MINISTRY OF CORPORATE AFFAIRS vide notification dated 25th February 2020, has published Companies (Auditor’s Report) Order, 2020.
It shall apply to all companies including a foreign company as defined in clause (42) of section 2 of the Companies Act, 2013 (18 of 2013) except:
(i) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(ii) an insurance company as defined under the Insurance Act,1938 (4 of 1938);
(iii) a company licensed to operate under section 8 of the Companies Act;
(iv) a One Person Company as defined in clause (62) of section 2 of the Companies Act and a small company as defined in clause (85) of section 2 of the Companies Act; and
(v) a private limited company, not being a subsidiary or holding company of a public company, having a paid up capital and reserves and surplus not more than one crore rupees as on the balance sheet date and which does not have total borrowings exceeding one crore rupees from any bank or financial institution at any point of time during the financial year and which does not have a total revenue as disclosed in Scheduled III to the Companies Act (including revenue from discontinuing operations) exceeding ten crore rupees during the financial year as per the financial statements.
You can Download the whole Order HERE.
The Major amendments to CARO, 2020 include:
- The number of clauses have been increased to 21 from 16 as compared to CARO, 2016.
- More or less each and every clause of CARO have been re-drafted.
- In fixed asset clause a new table has been introduced for properties which are held by company other than the one under lease and whose title deeds are not with the company.
- In clause (ii) auditor has to give details whether during any point of time of the year, the Company has been sanctioned working capital limits in excess of Rs. 5 crores, in aggregate, from banks or financial institutions on the basis of security of current assets; whether the quarterly returns or statements filed by the Company with such banks or financial institutions are in agreement with the books of account of the Company. If not, give details.
- A specific format has been prescribed in clause (ix) to report the period and the amount of default by the company in repayment of loans or other borrowings or in the payment of interest thereon to any lender.
New Clauses inserted:
- In clause (xvii) auditor needs to mention 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.
- In clause (xviii) auditor needs to mention 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?
- In clause (xix) auditor needs to mention 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.
- In clause (xx) auditor needs to mention whether, in respect of other than ongoing projects, the company has transferred unspent amount 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 and 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.
- In clause (xxi) auditor needs to mention 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.
In addition to above auditor also needs to mention where, in the auditor’s report, the answer to any of the questions referred to in CARO clauses is unfavourable or qualified, the auditor’s report shall also state the basis for such unfavourable or qualified answer, as the case may be.
Where auditor is unable to express an opinion, his report shall indicate such fact along with the reason that why is it not possible for him to express an opinion.
You can download the CARO comparison chart from HERE.
If you need assistance you can ask a question to our expert and get the answer within an hour or post a comment about your views on the post and also subscribe to our newsletter for latest weekly updates.