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The Ministry of Corporate Affairs or MCA issued the Companies (Auditor’s Report) Order or CARO 2020 in supersession of Companies (Auditor’s Report) Order 2016 vide Notification dated 25.02.2020. It will come into force from the date of its publication in the Official Gazette. MCA after consulting the National Financial Reporting Authority, which was constituted under Section 132 of the Companies Act, 2013 replaced the existing Companies (Auditors Report) Order, 2016 by CARO 2020. CARO 2020 applies to all the companies, including foreign companies. According to this order, every report of the auditor prescribed in Section 143 of the Companies Act, 2013 must contain the matters as specified in paragraphs 3 and 4 of the order. This rule will not apply in case of consolidated financial statements of the auditors. Basically, CARO 2020 is introduced to bring financial discipline in audits. The Government, through this regulation, has asked the auditors to provide details like loans given by the company, to report the complaints of the whistle-blower, and to assess the internal audit mechanism of firms. CARO 2020 applies to all companies except those mentioned in its negative list. The rules will apply to the audit reports for the financial years commencing on or after April 1, 2019.
Table of Contents
The auditor’s report on
the accounts of a company on which CARO 2020 applies shall include a statement
on the following matters:-
Reports related to Nidhi Company compliances to meet out the liability:
• The ratio of Net owned funds to deposits must be 1:20.
• Maintenance of term deposits.
• Default in payment of interest on deposits or repayment (if any).
The CARO 2020 is expected to improve the overall quality of reporting by the Auditors on the financial statements of the companies which will lead to greater transparency and faith in the financial affairs of the companies. This is automatically expected to bring a greater inflow of investment by and in Indian companies. Auditors are now required to comment on 21 matters in CARO 2020 including sub-clauses, as against 16 matters in 2016. The clauses of CARO 2016 have been redrafted to ask the auditors to provide details such as immovable properties whose title deeds are not held in the name of the company but are disclosed in the financial statements.
Also, Read: CARO 2016- Applicability & Reporting Requirements.
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