{"id":45288,"date":"2022-07-13T11:41:13","date_gmt":"2022-07-13T06:11:13","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=45288"},"modified":"2022-07-13T11:41:15","modified_gmt":"2022-07-13T06:11:15","slug":"applicability-of-caro-report-companies-auditors-report-order","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/applicability-of-caro-report-companies-auditors-report-order\/","title":{"rendered":"Applicability of CARO Report &#8211; Companies Auditor&#8217;s Report Order"},"content":{"rendered":"\n<p>Ministry of Corporate Affairs (MCA), on 25th February 2020, notified Companies (Auditor&#8217;s Report) Order 2020 (CARO, 2020) with consultation with <strong>National Financial Reporting Authority (NFRA)<\/strong><sup><a href=\"https:\/\/nfra.gov.in\/\"><strong>[1]<\/strong><\/a><\/sup>. This CARO 2020 has repealed CARO 2016.\u00a0<\/p>\n\n\n\n<p>Section 143(11) of Companies Act 2013 empowers Central Government to notify certain matters for inclusion in an auditor&#8217;s report for a specific class of companies. <a href=\"https:\/\/corpbiz.io\/learning\/tag\/caro-2020\/\"><strong>CARO 2020<\/strong><\/a> is issued with enhanced disclosure by the auditors in their audit report on the basis of recommendations made by a committee set up by the Ministry.\u00a0<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/applicability-of-caro-report-companies-auditors-report-order\/#Companies_Auditors_Report_Order_2020_CARO_2020\" >Companies (Auditor&#8217;s Report) Order 2020 (CARO,\n2020)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/applicability-of-caro-report-companies-auditors-report-order\/#Sub_section_11_of_Section_143_of_the_Companies_Act_2013\" >Sub section 11 of Section 143 of the Companies Act\n2013<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/applicability-of-caro-report-companies-auditors-report-order\/#Applicability_of_CARO_Report\" >Applicability of CARO Report<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/applicability-of-caro-report-companies-auditors-report-order\/#Applicability_of_CARO_Report_2020_and_2016\" >Applicability of CARO Report 2020 and 2016<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/applicability-of-caro-report-companies-auditors-report-order\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Companies_Auditors_Report_Order_2020_CARO_2020\"><\/span>Companies (Auditor&#8217;s Report) Order 2020 (CARO,\n2020)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>CARO 2020 is applicable on all reports issued by the statutory auditors on accounts of each company audited for financial years starting from or after 1st April 2021. Such CARO reports are issued under Section 143 of the Companies Act 2013.\u00a0<\/p>\n\n\n\n<p>The\u200b\u200b reporting requirements have been prescribed under\nthe Companies (Auditor&#8217;s Report) Order, 2015 (CARO, 2015) issued by the\nMinistry of Corporate Affairs on 10th \u200b\u200bApril 2015. Thereafter on the basis of the\nrecommendation of the Committee set up\u200b\u200b by the Ministry of Corporate Affairs, CARO, 2016\nwas issued on 9th February 2016. To reduce corporate fraud and scams, the\nMinistry of Corporate Affairs has now further issued CARO 2020 on 25th February\n2020. It is submitted that in the exercise of the powers conferred by sub-section\n(11) of section 143 of the Companies Act 2013 and in supersession of the\nCompanies (Auditor&#8217;s Report) Order, 2016, except things done or omitted to be\ndone before such supersession, Government, after consulting with National\nFinancial Reporting Authority (NFRA) constituted under section 132 of the\nCompanies Act, 2013, has prepared CARO, 2020.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Sub_section_11_of_Section_143_of_the_Companies_Act_2013\"><\/span>Sub section 11 of Section 143 of the Companies Act\n2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Applicability of the CARO report is dependent on\nsection 143 (11). Section 143 of Companies Act 2013, in its sub-section 11,\nstates that Central Government, in consultation with the NFRA, be general or\nspecial order may in respect of such specific class or description of companies\nas specified in the order that the auditor&#8217;s report includes any statement on\nthe matters as specified therein.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Applicability_of_CARO_Report\"><\/span>Applicability of CARO Report<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The CARO 2020 is the same as CARO 2016. It is\napplicable to all the companies to which CARO 2016 was applicable. However, it\nis not applicable to consolidated financial statements like CARO 2016. Ministry\nof Corporate Affairs has deferred the applicability of CARO 2020 from the\nfinancial year commencing from 1st April 2021 instead of 1st April 2020 as per\nits notification of 17th December 2020. It was done to ease the burden on\ncompanies and their auditors for the year 2020-21 amid coronavirus disease\n(Covid-19).