MCA has recently released notified Companies (Auditor’s Report) Order, 2020 (CARO 2020), which is is applicable for audit of financial statements of eligible companies for the financial years commencing on or after the 1st April, 2019. CARO 2020 replaces the erstwhile CARO 2016. Article Compares CARO 2016 with CARO 2020 and explains the difference between them.
|Matter||Caro 2016||Caro 2020||Difference|
|Applicability||At para 1(2)(v) companies act, 2013 is mentioned||At same Para companies act 2013 is deleted||As in Para 1(2) Lawmaker referred companies act, 2013 as companies act, earlier typographical error is rectified.|
|Consolidated Financial Statements||Not applicable on CFS||Not applicable on CFS except Clause (xxi) of Para 3||Any qualification or adverse remark mentioned in the CARO of any company included in the audit report on consolidated financial statements, needs to be mentioned here.|
|Matters to be included in the Auditor’s Report|
|Para 3(i)(a)(A) related Fixed Assets||At Para 3(i)(a)(A) Fixed Assets is mentioned||Now Property, Plant and Equipment is mentioned||Due to Change of AS-10 name.|
|3(i)(a)(B) related to Intangible assets||No such provision||Newly Inserted
Proper records showing full particulars of intangible assets
|Earlier this clause was for tangible assets only. Now, same has been inserted for intangible assets also.|
|3(i)(c) related to title deeds of Immovable Property||Earlier title of immovable properties are held in the name of the companies||NOW, title deeds of all the Immovable properties disclosed in the financial statement are held in the name of the company except leased properties||Deeds of Immovable properties which are disclosed in F.S. by the company are now checked whether the same is in name of company, if not in specified format needs to be reported.|
|3(i)(d) related to revaluation of Tangible & Intangible assets||No such provision||New Inserted:
Revaluation and its methods, and variation is required to be analyses.
|Following needs to be reported-
Whether company has revalued any of its assets during the year;
If yes, whether it is based on the revaluation by Registered valuer;
Amount of change, if change is 10% or more in the net carrying value of each class of assets.
|3(i)(e) related to benami transactions||No such provision||New Inserted:
|Following needs to be reported-
Any proceeding initiated and pending under Benami Transactions (Prohibition) Act, 1988;
Whether details have been disclosed in financial statements.
|3(ii)(a) related to Inventory||Reporting on Physical verification of Inventory.||Reporting on Physical verification of Inventory, its coverage and procedure by mgmt., its disclosure if discrepancy is 10% or more in aggregate for each class of inventory.||Now, auditor opinion is required for management procedure & coverage on verification by the mgmt.
Discrepancy of 10% or more were noticed, then how the affect dealt with the BOA.
|3(ii)(b) related to Inventory||No such provision||Disclosure if sanction of working capital limits in excess of 5 Crores, in aggregate, from banks and financial institutions on the basis of security of current assets.||Following needs to be disclosed-
Working capital limit sanctioned above Rs. 5 Crore on the bases of security of current assets;
Whether quarterly statement filed with banks are in agreement with books of accounts.
|3(iii) related to Loans, advances, Guarantee, or securities [LAGS]||Reporting of grant of any loans, secured or unsecured loan to co’s, LLP, or partnerships or any other Parties of registered covered in sec. 189.
(a) Terms and conditions of such grant of loans.
(b) Schedule of repayment of principle and interest and whether the receipts are regular.
(c) Total amount overdue for more than 90 days.
|Reporting of Investments in, provided any guarantee or security or granted any loans or advances in the nature of loan to co’s, LLP,or partnerships or any other Parties of register covered in registered maintained in section 189deleted.
Similarly, new/modified clauses are inserted. i.e. clause 3(iii)(a) relaxation to NBFC whose principal business give loans
3(iii)(A), indicate aggregate amount, and balance o/s w.r.t. LAGS of Sub, JV, associate.
3(iii)(B) similar to above clause but other than Sub., JV & associates.
3(iii)(b) &(C) modified, investment, advances words is inserted
Clause (e) newly inserted related to renewal or extension of existing loan.
Clause (f) newly inserted talks about certain details of loans granted to promoters and related parties.
|There is a significant widening of the scope of this clause where it is now required to report all financial transaction with any other entities, Investment, advance these words are newly inserted.
And relaxation only to an NFBCs primarily engaged in lending activities.
Now the auditor comments on the investment made by the company is not prejudicial to the company’s interest
|3(v) related to deposit section 73 to 76.||Reporting in respect of deposits accepted by the Company.||Reporting in respect of deposits or deemed to be deposits which are accepted by the Company.||Deposits which are not such by virtue of definition but substantively having the character of deposits are also now required to be reported.|
|3(vii)related to Statutory dues||Clause (a) Same provision except GST is not mentioned.
Clause (b) specific authority dues 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 reported in specific format.
|Clause (a) GST newly inserted.
