Article compares Companies (Auditor’s Report) Order, 2016 (CARO 2016) with recently notified   Companies (Auditor’s Report) Order, 2020 (CARO 2020).

Sr.No Particulars Companies (Auditor’s Report) Order, 2016 Companies (Auditor’s Report) Order, 2020 Changes in Nutshell
Applicability For the financial year commencing on or after 1st April, 2015. For the financial year commencing on or after 1st April, 2019
1 Fixed Asset (i) (a) Whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets; (i) (a) Whether the company is maintaining proper records showing full particulars, including quantitative details and situation of PROPERTY, PLANT AND EQUIPMENT; The word “Fixed assets” is replaced by “Property,Plant and Equipment” and “Intangible asset” seperately.
(i) (b) Whether the company is maintaining proper records showing full particulars OF INTANGIBLE ASSETS New Sub-clause inserted
(b) Whether these fixed assets 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; (b) Whether these fixed assets 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; NO CHANGE
(c) Whether title deeds of immovable properties are held in the name of the company. If not, provide details thereof. (c) Whether title deeds of immovable properties are held in the name of the company. If not, provide details thereof in the format below- Separate format provided
1) Description of property
2) Gross carrying value
3) Held in the name of
4) Whether promoter,director or their relative or employee
5) Period held
6) Reason for not being held in the name of company
(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; 1) This sub-clause will be applicable if there is revaluation of fixed asset by registered valuer.
2) Amount to be specified if deviation is 10% or more.
(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 inserted- Benami property held by the company if any to be reported
2 Inventory (ii)(a) Whether physical verification of inventory has been conducted at reasonable intervals by the management and whether any material discrepancies were noticed and if so, whether they have been properly dealt with in the books of account; (ii)(a) 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 any material 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; Auditor is required to comment on coverage and procedure of inventory verification by management.
Also Materiality has been defined as 10% or more in each class of Inventory.
(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; If the company has any working capital facility against current assets in excess of Rs. 5 crores at any time during the year, then the auditor has to confirm whether the quarterly submissions made to the lenders are in conformity with the books of accounts or not.
3 Loans granted (iii) Whether the company has granted any loans, secured or unsecured to companies, firms, Limited Liability Partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013. If so,
(a) Whether the terms and conditions of the grant of such loans are not prejudicial to the company’s interest;
(b) Whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are regular;
(c) 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;
(iii) 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,-
(a) 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-
(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;
(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;(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;(c) in respect of loans and advances in the nature of loans, whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are regular;(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;

(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];

(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;

Details of all loans granted, advances in the nature of loans granted, guarantees/ security given to any entity has to disclosed. This will not be applicable to companies whose principal business is to give loans.

§ Details of loans which were renewed, extended or fresh loans are granted to settle overdue of existing loans given to same parties to be given. Inter alia percentage of such loans to aggregate loans granted is also to be given.

§ Details of all loans or advances which are repayable on demand or without any stipulated period of repayment has to be disclosed.

4 Loans, investments, guarantees, and security (Section 185 and 186 of Companies Act, 2013) (iv) in respect of loans, investments, guarantees, and security whether provisions of section 185 and 186 of the Companies Act, 2013 have been complied with. If not, provide the following details. (iv) 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
5 Deposits (v) In case, the company has accepted 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, 2013 and the rules framed there under, 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? (v) 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 there under, 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; NO CHANGE
6 Cost records (vi) Whether maintenance of cost records has been specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013 and whether such accounts and records have been so made and maintained. (vi) 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
7 Statutory Dues (vii) (a) whether the company is regular in depositing undisputed statutory dues including 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;
(b) where dues of income tax or sales tax or service tax or duty of customs or duty of excise or value added tax 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).
(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;
(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);
NO CHANGE
(viii) 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; Reporting of transactions not recorded in the books of accounts which have been surrendered or disclosed under Income Tax Act is to be given. Auditor has to confirm whether the unrecorded income as disclosed to Income Tax has been properly recorded in the books of accounts.
8 Default in repayment of loan or borrowings (viii) Whether the company has defaulted in repayment of loans or borrowing to a financial institution, bank, Government or dues to debenture holders? If yes, the period and the amount of default to be reported (ix) (a) 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 per the format below:- Defaults in repayment of principal or interest portion of ANY loan or other borrowings has now to reported. Earlier defaults in loans from specified lenders like financial institutions, banks, Government or debenture holders were to be reported.
1) Nature of borrowing
2) Nature of lender
3) Amount not paid on due date
4) Whether principal or interest
5) No of delays or unpaid
(b) whether the company is a declared wilful defaulter by any bank or financial institution or other lender;

(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;

(d) whether funds raised on short term basis have been utilised for long term purposes, if yes, the nature and amount to be indicated;

(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;

(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;

Auditor to report if the company is declared a WILFUL DEFAULTER by the bank, financial institution or any other lender.

