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This article is primarily intended to highlight the differences between CARO 2020 and CARO 2016. CARO 2020 stands for Companies (Auditor’s Report) Order, 2020. Section 143 of the Companies Act, 2013 states that auditors are mandated to report on the matters entailed in CARO. CARO is an order which lists down the matters deemed necessary by the Ministry of Corporate Affairs (MCA) on which the auditors are required to comment in their audit reports.
CARO was implemented to drive forward the MCA’s objective that the financial statements of certain entities must be accompanied by reports on some material issues as opined by the auditors. The auditors of companies on which CARO is applicable are required to comment on the clauses enumerated in the CARO order after performing necessary audit procedures for verification. CARO 2020 has been issued in the supersession of CARO 2016.
Table of Contents
subsumed in CARO 2020 are shown in the below-mentioned sections in comparison to
the matters covered in CARO 2016:
Applicability of CARO
2016: It is applicable
to all companies (including foreign company), except:
1. Banking & Insurance companies;
2. Company registered u/s 8 of the Companies
3. One Person Company and small company;
4. A Private Ltd. Company:
2020: CARO 2020 has
superseded CARO 2016 and is applicable from the financial year 2019-20. The
applicability is same as CARO 2016.
CARO 2016 was not applicable to consolidated financial statements. However,
CARO 2020 comprises a clause which is now applicable to auditor’s report on
CFS.According to this clause, where
any qualifications or adverse remarks are highlighted by the auditors in their respective
standalone companies’ CARO reports, then the details of such remarks are to be mentioned
by the auditor of the company in his CARO report of CFS.
Paragraphs: Modified (The matters to be reported by the auditors are those as contained in Paragraphs 3 and 4 of CARO.)
Reporting on Fixed Assets: Modified
CARO 2016 focuses on reporting requirements of all
CARO 2020 accords more focus on Property, Plant, Equipment
(PPE) and intangible assets (in parlance with the terminology of IND-AS).
Reporting on Benami Transactions: Inserted
Reporting on Working capital: Inserted
Reporting on Investments, loans and advances given: Modified
Reporting on deposits: Modified
Reporting on Transactions not recorded: Inserted
Reporting on Defaults in repayment: Modified
Reporting on Whistle-blower complaints: Inserted
Reporting on Internal audit: Inserted
Reporting on Cash losses: Inserted
Reporting on Resignation of statutory auditors: Inserted
Reporting on Uncertainty to meet liabilities: Inserted
Reporting on CSR: Inserted
Reporting on Inventory: Modified
Reporting on Statutory Dues: No change
CARO 2020: Same provisions as CARO 2016.
Reporting on Fraud: Modified
Cost Records: No change
Reporting on Managerial Remuneration: Omitted
Reporting on Public Offer: No Change
Reporting on Nidhi company: Modified
Reporting on Related Party Transactions: No change
Registration under RBI: Modified
Reporting on Non-cash transactions: No change
Reporting on Private Placement or Preferential Allotment: No change
Paragraph 4: No change
*Note A – Details of Title Deeds as prescribed under CARO 2020
** Note B – Details of Default in repayment as prescribed under CARO 2020
Looking at the circumstances which have led to the introduction of CARO 2020, we have been besieged by a number of corporate failures (especially IL&FS) and a whole boost of exposure to corporate frauds as witnessed under IBC, which has triggered CARO 2020. It is a very decisive and concerted effort to bring in more accountability, corporate trusteeship, and transparency and to use the auditors as a via media to ensure corporate governance.
A different feature of CARO 2020 is the enhanced due diligence responsibility on the auditors. A typical auditor is concerned about the truth and fairness of the FS; however, CARO 2020 covers many governance issues on which the MCA requires the auditors to comment. The audit has been used as a mechanism to control corporate misgovernance. The auditors have to state more details under CARO 2020 in order to strengthen the accountability of the management through the mouth of the auditor.
following are some important changes in CARO 2020 which strive to assert a
greater level of due diligence:
Also, Read: CARO 2020-New Audit Rules Introduced to Enhance Due Diligence of Auditors
A CA together with MBA (Fin) and M Com, she relishes taking interest in insightful writing in the domain of taxation and finance. She has gained experience as a full-time author and has also served an accounting role in industry.
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