&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Applicability of CARO Report: companies&nbsp;<\/h3>\n\n\n\n<p>CARO 2020 applies to all companies, including any\nforeign company, except for the followings:<\/p>\n\n\n\n<ul><li>One person company (OPC) as defined in clause (62) of section 2 of      the Companies Act 2013<\/li><li>Small companies (Companies with paid-up capital less than or equal      to Rs. 50 lakhs and with last turnover less than or equal to Rs. 2 crores)<\/li><li>Banking companies as defined under clause (c) of Section 5 of the Banking      Regulation Act 1949<\/li><li>Insurance companies, as defined under Insurance Act 1938<\/li><li>Companies registered for charitable purposes under Section 8 of the      Companies Act<\/li><li>Private companies with gross receipts or revenue (including revenue      from discontinuing operations) of more than Rs. 10 crores as per financial statements during the financial year.<\/li><li>Private companies with paid-up share capital and reserves and      surplus not more than Rs. 1 crore as on balance sheet date, i.e., at the      end of the financial year.<\/li><li>A private company that is not a holding or subsidiary of a public      company.<\/li><li>A private company that does not have total borrowings of more than      Rs. 1 crore from any financial institution, including banks, at any point time during the financial year<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Applicability of CARO Report: Matters<\/h3>\n\n\n\n<p>Applicability of CARO Report is on the following\nmatters:<\/p>\n\n\n\n<ul><li>Details of tangible (Property, Plant, Equipment) and intangible\n     assets<\/li><li>Details of investments, guarantees, security or advances or loans\n     granted.<\/li><li>Details of inventory and working capital<\/li><li>Compliance in respect of deposits accepted.<\/li><li>Compliance related to the loan to directors<\/li><li>Funds raised and utilisation.<\/li><li>Compliance with transactions with related parties<\/li><li>Compliance by Nidhi Company<\/li><li>Unrecorded income<\/li><li>Default in re-payment of borrowings<\/li><li>Maintenance of costing records<\/li><li>Deposit of statutory liabilities&nbsp;<\/li><li>Internal Audit System<\/li><li>No-cash dealings with directors<\/li><li>Funds raised by a company by way of an Initial Public Offer (IPO)<\/li><li>Registration under Section 45 IA of the RBI Act<\/li><li>Cash losses<\/li><li>The company does any fraud.<\/li><li>Transfer to fund specified under Schedule VII of Companies Act,\n     2013<\/li><li>Resignation of statutory auditors<\/li><li>Material uncertainty in meeting liabilities<\/li><li>Qualifications or adverse auditor reports in other group companies.<\/li><\/ul>\n\n\n\n<p>The Auditor&#8217;s Report Order is supposed to state the\nreasons for unfavourable or qualified answers, and also, if the auditor is\nunable to state any opinion on a particular matter, then in the report, he\nneeds to indicate such fact along with reasons why it is not possible for him\nto state any opinion on the same.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Applicability_of_CARO_Report_2020_and_2016\"><\/span>Applicability of CARO Report 2020 and 2016<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The applicability of CARO Report 2020 is similar to CARO 2016; however, it has 21 clauses, and CARO 16 has only 16 clauses. Seven new clauses are added, and nine clauses are re-drafted in CARO 2020. Only five clauses are left untouched\/unchanged in CARO 2020.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">New clauses added in CARO 2020<\/h3>\n\n\n\n<p>New clauses added under Companies (Auditor&#8217;s\nReport) Order, 2020 for applicability of CARO report are as follows:<\/p>\n\n\n\n<table class=\"table table-bordered\"><tbody><tr><td>\n  <strong>Clauses<\/strong>\n  <\/td><td>\n  <strong>CARO 2020<\/strong>\n  <\/td><\/tr><tr><td>\n  (viii)\n  <\/td><td>\n  Reporting requirements on disclosure of\n  transaction&nbsp; \n  <\/td><\/tr><tr><td>\n  (xiv)\n  <\/td><td>\n  Reporting requirements on internal audit\n  system consideration of report of internal audit by statutory auditor\n  <\/td><\/tr><tr><td>\n  (xvii)\n  <\/td><td>\n  Reporting requirements on cash losses in\n  financial year or immediately preceding financial year\n  <\/td><\/tr><tr><td>\n  (xviii)\n  <\/td><td>\n  Reporting requirements on auditors\u2019\n  resignation\n  <\/td><\/tr><tr><td>\n  (xix)\n  <\/td><td>\n  Reporting requirements on material\n  uncertainty in relation to financial assets and meeting its liabilities \n  <\/td><\/tr><tr><td>\n  (xx)\n  <\/td><td>\n  Reporting requirements on transfer of CSR\n  amount\n  <\/td><\/tr><tr><td>\n  (xxi)\n  <\/td><td>\n  Reporting requirements on adverse remark\n  or any qualification in consolidates financial statement by auditors\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h3 class=\"wp-block-heading\">Modified Clauses of CARO 2016 in CARO 2020<\/h3>\n\n\n\n<p>Certain clauses of CARO 2016 are modified\nin CARO 2020 for the applicability of the CARO report, and such modified\nclauses are as follows:<\/p>\n\n\n\n<table class=\"table table-bordered\"><tbody><tr><td>\n  <strong>Clauses<\/strong>\n  <\/td><td>\n  <strong>CARO 2020<\/strong>\n  <\/td><\/tr><tr><td>\n  (i)\n  <\/td><td>\n  Reporting requirements on property,\n  plants and equipment and intangible assets\n  <\/td><\/tr><tr><td>\n  (ii)\n  <\/td><td>\n  Reporting requirement on physical\n  verification of inventory, any discrepancies of 10% or more in aggregate.