Detailed Comparison of CARO 2020 with CARO 2016

–   The scope of the clause has been increased by covering the reporting on coverage and procedure  of  verification. Now, the auditor has also to report on appropriateness of procedure followed in the verification.

–   Further CARO 2016 says that if any material discrepancies were noticed then auditor need to check and materiality is a totally judgmental but CARO 2020 specifically state out the monetary limit of discrepancies. i.e. 10% or more which is evaluated on the basis of monetary value and not on quantity basis.

–   This clause put  the responsibility  on the auditors to find out any disagreement between the books and quarterly statements sent by the company to the financial institution/banks. It will keep the check on incorrect statements which was earlier sent to the financial institution/banks  which in turn will leds to reduce the banking related frauds.

–  Limit of Rs 5 crores need to seem in aggregate from all banks and financial institutions which are secured against current assets of the company. Further this clause talks about sanctioned limit and not about utilization of funds, thus if utilization of funds is  less than 5 crores but sanctioned limit is more than 5 crores then the same need to be consider in the reporting.

Earlier CARO 2016 only applies to loan to  parties which are covered under section 189 of the Companies Act 2013, and these covered loan only need to reported if and only if these are covered under any of the sub- clause a or b or c of clause (iii) of CARO 2016.

But CARO 2020 widen the scope of reporting by

–    Covering the loan, advances in the nature of Loan, guarantee or any security  to  any entity (i.e. also other than which are covered under section 189)

–  Make it mandate to report the aggregate amount of the transactions of all loans and advances occur during the year and outstanding balance at balance sheet date.

Loan can be short term or long term, thus companies needs to maintain the details of all loans, advances in the nature of loan, guarantees and securities provided to any entity.

 (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;

(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

These sub-clauses are amended to align the same with sub- clause (a) of clause (iii)

–  This is new insertion in CARO 2020, which state that if any loan is renewed or due date of repayment has been extended or any fresh loan are provided to settle the existing loan then this sub- clause require reporting of such instances.

– Basically (iii)(e)  requires identification of instances of ever-greening. (An attempt to mask loan default by giving new loans to help delinquent borrower repay principal or pay interest on old loan)

(b) where statutory dues referred to in sub-clause (a) have ….

(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….

(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;

–  This clause has diversified its scope by covering the default of any loan or other borrowings or  interest thereon taken from any lender which was earlier limited to specified lender only. Now, CARO 2020 also specified the format of reporting.

– Sub Clause b cover the wilful defaulter which means a person having ability to pay are not paying the loan.

–   Sub Clause c requires reporting if term loan taken from any entity or person was utilized for the purpose other than the pupose for which the same was obtained, it was earlier covered in Clause IX of CARO 2016 with Initial Public Offer or Further public offer with narrow scope.

–   Sub Clause d any fund which was raised for short term basis if used for loan term purpose then the same should become the part of the report; and

Expl of sub-clause e

– This clause  covers both long term and short term funds taken to meet the obligations of the specified entity which was either taken during the  audit period or in earlier years but outstanding during the audit period.

–  Obligation means any amount which is paid by company on behalf of the specified entity.

Expl of sub-clause f

–   This clause requires reporting if company has taken loan on the pledge of securities held in specified entity and also if company has defaulted in repayment of principal or interest of such loans.

– If ADT-4 is filed by the auditor to central government then same also need to disclose under this clause

– If any whistle blower complaints received by the company including any anonymous complaints, whether the same has been properly evaluated by the auditor or not need to be reported under this clause.

–  The term ‘cash loss’ is not defined in the Act.

– However, as per general understanding Cash Loss means losses without considering the Non- Cash items (such as Depriciation, Amortisations, Foreign exchange gain/losses, Fair value adjustments, Impairments)

–          This clause is also applicable in case of resignation of joint auditor.

–          The auditor need to report whether all issues, objections or any concern which was raised by outgoing auditor has been properly dealt with.

–  This clause basically related to Going Concern concept which is the responsibility of the auditor as per Standard of Auditing- 570 (Auditor’s responsibilities in the audit of financial statements relating to going concern and the implications for the auditor’s report)

–  Financial Assets and Financial Liabilities may be considered as defined in IND AS 32, Financial Instruments.

–  Auditor need to consider various financial ratios (Liquidity ratio, efficiency ratios), ageing of debtors/creditors, management plans and various other things which may impact on Entity’s Going Concern.

–          The CARO 2016 was not applied to consolidated financial statements but CARO 2020 put out exception on the same i.e. if there is an adverse remarks in the report of any component then details of that component  including para number of CARO report containing the qualification need to be reported.