In this document, we have discussed the major changes and new insertions in CARO (Companies Auditor’s Report Order), 2020 as compared to CARO 2016.
1. Applicability: (Modified)
CARO 2020 shall not apply to the auditor’s report on consolidated financial statements EXCEPT,
if there are qualifications or adverse remarks given by respective auditor of Consolidated Financial statements in CARO reports. Indicate the details of Company, Paragraph of CARO Report where such qualification or adverse remarks are given. (Refer Clause 3(xxi) (inserted).
2. Clause 3(i) : Reporting requirements of both Tangible as well as Intangible (Modified)
- Emphasis is provided separately on Intangible Asset. The word Fixed Asset is being replaced by “Property, Plant and Equipment” (Modified)
- Clause 3(i)(a)(B) has been added which requires the maintenance of proper & full records of Intangible assets (Inserted)
- Clause 3(1)(c): – Format is prescribed to indicate the details of Title deeds of immovable property, if such immovable property is not held in the name of the company (Refer Note A) (Modified)
- Clause 3(1)(d): – If there is a Revaluation of Property, Plant and Equipment then, indicate
- if valuation is carried out by a Registered Valuer,
- the amount of change, if change is 10% or more in aggregate of net carrying value of each class of PPE or Intangible Asset.
3. Clause 3(i)(e) : Reporting requirements on pending proceedings.(Inserted)
- Details of any proceedings pending/initiated under the Benami Transactions (Prohibition) Act, 1988 against the company; and its appropriate disclosure in Financial Statements.
4. Clause 3(ii)(a) : Reporting requirements on Inventory (Modified)
- Subjectivity of materiality is removed..
- Auditor is required to opine
- on the appropriateness of the coverage and procedure of verification of inventory adopted by the management and
- where the discrepancies of 10% or more in aggregate of each class of inventory were noticed, whether it has been properly dealt with in books of accounts.(Modified)
5. Clause 3(ii)(b) : Reporting on sanctioned Working Capital limits (Inserted)
- If there is a sanctioned working capital limits in excess of Rs. 5 crore from banks or financial institutions on security of current assets then whether the quarterly returns filed with banks or financial institutions are in conformity with books. If No, then provide details.
6. Clause 3(iii) – Reporting on Investments, loans and advances given: (Modified)
- Clause 3(iii)(a): – Disclosure of the following should be reported by the Auditor:-
a. Investments Made
b. Gurantee or Security provided
c. Loans & Advances granted.
- Clause 3(iii)(a)(A): – Disclosure of the aggregate amount and Outstanding Balance in respect of such Guarantee, Security or Loans & Advances to subsidiaries, Joint Venture and Associates.(Modified)
- Clause 3(iii)(a)(B): – Disclosure of the aggregate amount and Outstanding Balance in respect of such Guarantee, Security or Loans & Advances to parties other than subsidiaries, Joint Venture and Associates.(Modified)
- Clause (iii)(e): – In case existing loans falling due during the year have been extended, renewed, replaced with fresh loans, specify the aggregate amount and percentage of such loans.(Inserted)
- Clause 3(iii)(f): – In case of loans or advances repayable on demand, without any terms or period of payment, specify the amount of such loans given to the promoters & related parties.(Inserted)
7. Clause3(viii)- Reporting on Transactions not recorded: (Inserted)
- Any transactions not recorded in the books of account but disclosed as income in the income tax proceedings/assessments.
- Proper disclosure of such unrecorded transactions has been done or not in books of account.
8. Clause 3(ix) – Reporting of Period and amount of default in repayment of Loans (Modified)
- The details of period and amount of default in respect of repayment of loans or borrowings to banks, financial institutions, Government or debenture holders.(Modified)
- Format specified for showing lender-wise details of default (Refer Note B) (Inserted)
- Whether the company is declared as a wilful defaulter by a lender.(Inserted)
- Whether terms loans/short-term loans are applied for the purpose for which they were obtained; with details of diversion, if any.(Inserted)
- Details of funds procured by the company to meet the obligations of subsidiaries, joint ventures and associates. (Inserted)
- Whether the company has raised loans on the pledge of securities held in subsidiaries, joint ventures and associates. (Inserted)
9. Clause 3(xi)- Reporting on Fraud: (Modified)
- Any fraud by the company or fraud on the company which has been noticed during the Financial Year.
- The nature and amount of fraud involved.
- Whether any report in FORM ADT-4 has been filed by the auditor with the Central Government in relation to suspected offense/fraud.(Inserted)
- Whistle-blower complaints received by the company during the year; to be considered by the auditor while submitting his audit report. (Inserted)
10. Clause 3(xii)- Reporting on Nidhi company: (Modified)
- Whether there is any default in payment of interest on deposits or repayment thereof (Inserted).
11. Clause 3(xiv)- Reporting on Internal audit: (Inserted)
- The company’s internal audit system is commensurate with the size and nature of its business or not
- Whether the statutory auditor has considered the internal audit reports of the company
12. Clause 3(xvi) -Registration under RBI: (Modified)
- Whether registration has been obtained by NBFCs liable to be registered under Sec 45-IA of the the RBI Act.
- Conduction of any NBFC activities without holding a valid Certificate of Registration (CoR). (Inserted)
- Whether the company qualifies for a Core Investment Company (CIC). (Inserted)
13. Clause 3(xvii) -Reporting on Cash losses: (Inserted)
- Cash losses incurred by the company in the current Financial Year and in the preceding Financial Year
- The amount of cash losses/negative balance reflecting in cash flow statement
14. Clause 3(xviii) -Reporting on Resignation of Auditor: (Inserted)
- Any resignation of the statutory auditor during the year
- Whether details of issues, objections or concerns raised by the outgoing auditors have been appropriately considered
15. Clause 3(xix) -Reporting on Uncertainty to meet liabilities: (Inserted)
- Details of material uncertainty with regard to realization of financial assets and payment of financial liabilities.
- Whether any such uncertainty exists on the date of audit report that the company will not be capable of meeting its liabilities as and when they fall due within a period of 1 year from the Balance Sheet date.
16. Clause 3(xx) – Reporting on CSR: (Inserted)
- In relation to ongoing CSR projects, details of transfer of unspent CSR amount to the Special Account within stipulated time in compliance with Section 135.
- For CSR projects other than ongoing ones, details of transfer of unspent CSR amount to the Fund specified in Schedule VII within stipulated time in compliance with Section 135.
17. Clause for Managerial Remuneration has been omitted in CARO 2020. (Deleted)
Note A :-Details of Title Deeds as prescribed under CARO 2020
|Description of property
||Gross carrying value
||Held in name of
||Whether promoter, director or their relative or employee
||Period held – indicate range, where appropriate
||Reason for not being held in name of company.
(Also indicate if under dispute)
Note B :- Details of Default in repayment as prescribed under CARO 2020
|Nature of borrowing, including debt securities
||Name of lender
Lender wise details to be provided in case of defaults to banks, financial institutions, and Government
|Amount not paid on due date
||Whether principal or interest
||No. of days delay or unpaid
||Remarks, if any
I thank Ms. Komal Tiwari, CA Final Student for preparing such a nice compilation
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