Clause (b) where statutory dues referred to in sub-clause (a)
|Auditor shall check regular deposit of Goods and Services
It means PF, ESI, disputed cases are also reported.
|3(viii) Disclosure of transactions not recorded in the books||No such provision||whether any transactions not recorded in the books of account have been surrendered or disclosed as income in tax assessment, if so, whether the previously unrecorded income has been properly recorded in the books of account||Following needs to be disclosed:-
Transactions not recorded in books but disclosed in the income tax assessment;
Whether previously unrecorded transactions have been recorded.
|3 (ix) Default in repayment of loans or other borrowings||Earlier para no. 3 (viii) default in financial institution, bank, Government or dues to debenture holders?||Now, as per Para 3 (ix), the payment of interest thereon to any lender, (as per specific format).
Newly inserted clauses:
(b) Company declared as willful defaulter.
(c) purpose for which the loans were obtained; if not, the amount of loan diverted.
(d)utilization of short-term funds for long-term.
(e) Purpose of funds obtained to meet obligations of its subsidiaries, associates or joint ventures
(f) funds obtained on the pledge of securities held in its subsidiaries, joint ventures or associate companies
|Previously, default on repayment of principal of specific lender is reported, now interest of all the lenders is required to report.
Reshuffling from earlier Para 3(ix) related to IPO, FPO and term loan, now there is only IPO & FPO applied for the purpose which they r obtained.
(a) IPO & FPO
(b) And private placement or preferential allotment
|Earlier para 3 (ix) IPO, FPO and term loan applied for the purpose which they were obtained.
Earlier Para is 3 (xiv)
Co. made private, preferential allotment of shares and convertible debentures (fully, partially) and requirement section 42 have complied and applied for purposed for which the fund was raised.
|Now, Term loan is regrouped in new caro 3(ix) rest is same as per para 3 (x)(a).
Co. made private, preferential allotment of shares and convertible debentures (fully, partially or optionally) and requirement section 42 and section 62 have complied and applied for purposed for which the fund was raised.
|Checking application of term loans has been included in point (ix) (c) of CARO, 2020.
In clause (b), the section 62 has been refereed, hence compliance of section 62 of Companies Act, 2013 needs to be analysed.
|Para 3(xi) Fraud
|Earlier clause (x) Reporting of any fraud by or on the company by its officers or employees, if yes, then amount and nature of the same.||As per clause (xi)(a) Reporting of any fraud by or on the company, if yes, then amount and nature of the same.
(b) Whether any report under sub-section (12) of section 143 of the Companies Act, 2013 has been filed by the auditors in Form ADT-4.
(c)Whether auditor has considered whistle-blower complaints, if any.
|Widened the scope as officers or employees are deleted.
Reporting of ADT-4, if any filed by the auditors and complaint of whistle-blower considered. With this clause scope has been widened regarding reporting pertaining to fraud.
related to nidhi company
|No such provision||All the points are same except newly inserted clause (xii)(c)
Whether there has been any default in payment of interest on deposits or repayment thereof for any period, if any, then details thereof.
|Para 3 (xiv) Internal Audit System||No such provision||(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;
|Looking to the applicability of section 138.
Cross referencing of the report of internal auditor in CARO.
|Para (xvi) Registration
Bank of India
|company is required to be registered under section 45-IA of RBI Act.||Para (xvi) (a) company is required to be registered under section 45-IA of RBI act.
(b) whether the company has conducted any Non-Banking Financial or Housing Finance
activities without a valid Certificate of Registration (CoR).
(c) whether the company is a Core Investment Company (CIC) as defined in the regulations made by the RBI.
(d) whether the Group has more than one CIC as part of the Group
|Para 3 (xvii) Cash losses||No such provision||Whether company has incurred cash losses in the FY and in the immediately PFY, if so, state the amount of cash losses;||CARO 1956, clause re introduced.|
|Para 3 (xviii) Resignation of the statutory auditors||No such provision||whether there has been any resignation of the statutory auditors during the year||Extra reporting requirement check compliances as per companies act, SA’s and PE.|
|Para 3 (xix) Capability of company of meeting its liabilities existing at the date of balance sheet||No such provision||Whether On the basis of financial ratios, ageing and expected dates of realization of financial assets and payment of financial liabilities. Whether the auditor is of the opinion that no material uncertainty exists as on the date of audit report that the company is capable of meeting its liabilities existing at the balance sheet date as and when they fall due within a period of 1 year from the balance sheet date.||Auditor needs to give its opinion that whether company will be able to meets its liabilities, existing on the balance sheet date as and when they fall due within 1 year.
Auditor needs to analyze following to comment on above-
-Ageing of financial assets and financial liabilities,
-Expected realization of those assets and liabilities.
|Para 3 (xx) Transfer of Amount remaining unspent under sub-section (5) of section 135.||No such provision||(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, 2013 within a period of 6 months of the expiry of F.Y.
(b) Whether any amount remaining unspent has been transferred to special account.
|the compliance w.r.t. the CSR provisions will be checked.
Newly introduced 135 (5) and 135 (6) of the act are to be checked
|Para 3 (xxi)||No such provision||Any qualification or adverse remark mentioned in the CARO of any company included in the audit report on consolidated financial statements, needs to be mentioned here.|
Notes: – Earlier Clause xi of Para 3 are deleted related to Managerial remuneration.