inventory, where discrepancies is of 10% or more and its treatment in books of account. (10% should be seen in terms of value as per Guidance Note by ICAI) |
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(b) |
whether during any point of time of the year, the company has been sanctioned working capital limits in excess of five crore rupees, in aggregate, from banks or financial institutions on the basis of security of current assets; whether the quarterly returns or statements filed by the company with such banks or financial institutions are in agreement with the books of account of the Company, if not, give details; |
New sub-clause (b) has been inserted which requires auditors to report (only if working limits are in excess of 5 Cr and on security of current assets) whether the quarterly returns or statements filed by the company with banks and FI’s are in agreement with the books of accountSummary of disclosures requirements under Schedule III to the Companies Act, 2013 w,r,t [Clause 3(ii)(b)]CARO 2020 prescribes reporting relating to sanctioned working capital limits in excess of five crore rupees, in aggregate. However, disclosure requirements under Schedule III to the Companies Act, 2013 are not limited to working capital but cover all borrowings. Further, no monetary threshold has been prescribed under Schedule III to the Companies Act, 2013 while making this disclosure. |
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(iii) |
(a) |
Reporting on Loans, Investments, Guarantees, Securities and Advances in nature of Loan:whether during the year the company has made investments in, provided any guarantee or security or granted any loans or advances in the nature of loans, secured or unsecured, to companies, firms, Limited Liability Partnerships or any other parties, if so,-whether during the year the company has provided loans or provided advances in the nature of loans, or stood guarantee, or provided security to any other entity [not applicable to companies whose principal business is to give loans], if so, indicate- |
1) Earlier reporting were confined only to the loans given to parties covered under section 189, whereas now it is loan given to any party.2) Additional reporting in terms of such loans or and guarantees or securities provided to group entities and to others and its balance outstanding as at balance sheet date |
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(A) |
the aggregate amount during the year, and balance outstanding at the balance sheet date with respect to such loans or advances and guarantees or security to subsidiaries, joint ventures and associates; |
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(B) |
the aggregate amount during the year, and balance outstanding at the balance sheet date with respect to such loans or advances and guarantees or security to parties other than subsidiaries, joint ventures and associates; Suggested format for reporting under this clause As per Guidance note |
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Guarantees |
Security |
Loans |
Advances in nature of loans |
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Aggregate amount granted/ provided during the year |
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-Subsidiaries– Joint Ventures– Associates– Others |
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Balance outstanding as at balance sheet date in respect of above cases– Subsidiaries– Joint Ventures– Associates– Others |
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(b) |
whether the investments made, guarantees provided, security given and the terms and conditions of the grant of all loans and advances in the nature of loans and guarantees provided are not prejudicial to the company’s interest; |
New sub-clause (b) and (c) inserted which requires reporting on adequacy of terms and conditions of Investment made, guarantee provided, security given and grant of all loans and advances in the nature of Loans if it is not prejudicial to the company’s interest. |
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(c) |
in respect of loans and advances in the nature of loans, whether the respect of loans and advances in the nature of loans, whether the schedule of repayment of principal and payment of interest has been schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are regular; Suggested format for reporting under this clause As per Guidance note |
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Name of the Entity |
Amount |
Due date |
Extent of delay |
Remarks (if Any) |
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(d) |
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; Suggested format for reporting under this clause As per Guidance note |
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No of Cases |
Principal Amount Overdue |
Interest Over due |
Total Overdue |
Remarks (if Any) |
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(e) |
whether any loan or advance in the nature of loan granted which has fallen due during the year, has been renewed or extended or fresh loans granted to settle the overdues of existing loans given to the same parties, if so, specify the aggregate amount of such dues renewed or extended or settled by fresh loans and the percentage of the aggregate to the total loans or advances in the nature of loans granted during the year [not applicable to companies whose principal business is to give loans]; Suggested format for reporting under this clause As per Guidance note |
Additional reporting for any loan or advance in the nature of loan renewed or extended or fresh loans granted to settle the overdues of existing loans. |
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Name of the Parties |
