CARO 2020 vs. CARO 2016 – A Brief Comparison

Companies Audit Report Order (CARO) is a format prescribed by the ministry of corporate affairs (MCA) for the issue of Statutory Audit reports of companies as per the Companies Act, 2013. The MCA has announced a new format for CARO on 25th February 2020 that is CARO 2020 and it will replace the earlier version of CARO 2016 effective from 1st April 2021.

To whom the CARO 2020 will be applicable?

CARO 2020 will be applicable for all the statutory audits starting after 1st April 2021. It is applicable to all the companies except the ones given below:

• Banking Companies
• Companies incorporated for Charitable activities
• Insurance companies
• One person companies
• Companies with Paid-up capital <= 50 Lacs and Turnover <= 2 crore
• Private Limited Companies whose:
  • Turnover <= 10 crore
  • Paid-up share capital and reserve <= 1 crore
  • Borrowings <= 1 crore
  • Not a subsidiary or holding of a public company

Changes in CARO 2020 as compared to CARO 2016

Clause-1 Property, Plant, Equipment, and Intangible Assets

1. Additional comments to be provided for maintenance of proper records for intangible assets.
2. To Declare whether or not all the immovable properties are disclosed in the financial statements are held in the name of the reporting entity.
3. Reporting to be done separately for revaluation of 10% or more, and to see whether the same is done by a registered valuer or not.
4. Benami property and related proceedings pending should be disclosed.

Clause-2 Inventory

1. Materiality is defined as 10% or more in the CARO 2020 which was not there in CARO 2016.
2. Check and report for any deviations in a quarterly statement submitted by the company to the bank for working capital loans, and to see and to verify whether the company has been sanctioned a loan in excess of ₹ 5 crores during any time in the financial year.

Clause-3 Investments, Loans, Guarantees, Securities and Advances

1. Financial transactions now will include the loan given to any party which was previously been restricted to parties covered under section 189 only.
2. To report the sanction of new or fresh loans to repay the existing loans.
3. To report whether the company is regular in depositing the GST dues.
4. Non-payment of advance taxes on time will also be constituted as a default to be reported.

Clause-5 Deposits

Word Deemed to be deposits is added.

Clause-7 Statutory Dues

Word Goods and Service Tax (GST) is added.

Clause-8 Disclosed and Surrendered Income

Whether any transaction not reported is disclosed in the income tax assessments and auditor to report whether the same is correctly accounted for in the books of the current year.

Clause-9 Borrowings

1. Word Payment of Interest & Any Lender is added.
2. Disclosure of whether the company is declared as a willful defaulter.
3. Disclosure of whether the fund is raised on a short-term basis and utilized for long-term purposes.
4. Disclosure of whether the company has raised loans during the year on the pledge of securities held in its subsidiaries, joint ventures, or associates.

Clause-11 Fraud

1. Word Officers or employees is deleted.
2. Whether any report under Section 143 (12) of the Companies Act is filed by the auditors in Form ADT-4 with the Central Government.
3. Whether the auditor has considered any whistleblower complaints for the year.

Clause-12: Nidhi Company

Disclosure of whether the Nidhi company has defaulted in payment of interest on deposits or repayment thereof for any period.

Clause-14: Internal Audit

1. To comment upon whether the company proper internal audit system in place as per the size of the entity.
2. Disclosure of whether the report of Internal Auditor is considered by the Statutory Auditor.

Clause-16: RBI Regulations

Disclosure on whether the company has conducted any Non-Banking Financial or Housing Finance activities without a valid Certificate of Registration from the Reserve Bank of India.

Clause-17 Cash Losses

Disclosure on whether the company has incurred cash losses in the financial year and the immediately preceding financial year.

Clause-18 Auditor’s Resignation

Whether there is any resignation of statutory auditor during the year and whether the auditor considered the objections raised by the going auditor.

Clause-19 Capability to pay Liabilities

To ascertain whether the company is capable of meeting its liabilities existing at the date of the balance sheet when they fall due within a period of one year from the date of the balance sheet.

Clause-21 Consolidated Financial Statement

Whether there are any 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, details of the companies and the paragraph numbers of the CARO report containing the qualification or adverse remarks should be reported.