§ Auditor to report if funds raised for short term have been utilised for long term purposes.

§ If the company has taken any funds on account of meeting the liabilities of subsidiaries, joint ventures or associates, then such transaction details are to be reported.

§ Auditor to report if the company has availed loans on pledge of securities held in its subsidiaries, joint ventures or associates.

9 Public Offer (ix)Whether moneys raised by way of initial public offer or further public offer (including debt instruments) and term loans 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; (x)(a) 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;
(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;
Clause 14 of CARO 2016 merged in clause 10 of CARO 2020
10 Fraud by company or on the company (x) Whether any fraud by the company or any fraud on the Company by its officers or employees has been noticed or reported during the year. If yes, the nature and the amount involved is to be indicated; (xi)(a) 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;

(b) 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;

(c) whether the auditor has considered whistle-blower complaints, if any, received during the year by the company;

§ Auditor had to report on any fraud on the company done by its officer or employee. This specification has been removed. Now any fraud by the company or on the company has to be reported by the auditor.

§ If any reporting of fraud has been filed by the auditor under 143(12) of the Companies At, 2013 then such reporting has to be disclosed here also.

§ Auditor has to disclose if he considered any whistle blower complaint received by the company during the year.

11 Managerial Remuneration (xi) Whether managerial remuneration has been paid or provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Companies Act? If not, state the amount involved and steps taken by the company for securing refund of the same; Clause removed in CARO 2020
12 Nidhi Company (xii) Whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of 1: 20 to meet out the liability and
whether the Nidhi Company is maintaining 10 per cent unencumbered term deposits as specified in the Nidhi Rules, 2014 to meet out the liability;
(xii) (a) whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of 1: 20 to meet out the liability;
(b) whether the Nidhi Company is maintaining ten per cent. unencumbered term deposits as specified in the Nidhi Rules, 2014 to meet out the liability;

(c) whether there has been any default in payment of interest on deposits or repayment thereof for any period and if so, the details thereof;

Defaults in repayment of principal or interest portion of deposits now to reported
13 Related Party Transactions (xiii) Whether all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in the Financial Statements etc., as required by the applicable accounting standards; (xiii) 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
14 Internal Audit (xiv) (a) whether the company has an internal audit system commensurate with the size and nature of its business;
(b) whether the reports of the Internal Auditors for the period under audit were considered by the statutory auditor;
New clause
Auditor had to report whether
§ Company has internal audit system commensurate to the size of the company.§ Such internal audit report has been considered by the auditor to reach his Opinion
15 Non-cash Transactions (xv) 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, 2013 have been complied with; (xv) 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
16 RBI Registration (xvi) (a) 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;
(b) 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;
(c) 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;
(d) 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;
New clause

Auditor to comment if the company has done any NBFC activity without valid registration from RBI.
§ Whether the company is fulfilling the criteria of Core Investment Company (CIC) or exempted CIC, is to be reported by the auditor.
§ If the company has more than one company as part of the group, then the number of CICs which are part of the group are to be reported.

17 Cash losses (xvii) 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; New clause
If the company has incurred cash losses for 2 consecutive years, then the amount of such cash losses are to be reported.
18 Resignation of auditor (xviii) 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; The current auditor to report if he has taken into consideration the issues, objections or concerns raised by the outgoing auditor, incase the outgoing auditor had resigned during the year.
19 Material uncertainty (xix) on the basis of the financial ratios, ageing and expected dates of realisation 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; Auditor has to comment whether is material uncertainty with regards to company meeting its liabilities existing at the Balance Sheet date as and when they fall due for the next one year on the basis of:
§ Financial ratios
§ Ageing & expected realisation dates of financial assets & liabilities
§ Other information accompanying the financial statements
§ Knowledge of the Board and Management Plans
20 Corporate Social Responsibility (xx)   (a)   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;
(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 subsection (6) of section 135 of the said Act;
Transfer of unspent CSR funds to a specified fund within 6 months from the expiry of the F.Y. is to be reported.
21 Qualifications or adverse remarks by auditor in CFS Details to be mentioned of any qualifications or adverse remarks by the respective auditors in CARO of the companies included in Consolidated Financial Statements (CFS). (xxi) whether there have been any qualifications or adverse remarks by the respective auditors in the Companies (Auditor’s Report) Order (CARO) reports of the companies included in the consolidated financial statements, if yes, indicate the details of the companies and the paragraph numbers of the CARO report containing the qualifications or adverse remarks.

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