Aggregate amount of overdues of existing loans renewed or extended or settled by fresh loans |
Percentage* of the aggregate to the total loans or advances in the nature of loans granted during the year |
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(f) |
whether the company has granted any loans or advances in the nature of loans either repayable on demand or without specifying any terms or period of repayment, if so, specify the aggregate amount, percentage thereof to the total loans granted, aggregate amount of loans granted to Promoters, related parties as defined in clause (76) of section 2 of the Companies Act, 2013 Suggested format for reporting under this clause As per Guidance note |
Reporting of all loan or advance in the nature of loan granted either repayable on demand or where period of repayment has not been defined.Summary of disclosures requirements under Schedule III to the Companies Act, 2013 w.r.t [Clause 3(iii)(f)]CARO 2020 additionally requires percentage of loan granted. Further, in Schedule III to the Companies Act, 2013, loans and advances given to promoters, directors, KMP and other related parties are considered, whereas in CARO 2020, if loans and advances are given to other than related parties, these are also to be included. So, reporting requirements in CARO 2020 are wider as compared to Schedule III to the Companies Act, 2013. |
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All Parties |
Promoters |
Related Parties |
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Aggregate amount of loans/ advances in nature of loans –Repayable on demand (A) –Agreement does not specify any terms or period of repayment (B) |
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Total (A+B) |
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Percentage of loans/ advances in nature of loans to the total loans |
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(iv) |
Reporting on Compliance of Section 185 and 186:in respect of loans, investments, guarantees, and security, whether provisions of sections 185 and 186 of the Companies Act have been complied with, if not, provide the details thereof; |
No Change |
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Sl No |
Non-compliance of Section 186 |
Remark (If Any) |
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Name of Company/ Party |
Amount Involved |
Balance as at balance sheet Date |
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1. |
Investment through more than two layers of investment companies |
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2. |
Loan given or guarantee given or security provided or acquisition of securities exceeding the limits without prior approval by means of a special resolution |
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3. |
Loan given at rate of interest lower than prescribed |
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4. |
Any other default |
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(v) |
Reporting on Deposits:in respect of deposits accepted by the company or amounts which are deemed to be deposits, whether the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act and the rules made thereunder, where applicable, have been complied with, if not, the nature of such contraventions be stated; if an order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or any other tribunal, whether the same has been complied with or not; |
Reporting of deemed deposit (as per company deposit rules) have been expressly added to remove any ambiguity. |
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(vi) |
Reporting on Cost Records:whether maintenance of cost records has been specified by the Central Government under sub-section (1) of section 148 of the Companies Act and whether such accounts and records have been so made and maintained; |
No Change. |
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(vii) |
(a) |
whether the company is regular in depositing undisputed statutory dues including Goods and Services Tax, provident fund, employees’ state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues to the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as on 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; |
Goods and Service Tax (GST) has been added in the list. |
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Statement of Arrears of Statutory Dues Outstanding for More than Six Months |
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Name of the Statute |
Nature of the Dues |
Amount (Rs.) |
Period to which the amount relates |
Due Date |
Date of Payment |
Re-marks, if any |
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(b) |
where statutory dues referred to in sub-clause (a) have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned (a mere representation to the concerned Department shall not be treated as a dispute); |
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Statement of Disputed Dues |
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Name of the Statute |
Nature of the Dues |
Amount (Rs.) |
Period to which the amount relates |
Forum where dispute is pending |
Re-marks, if any |
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(viii) |
Reporting on Unrecorded Income:whether any transactions not recorded in the books of account have been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (43 of 1961), if so, whether the previously unrecorded income has been properly recorded in the books of account during the year; |
Newly inserted which requires auditors to report whether previously un-recorded Income has been recorded during the year on account of any assessment under Income Tax Act 1961.
