CARO 2016 is applicable from FY 2015-16 and the matters specified therein shall be included in each report made by the auditor under Section 143 of the Companies Act, 2013 on the account of every company to which CARO 2016 applies.
Section 143 (11) of the Act stipulates that the Central Government may order for the inclusion of statement on specified matter in the auditor’s report for specified class or description of companies. Accordingly, CARO 2016 is issued in pursuance of Section 143 (11) of Companies Act 2013 for inclusion of the matters specified therein in auditors’ report. Hence, CARO 2016 should be complied by the statutory auditor of every company on which it applies.
Ministry of corporate affairs (MCA) issued Companies (Auditor’s Report) Order, 2016 which is applicable to all companies including a foreign company except the following:
(a) Banking company as defined under Section 5 (c) of the Banking Regulation Act, 1949.
(b) Insurance company as defined under the Insurance Act 1938.
(c) Company licensed to operate under Section 8 of the Companies Act 2013 (companies registered with charitable object).
(d) A one person company (OPC) as defined under clause (62) of Section 2 of Companies Act 2013 (OPC means a company which has only one person as a member).
(e) A small company under Section 2 (85) of the Companies Act, 2013.
(1) As per sec 2(85) of Companies Act 2013 small company means a company, other than a public company:
a) Paid up share capital of which does not exceed Z 50 lacs or such higher amount as may be prescribed which shall not be more than Z 5 crore, and
b) Turnover of which as per its last profit and loss account does not exceed Z 2 crore or such higher amount as may be prescribed which shall not be more than Z 20 crore.
(2) The following company shall not qualify as a small company:
a) A holding company or a subsidiary company.
b) A company registered under Section 8 of the Act.
c) A company or body corporate governed by any special act.
(f) The auditor of following type of Private Companies are not required to comment on the matter prescribed under CARO 2016:
(1) A private company which is not holding or subsidiary company of a public company, and
(2) A private company having a paid up capital and reserve and surplus not more than Z 1 crore as on the balance sheet date, and
(3) A private company which does not have total borrowing exceeding Z 1 crore from any bank and financial institution at any point of time during the financial year, and
(4) A private company which does not have total revenue exceeding Z 10 crore during the financial year.
Note: Such revenue means revenue as disclosed in scheduled III to the Companies Act, 2013 and includes revenue from discontinuing operation.
Matters to be included in the auditor’s report under CARO, 2016
Following matters are required to be reported by the auditor mandatorily in the companies (auditor’s report) order, 2016:
1. FIXED ASSETS
– Whether the company is maintaining proper records and quantitative details and situation of the fixed assets.
– Whether these fixes assets have been physically verified by the management at reasonable intervals and if any material discrepancies noticed they have been dealt in the books of accounts.
– Whether the title deeds of immovable properties are held in the name of the company.
– Whether physical verification of inventory has been conducted at reasonable intervals by the management and if any material discrepancies noticed they have been dealt in the books of accounts.
3. LOANS GIVEN BY THE COMPANY
Whether the company has granted any loans, secured or unsecured to companies, firms, LLP or other parties covered in the registered maintained under Section 189 of the Companies Act, 2013. If so,
– Whether the terms and conditions of the grant of loans are not prejudicial to the company’s interest.
– Whether schedule of repayment of principal and interest are regular.
– Whether reasonable steps are taken for the recovery of principal and interest if the amount is overdue for more than ninety days.
4. LOAN TO DIRECTOR AND INVESTMENT BY THE COMPANY
– Whether compliance of section 185 and section 186 has been ensured.
– Whether the deposits have been accepted from the public in accordance with the provisions of section 76.
– Whether there is default in repayment of such deposit.
– Whether provisions of sections 73 to 76 have been followed.
6. COST RECORDS
– Whether cost accounts and records have been made and maintained when required under section 148(1).
7. STATUTORY DUES
– Whether Company is regular in depositing undisputed statutory dues.
– Whether arrears of outstanding statutory dues for more than 6 months are indicated by the auditor.
– In case of disputed statutory dues, the amounts involved stated along with the forum, where the dispute is pending.
8. REPAYMENT OF LOANS
– Whether the company has defaulted in the repayment of any loans. If yes, then amount and period of such default.
9. TERM LOANS
– Whether the terms and conditions subject to which the company has obtained the term loans are complied.
– Whether the funds raised from public are utilised for the purpose for which they were raised.
– Whether requirements of SA- 240 have been complied.
– If any fraud has occurred by the company.
11. MANAGERIAL REMUNERATION
– Limits prescribed under section 197 of the companies act, 2013 has been complied.
– In case of excess remuneration paid by the company to the Director, same has been refunded to the company.
12. NIDHI COMPANY
– Whether the net owned funds and deposits in the ratio 1:20 has been maintained.
13. RELATED PARTY TRANSACTION
– Requirements of section 188 has been complied with.
– Transactions are in accordance of SA 550.
14. PRIVATE PLACEMENT
– Whether the funds raised have been utilised for the purpose for which the funds were raised.
– Compliance with the requirements of section 42 of the companies act, 2013.
15. NON CASH TRANSACTIONS
– Whether the limits and conditions have been followed by the company in case of non cash transactions with the director.
16. REGISTRATION UNDER RBI ACT
– Whether the company has obtained the registration certificate in case it is required to be registered under RBI ACT, 1934.
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Disclaimer: The above article is only for information purpose and is on based on the author’s interpretation of the relevant provision. The same should not be considered as professional advice.