\n  Compliances if company was sanctioned working capital limits. Quarterly\n  returns or statements filed\n  <\/td><\/tr><tr><td>\n  (iii)\n  <\/td><td>\n  Reporting requirements on investments in\n  or providing of any guarantee or security or granting any loans or advances\n  in nature of loan.\n  <\/td><\/tr><tr><td>\n  (v)\n  <\/td><td>\n  Reporting requirements on compliances\n  with RBI directives and provisions of Companies Act with respect to deposits\n  or deemed deposits\n  <\/td><\/tr><tr><td>\n  (ix)\n  <\/td><td>\n  Reposting requirements on default in\n  repayment, will defaulter, utilisation of term loan other than purpose it was\n  taken for, utilisation of fund raised, funds taken to meet obligations and\n  loans raised on pledge of securities \n  <\/td><\/tr><tr><td>\n  (x)\n  <\/td><td>\n  Reporting requirements on utilisation of\n  money raised by way of IPO or further public offer during the year were\n  applied for purpose for which those are raised preferential allotment or\n  private placement of share or fully, partially or optionally convertible\n  debenture during the year (Section 42 and 62 of Companies Act 2013)\n  <\/td><\/tr><tr><td>\n  (xi)\n  <\/td><td>\n  Reporting requirement on notice of fraud.\n  Treatment of whistle-blower complaints. Report under section 143 (12) \n  <\/td><\/tr><tr><td>\n  (xii)\n  <\/td><td>\n  Reporting requirement on net owned funds\n  to deposits of Nidhi Company, default in the payment or re-payment of\n  interest on deposits.\n  <\/td><\/tr><tr><td>\n  (xvi)\n  <\/td><td>\n  Reporting requirements on registration under\n  section 45 IA of RBI Act 1934. About registration, NBFC activities or housing\n  finance activities without valid certificate of registration. Criteria of\n  Core Investment Company (CIC) \n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h3 class=\"wp-block-heading\">Clauses of CARO 2016 remain unchanged in CARO 2020<\/h3>\n\n\n\n<p>The clauses of CARO 2016 that remain\nuntouched or unchanged in CARO 2020 for applicability in the CARO Report are as\nfollows:<\/p>\n\n\n\n<table class=\"table table-bordered\"><tbody><tr><td>\n  <strong>Clauses<\/strong>\n  <\/td><td>\n  <strong>CARO 2020<\/strong>\n  <\/td><\/tr><tr><td>\n  (iv)\n  <\/td><td>\n  Reporting requirements on the compliances\n  of sections 185 and 186 of the Companies Act, 2013 in matters related to\n  loans, investments, guarantees and security\n  <\/td><\/tr><tr><td>\n  (vi)\n  <\/td><td>\n  Reporting requirements on maintenance of\n  cost records\n  <\/td><\/tr><tr><td>\n  (vii)\n  <\/td><td>\n  Reporting requirements on statutory dues\n  <\/td><\/tr><tr><td>\n  (xiii)\n  <\/td><td>\n  Reporting requirements on transaction\n  with related parties\n  <\/td><\/tr><tr><td>\n  (xv)\n  <\/td><td>\n  Reporting requirements on no-cash\n  transactions with director or any person connected with him\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Applicability of CARO Report 2020 is for audits of the financial year 2021-2022 and onwards. Applicability of the CARO Report is also dependent on the type of companies as there are certain kinds of companies over which this does not apply, such as banking and insurance companies. For the applicability of the CARO report, some extra clauses have been added, and some of the clauses from CARO 2016 are modified, though some of them are not changed.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our Article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/caro-2020-new-norms-issued-for-auditors\/\">CARO 2020: New Norms Issued for Auditors<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Ministry of Corporate Affairs (MCA), on 25th February 2020, notified Companies (Auditor&#8217;s Report) Order 2020 (CARO, 2020) with consultation with National Financial Reporting Authority (NFRA)[1]. This CARO 2020 has repealed CARO 2016.\u00a0 Section 143(11) of Companies Act 2013 empowers Central Government to notify certain matters for inclusion in an auditor&#8217;s report for a specific class [&hellip;]<\/p>\n","protected":false},"author":36,"featured_media":45293,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[128],"tags":[2499],"acf":{"service_id":"230"},"authorName":"Shambhavi Suyesha","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/03\/IMG-20220324-WA0005.jpg","authorDescription":"Shambhavi holds a strong legal background, having completed her BA LLB and LLM. She is particularly interested in legal research and writing, and wishes to utilise her knowledge to create informative legal content. She is an analytical researcher and keeps herself updated about the current legal affairs. She also holds prior experience in publishing articles on assorted legal areas.","postViews":81908,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/45288"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/36"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=45288"}],"version-history":[{"count":16,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/45288\/revisions"}],"predecessor-version":[{"id":45306,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/45288\/revisions\/45306"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/45293"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=45288"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=45288"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=45288"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}