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(ix) |
(a) |
Reporting on repayment and usage Borrowings:whether the company has defaulted in repayment of loans or other borrowings or in the payment of interest thereon to any lender, if yes, the period and the amount of default to be reported as below: |
1) Default in payment of Interest is also covered now2) Coverage of reporting is expanded to include any lender as against Bank, FI, Government and Debenture holders as per old CARO (e.g. Default in repayment of Inter-corporate Loans also needs to be reported now)– whether the company is a declared willful defaulter by any lender |
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Nature of borrowing including debt securities |
Name of lender* |
Amount not paid on due date |
Whether principal or interest |
No. of days delay or unpaid |
Remarks, if any |
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* lender wise details to be provided in case of defaults to banks, financial institutions and Government. |
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Other lenders Aggregate for each type of lender may be given, for exampledebenture holders |
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(b) |
whether the company is a declared willful defaulter by any bank or financial institution or other lender; |
Newly inserted for reporting, if company is a declared willful defaulter by any lenderSummary of disclosures requirements under Schedule III to the Companies Act, 2013 w.r.t [Clause 3(ix) (b)]Disclose following if the company is a declared wilful defaulter by any bank/ financial institution / other lender:► Date of declaration as wilful defaulter► Details of defaults (amount and nature of defaults) |
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(c) |
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 may be reported |
Newly inserted for reporting, if the term loans were applied for the purpose other than for which it has been obtained.Summary of disclosures requirements under Schedule III to the Companies Act, 2013 w.r.t [Clause 3(ix) (c)]CARO 2020 prescribes reporting on term loans from any party. However, disclosures under Schedule III to the Companies Act, 2013 are not limited to term loans but cover all borrowings. Further, disclosures under Schedule III to the Companies Act, 2013 have been prescribed only for borrowings from banks and financial institutions. |
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Nature of the fund raised |
Name of the lender |
Amount diverted (Rs.) |
Purpose for which amount was sanctioned |
Purpose for which amount was utilised |
Remarks |
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(d) |
whether funds raised on short term basis have been utilised for long term purposes, if yes, the nature and amount to be indicated; |
Newly inserted which requires reporting if short term funds have been used for long term purposes. |
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(e) |
whether the company has taken any funds from any entity or person on account of or to meet the obligations of its subsidiaries, associates or joint ventures, if so, details thereof with nature of such transactions and the amount in each case; |
Newly inserted which requires reporting of Details of Funds borrowed by holding company for the purpose of discharging obligations of group entities (components), |
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Nature of fund taken |
Name of lender # |
Amount involved |
Name of the sub-sidiary, joint venture, associate |
Relation |
Nature of Tran-saction for which funds utilized* |
Re-marks, if any |
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(f) |
whether the company has raised loans during the year on the pledge of securities held in its subsidiaries, joint ventures or associate companies, if so, give details thereof and also report if the company has defaulted in repayment of such loans raised; |
Newly inserted for reporting, for details of Funds borrowed by pledging the securities held in its group entities (components) and defaults in its repayment |
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Nature of loan taken |
Name of lender # |
Amount of loan |
Name of the subsidiary, joint venture, associate |
Re-lation |
Details of sec-urity ple-dged |
Re-marks |
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(x) |
(a) |
Reporting on use of money raised through issue of own shares:whether moneys raised by way of initial public offer or further public offer (including debt instruments) during the year were applied for the purposes for which those are raised, if not, the details together with delays or default and subsequent rectification, if any, as may be applicable, be reported; |
Reporting under two different clauses of erstwhile CARO 2016 are combined under single clause |
