On 25th February 2020, The Central Government (Ministry of corporate affairs or MCA) after consultation with National Financial Reporting authority issued Company Audit Report Order 2020 (herein after called as CARO 2020). Now CARO 2020 will overrule CARO 2016 which was issued on 29th March 2016.
This CARO 2020 was supposed to applicable on all the audit report issued for Financial Year 2019-20 however at later date it made applicable from financial year 2020-21 only. This CARO shall not applicable on audit report of consolidated financial statement of company.
This CARO 2020 shall be applicable to all class of companies on which CARO 2016 was applicable i.e. there is no changes in applicability on various classes of companies.
We have critically analysed CARO 2020 and made a comparison with CARO 2016. In CARO 2016 and CARO 2020 have 4 para. Para no. 1,2 & 4 are same in both the CARO however there are lots of changes has took placed in para 3. Further various new clauses have been incorporated in para 3. Below is the comparison of CARO 2016 versus CARO 2020:
| Para 3: Clause by clause CARO 2020 | CARO 2016 | CARO 2020 |
| i (a) | Applicable on Fixed Assets | Applicable on Property Plant and Equipment |
| i (b) | Newly Inserted | Same as clause i (a) of CARO 2020 but its applicable on Intangible assets. |
| i (c) | whether the title deeds of all the immovable properties disclosed in the financial statements are held in the name of the company. | Same as clause i (c) of CARO 2016 |
| i (d) | Newly Inserted | If Revaluation is carried out, whether it’s based on registered Valuer’s report. If change in value is more than 10% for respective class of assets then disclosure of such value will be required. |
| i (e) | Newly Inserted | Details of proceedings initiated under the Benami Transactions Act. |
| 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; | 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; whether any 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. |
| ii (b) | Newly Inserted | Now auditor have to comment, whether during the year any stock statement is provided to bank/financial institution for working capital loans of value INR 5 crore of more are in conformity with books of accounts |
| iii (a) | Newly Inserted | iii (a) (A): Disclosure to be given for the aggregate amount of loan given during the year, and balance outstanding at the balance sheet date to subsidiaries, joint ventures and associates iii (a) (B): Disclosure to be given for the aggregate amount of loan given during the year, and balance outstanding at the balance sheet date to parties other than subsidiaries, joint ventures and associates |
| iii (b) | Whether the terms and conditions of the grant of such loans are not prejudicial to the company’s interest (Clause iii (a) of CARO 2016) | Almost Similar to clause iii (a) of CARO 2016 |
| iii (c) | Whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are regular (Clause iii (b)) | Almost Similar to clause iii (b) of CARO 2016 |
| iii (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 (Clause iii (c)) | Almost Similar to clause iii (c) of CARO 2016 |
| iii (e) | Newly Inserted | 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 over dues 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. |
| iii (f) | Newly Inserted | 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; |
| iv | Almost same | Almost same |
| v | Almost same | Almost same |
| vi | Same | Same |
| vii (a) | Same | Same |
| vii (b) | Same | Same |
| viii | Newly Inserted | 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. |
| ix | 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 (in case of defaults to banks, financial institutions, and Government, lender wise details to be provided). (Clause viii) | 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 in provided format. ix (b) whether the company is a declared wilful defaulter by any bank or financial institution or other lender; ix (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. ix (d) whether funds raised on short term basis have been utilised for long term purposes, if yes, the nature and amount to be indicated. ix (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. ix (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; |
| x (a) | Same as x(a) | Same as ix |
| x (b) | Same as x(b) | Same as xiv |
| Xi (a) | Same as xi (a) | Same as x |
| xi (b) | Newly inserted | whether any report under sub-section (12) of section 143 of the Companies Act has been filed by the auditors in Form ADT-4 (Reporting of Fraud to Central Government) as prescribed under rule 13 of Companies (Audit and Auditors) Rules, 2014 with the Central Government; |
| xi (c) | Newly inserted | whether the auditor has considered whistle-blower complaints, if any, received during the year by the company; |
| xii (a) & (b) | Same as clause xii (a) & (b) of CARO 2020 | Same as clause xii of CARO 2016 |
| xii (c) | Newly inserted | whether there has been any default in payment of interest on deposits or repayment thereof for any period and if so, the details thereof (Clause is applicable for Nidhi Company) |
| xiii | Same as clause xiii of CARO 2020 | Same as clause xiii of CARO 2016 |
| xiv (a) | Newly inserted | whether the company has an internal audit system commensurate with the size and nature of its business |
| xiv (b) | Newly inserted | whether the reports of the Internal Auditors for the period under audit were considered by the statutory auditor; |
| xv | Same as clause xv of CARO 2020 | Same as clause xv of CARO 2016 |
| xvi (a) | Same as clause xiv (a) of CARO 2020 | Same as clause xiv of CARO 2016 |
| xvi (b) | Newly inserted | 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 |
| xvi (c) | Newly inserted | 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 |
| xvi (d) | Newly inserted | 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 |
| xvii | Newly Inserted | 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 |
| xviii | Newly Inserted | 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. |
| xix | Newly Inserted | 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. |
| xx (a) | Newly Inserted | whether, in respect of other than ongoing projects, the company has transferred unspent amount (Corporate Social Responsibility) 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. |
| xx (b) | Newly Inserted | 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 sub section (6) of section 135 of the said Act. |
| xxi | Newly Inserted | 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 |
