The Ministry of Corporate Affairs
has issued Companies (Auditor’s Report) Order, 2016
on 29th March 2016 which has replaced the CARO, 2015. CARO, 2016
has introduced many new reporting requirements.
Applicability
CARO, 2016 is applicable for
financial years commencing on or after April 1, 2015. CARO, 2016 is applicable to all companies
including Foreign Companies except the following:
1. Insurance Companies
2. Banking Companies
3. Companies registered under
Section 8 of the Companies Act, 2013
4. One Person Companies
5. Private Companies if:
a. It is not subsidiary or holding
Company of a Public Company and
b. The Paid Up Capital and Reserve
and Surplus is not more than rupees One Crore as on Balance Sheet date and
total borrowings not exceeding Rupees One Crore at any time during the year and
Total Revenue does not exceeding rupees ten crore during the financial year.
- It is specifically not applicable to Auditor’s Report on Consolidated Financial Statements.
Paragraph 3 of the Order states the
matters to be included in the Auditor’s Report. CARO,
2016 has provided some new reporting requirements and has omitted
some reporting requirements which were there in CARO, 2015.
Clause wise Amendments-
CARO, 2016 has introduced following
changes in existing reporting requirements/ New reporting requirements:
a. Fixed Assets –
New Sub-Clause under the clause of
fixed assets that whether the title deeds of immovable properties are held in
the name of the company and if not then its details
b. Inventory-
Reporting Requirement for
“Maintaining Proper Record of Inventory” and “Procedure of Physical
verification of Inventory” has been removed.
c. Loans Given by Company-
Under Clause of Loans granted to
parties there are three changes
i. LLPs have been included in list
of Parties
ii. Reporting of amount overdue for
more than ninety days, and whether reasonable steps have been taken by the
company for recovery of the principal and interest. Limit of Rs. 100,000 have
been removed.
iii. It is also required to be
stated that whether the terms and conditions of the grant of such loans are not
prejudicial to the company’s interest.
d. Compliance of Section 185 and
186- This is a
new Clause where it is required to be stated that whether provisions of section
185 and 186 of the Companies Act, 2013 have been complied with or not. In case
of non-compliance, details are required to be reported.
e. Acceptance of Deposit-
There is no Change. The Auditor has
to report compliance with the directives issued by the Reserve Bank of India
and the provisions of sections 73 to 76 or any other relevant provisions of the
Companies Act, 2013 and the rules framed thereunder.
f. Maintenance of Cost Records-
There is no Change. The Auditor has
to report whether cost records are required to be maintained and if yes, then
whether they have maintained or not.
g. Payment of Statutory Dues-
Under the list of statutory dues,
“Wealth Tax” have been removed.
h. Repayment of Loans-
In clause related to repayment of
Loans, Government has been included in list of parties.
Also, in case of defaults to banks,
financial institutions, and Government, lender wise details is to be given.
i. End Use of fund raised-
Under this clause now money raised
through IPO/FPO is also included apart from term Loans.
j. Fraud by or on Company-
The scope of this clause has been
restricted. Earlier this clause covered a) Fraud by Company b) Fraud on
Company. Now Fraud on Company by Officers and Employees is required to be
covered which been Fraud on Company by third parties have been excluded.
k. Managerial Remuneration-
This is a new Clause where
compliance with provisions of section 197 read with Schedule V to the Companies
Act, 2013 is required to be reported. In case of non-compliance, amount and
steps taken by the company for securing refund is required to be stated.
l. Nidhi Company-
This is a new Clause wherein
a. the compliance by Nidhi Company
with the Net Owned Funds to Deposits in the ratio of 1: 20 to meet out the
liability and
b. the Nidhi Company is maintaining
ten per cent unencumbered term deposits as specified in the Nidhi Rules, 2014
to meet out the liability is required to be reported.
m. Related Party Transactions-
This is a new Clause where
compliance with provisions of section 177 and 188 of the Companies Act, 2013 is
required to be reported in case of related party transactions. Also the
disclosure in the Financial Statements as required by the applicable accounting
standards has to be reported.
n. Preferential Allotment or Private
Placement of Shares-
This is a new Clause where
compliance with provisions of section 42 of the Companies Act, 2013 is required
to be reported in case of preferential allotment or private placement of shares
or fully or partly convertible debentures during the year under review. Also,
End use of funds raised is required to be stated.
o. Non-cash transactions with
directors or persons connected with him-
If the company has entered into
Non-cash transactions with directors or persons connected with him it is
required to be reported that whether it has complied with section 192 of the
Companies Act, 2013.
p. Registration under section 45-IA
of the Reserve Bank of India Act, 1934- This is a new clause that whether Company his required to be
registered under section 45-IA of the RBI Act, 1934. If yes, then whether it
has obtained this registration.
Other Changes-
a. Requirement of adequate internal
control system for the purchase of inventory and fixed assets and for the sale
of goods and services have been removed.
b. Clause related to accumulated
losses at the end of the financial year are not less than fifty per cent of its
net worth is omitted.
c. Clause related to the amount
required to be transferred to investor education and protection fund is also
omitted.
Unfavourable or Qualified Answers
As per paragraph 4 of the order, if
the answer to any of the clauses is unfavourable or qualified, the auditor’s
report shall state:
- The basis for such unfavourable or qualified answer.
- If he is unable to express any opinion on any specified matter, then such fact along with the reasons as to why it is not possible for him to give his opinion on the same is required to be stated.
ICAI Guidance Note-
The Institute of
Chartered Accountants of India has issued Guidance Note on CARO 2016 on April
23, 2016. It
contains guidelines on requirements of CARO, 2016. It is divided into:
1. Relevant Provisions which contains
requirements of all clauses.
2. Audit Procedures and Reporting which
covers procedure to be adopted by auditor.
- See more at:
http://taxguru.in/company-law/caro-2016-reporting-requirements-clause-wise.html#sthash.ujJN4htv.dpuf
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