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Nature of the fund raised |
Purpose for which funds were raised |
Total Amount Raised /opening unutilized balance |
Amount utilized for the other purpose |
Unutilized balance as at balance sheet date |
Details of default (Reason/ Delay |
Sub-sequently rectified (Yes/No) and details |
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(b) |
whether the company has made any preferential allotment or private placement of shares or convertible debentures (fully, partially or optionally convertible) during the year and if so, whether the requirements of section 42 and section 62 of the Companies Act, 2013 have been complied with and the funds raised have been used for the purposes for which the funds were raised, if not, provide details in respect of amount involved and nature of non-compliance; |
Additional reporting by Auditor to verify and report compliance of Section 42 and section 62, in case of preferential allotment or private placement of shares or convertible debentures, further auditor to comment whether the funds raised have been used for the purposes for which it has been raised. |
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In case the requirements of section 42 and section 62 of the Act and Rules framed in this regard are not complied with, the auditor should report incorporating following details:
| Nature of the fund raised Purpose for which funds were raised | Total Amount Raised /opening unutilized balance Amount utilized for the other purpose | Unutilized balance as at balance sheet date | Details of default (Reason/ Delay Subsequently rectified (Yes/No) and details |
Where the auditor concludes that the funds raised were not applied for the purpose for which the same were raised
| Nature of Securities viz. Equity shares/ Preference shares/ Convertible debentures | Purpose for which funds were raised | Total Amount Raised/ opening unutilized balance | Amount utilized for the other purpose | Unutilized balance as at balance sheet date | Remark, if any | |||||
| (xi) |
(a)
(b)
(c) |
Reporting on Fraud:
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; whether any report under sub-section (12) of section 143 of the Companies Act has been filed by the auditors in Form ADT-4 as prescribed under rule 13 of Companies (Audit and Auditors) Rules, 2014 with the Central Government;
whether the auditor has considered whistle-blower complaints, if any, received during the year by the company; |
Now Reporting of all the frauds by the company or on the company is required, whether or not done by its employees or officers) Newly inserted, which requires reporting on Form ADT-4 filed by Auditors with Central Government (The form ADT 4 is a statement filed under rule 13 (4) of the Companies (Audit and Auditors) Rules, 2014 and sub-section (12) of section 143 of the Companies Act, 2013 on suspected offence involving fraud being committed or having been committed.) Newly inserted, which requires auditor to take into consideration the complaint of whistle blower received by company. sub-section (9) of section 177 read with Rule 7 of the Companies (Meetings of its Board and Power Rules 2017) provides that the following classes of Companies are required to establish a vigil mechanism, Every listed companies; Every other company which accepts deposits from the public; Every company which has borrowed money from banks and public financial institutions in excess of Rs. 50 Crores (Fifty) Crores. |
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| (xii) |
(a) (b) (c) |
Reporting on Nidhi Company:
whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of 1: 20 to meet out the liability; whether the Nidhi Company is maintaining ten per cent unencumbered term deposits as specified in the Nidhi Rules, 2014 to meet out the liability; whether there has been any default in payment of interest on deposits or repayment thereof for any period and if so, the details thereof; |
No Change
No Change A New sub-clause (C) has been inserted which requires reporting on default in payment of deposits and interest thereon by Nidhi Company |
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| (xiii) |
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Reporting on Related Party Transactions:
whether all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act where applicable and the details have been disclosed in the financial statements, etc., as required by the applicable accounting standards; |
No Change. |
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If the auditor comes across any non-compliance of requirements of sections 177 and 188 of the Act, then, it should be duly reported. The non-compliance of disclosure requirements as per AS 18 or Ind AS 24 (as may be applicable) may also be reported and the categorisation may be made as:
- Non-compliance of requirements of sections 177 and 188 of the Act.
- Non-compliance of disclosure requirements as per AS 18 or Ind AS 24 (as may be applicable). The following particulars may be incorporated:
| Nature of the related party relationship and the underlying transaction financial statements, etc., as required by the applicable accounting standards; | Amount involved (Rs.) | Remarks (details of non-compliance may be given) | |||||||
| (xiv) |
(a)
(b)
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Reporting on Internal Audit:
whether the company has an internal audit system commensurate with the size and nature of its business;
whether the reports of the Internal Auditors for the period under audit were considered by the statutory auditor; |
Newly inserted, which requires auditors to report existence of adequate internal audit and disclaimer that the reports of the Internal Auditors were considered by the statutory auditor Ssection 138 of the Companies Act 2013 deals with Internal Audit of the Companies which is summarized as follows: (a) every listed company; Always applicable (b) every unlisted public company having (ii) turnover(income) of two hundred crore rupees or more during the preceding financial year; or (iii) outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or (iv) outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and (c) every private company having– |
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| (xv) |
|
Reporting on Non-cash transactions with Directors:
whether the company has entered into any non-cash transactions with directors or persons connected with him and if so, whether the provisions of section 192 of Companies Act have been complied with; |
No Change. |
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| (xvi) |
(a)
(b)
(c)
(d) |
Reporting on Registration u/s 45-IA of RBI Act:
whether the company is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934 (2 of 1934) and if so, whether the registration has been obtained; whether 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 Reserve Bank of India Act, 1934; whether the company is a Core Investment Company (CIC) as defined in the regulations made by the Reserve Bank of India, if so, whether it continues to fulfil the criteria of a CIC, and in case the company is an exempted or unregistered CIC, whether it continues to fulfil such criteria; whether the Group has more than one CIC as part of the Group, if yes, indicate the number of CICs which are part of the Group; |
No Change Newly inserted which requires reporting If company has done activity of NBFC and Housing Finance activity without a valid RBI Certificate of registration as such. Newly inserted which requires reporting for continuance of fulfilment of criterion for company to run as Core Investment Company. Newly inserted which requires reporting for Number of CICs in the Group to which company belongs. |
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| (xvii) |
|
Reporting on Cash Losses:
whether the company has incurred cash losses in the financial year and in the immediately preceding financial year, if so, state the amount of cash losses; |
Newly inserted which requires reporting of cash losses (aggregate of operational, investing and financing cash losses) incurred by the company in current as well as previous year. |
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| (xviii) |
|
Reporting on Auditor’s resignation:
whether there has been any resignation of the statutory auditors during the year, if so, whether the auditor has taken into consideration the issues, objections or concerns raised by the outgoing auditors; |
Newly inserted which requires to report if there is any resignation of the auditor, and if so auditor to report whether he has taken into consideration the issues, objections or concerns raised by the outgoing auditors. |
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| (xix) |
|
Reporting on Financial Position:
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, whether the auditor is of the opinion 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; |
Newly inserted which requires auditors to report on company’s ability to pay off existing liability over a period of next one year as and when they fall due. Auditors are now to comment on financial stability of the company for next one year. Summary of disclosures requirements under Schedule III to the Companies Act, 2013 w.r.t [Clause 3(xix)] CARO 2020 requires the auditor to comment on material uncertainty in payment of liabilities on basis of the financial ratios and other prescribed matters. However, Schedule III to the Companies Act, 2013 requires disclosure of certain ratios. |
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| (xx) |
(a)
|
Reporting on CSR Compliance:
whether, in respect of other than ongoing projects, the company has transferred unspent amount to a Fund specified in Schedule VII to the Companies Act within a period of six months of the expiry of the financial year in compliance with second proviso to sub-section (5) of section 135 of the said Act;
|
Newly inserted which requires auditors to report whether unspent amount of CSR has been transferred to a special designated bank account (related to any ongoing project) and to a fund as specified in Schedule VII (where no specific project has been carried out or assigned) or not. Summary of disclosures requirements under Schedule III to the Companies Act, 2013 w.r.t [Clause 3(xx) (a) & (b)] CARO 2020 requires reporting of unspent CSR amount. However, disclosures prescribed under Schedule III to the Companies Act, 2013 are wider as compared to reporting requirements under CARO 2020. Applicability of CSR Provisions (i)Net worth of Rs. 500 Crore or more, or (ii)Turnover of Rs. 1000 Crore or more, or (iii)Net profit of Rs. 5 Crore (Profit Before Tax calculated in accordance with section 198) during immediately preceding financial year and shall also be required to constitute a Corporate Social Responsibility Committee. |
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In case the company has not transferred the unspent amount, in respect of other than ongoing projects, to a fund specified in Schedule VII to the Act within the time limits, the auditor should ascertain the following details as a part of his working papers for reporting under this clause:
| Relevant Financial year* | Amount identified for spending on Corporate Social Res-ponsibility activities “other than Ongoing Projects” | Unspent amount of (b) | Amount Trans-ferred to Fund specified in Schedule VII to the Act | Due date of transfer to the specified fund | Actual date of transfer to the specified fund | Number of days of delay if any |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) |
(*For Current year and for the previous year/(s) for which the amount remains unspent)
In respect of other than ongoing projects, the company has transferred unspent amount to a Fund specified in Schedule VII to the Companies Act, 2013 within a period of six months of the expiry of the financial year in compliance with second proviso to sub-section (5) of section 135 of the said Act, except in respect of the following:
| Relevant Financial year* | Amount unspent on Corporate Social Responsibility activities “other than Ongoing Projects” | Amount Transferred to Fund specified in Schedule VII within 6 months from the end of the Financial Year | Amount Transferred after the due date (specify the date of deposit) |
| (a) | (b) | (c) | (d) |
*For Current year and for the previous year/(s) for which the amount remains unspent)
| (b) | whether any amount remaining unspent under sub-section (5) of section 135 of the Companies Act, pursuant to any ongoing project, has been transferred to special account in compliance with the provision of sub-section (6) of section 135 of the said Act; |
In case the company has not transferred the unspent amount, in respect of ongoing projects, to a special account as specified under section 135(6) of the Act within the time limits, the auditor should ascertain the following details as a part of his working papers for reporting under this clause:
| Relevant Financial year* | Amount identified for spending on Corporate Social Responsibility activities for “Ongoing Projects” | Unspent amount of (b) | Amount Transferred to Special Account u/s 135(6) | Due date of transfer to the account | Actual date of transfer to the account | Number of days of delay |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) |
(*For Current year and for the previous year/(s) for which the amount remains unspent)
In respect of ongoing projects, the company has transferred unspent amount to a special account, within a period of Guidance Note on CARO 2020 213 thirty days from the end of the financial year in compliance with section 135(6) of the said Act, except in respect of the following:
| Relevant Financial year* | Amount unspent on Corporate Social Responsibility activities for “Ongoing Projects” | Amount Transferred to Special Account within 30 days from the end of the Financial Year | Amount Transferred after the due date (specify the date of transfer) |
| (a) | (b) | (c) | (d) |
(*For Current year and for the previous year/(s) for which the amount remains unspent)
| (xxi) | Reporting on Consolidated Financial Statements – auditor will need to give a CARO report on the consolidated financial statements with respect to clause (xxi) of the Order only. Thus, the auditor is not required to report on rest of the clauses of paragraph 3. | To remove duplication, reporting on compliance of provisions related to managerial remuneration has been removed as the same is already covered under main Audit Report. |
For the purpose of reporting the qualifications/adverse remarks, the principal auditor may report in the following manner in the consolidated audit report–
| Sr. No. | Name | CIN | Holding Company/subsidiary/ Associate/ Joint Venture | Clause number of the CARO report which is qualified or adverse |
Conclusion:
CARO 2020 has been drastically changed and more responsibility has been casted on the auditor’s shoulder. More disclosures is added on utilization of funds, financial stability of the company and regulatory compliances, therefore Auditors need to be more conscious, skeptical and accurate while discharging his/her duties.
Disclaimer: This material has been prepared solely for general information purposes and is not intended to be relied upon as accounting, tax, or other professional advice.
Authored by
Name: Shashank Mishra
Qualification: FCA, DISA (ICAI)
Company: Manish Shashank & Co.
Members Since: 23rd August 2004
Author Bio
Very useful article at right time. Well wishes Shashank Ji.