{"id":60,"date":"2020-03-05T07:37:42","date_gmt":"2020-03-05T07:37:42","guid":{"rendered":"https:\/\/pkchopra.com\/blog\/?p=60"},"modified":"2024-03-12T10:16:47","modified_gmt":"2024-03-12T10:16:47","slug":"detailed-comparison-of-caro-2016-with-caro-2020","status":"publish","type":"post","link":"https:\/\/pkchopra.com\/blog\/index.php\/detailed-comparison-of-caro-2016-with-caro-2020\/","title":{"rendered":"Detailed comparison of CARO 2016 with CARO 2020"},"content":{"rendered":"<p>In pursuance of its objective of strengthening the corporate governance framework under the\u00a0<strong>Companies Act, 2013<\/strong>\u00a0to attain the national objective of becoming a $ 5 Trillion economy, powers conferred under sub-section (11) of section 143 of the Companies Act, 2013 and in supersession of the Companies (Auditor\u2019s Report) Order, 2016, the Central Government has notified the\u00a0<strong>Companies (Auditor\u2019s Report) Order, 2020 (CARO 2020)<\/strong>\u00a0on 25<sup>th<\/sup>\u00a0Feb, 2020.<\/p>\n<p>The\u00a0CARO, 2020\u00a0is applicable for an audit of financial statements of eligible companies for the financial years commencing on or after the 1st April 2019. The criteria of eligibility of companies on which the CARO, 2020 shall be applicable has not been changed and hence it shall be applicable to all those companies on which CARO, 2016 was applicable. CARO 2020 would necessitate enhanced due diligence and disclosures on the part of auditors of eligible companies and has been designed to bring in greater transparency in the financial state of affairs of such companies.<\/p>\n<p>The CARO, 2020 includes certain additional clauses, as compared to CARO, 2016, and the existing clauses of CARO, 2016 have been re-drafted to elicit detailed comments from the auditors. A brief analysis is given below:<\/p>\n<p><strong>1. Fixed Assets:<\/strong><\/p>\n<ul>\n<li>In clause (i)(a): The word \u201cFixed assets\u201d is replaced by \u201cProperty, Plant and Equipment\u201d and \u201cIntangible asset\u201d separately.<\/li>\n<li>New clause (i)(a)(B) has been inserted to report whether proper records have been maintained showing\u00a0<strong>full particulars of intangible assets.<\/strong><\/li>\n<li>New clause (i)(c): A specific format has been provided for reporting the details of such immovable properties (<strong>other than properties where the company is the lessee and the lease agreements are duly executed in favor of the lessee<\/strong>) whose title deeds are not held in the name of the company but are disclosed in the financial statements.<\/li>\n<\/ul>\n<table width=\"564\">\n<tbody>\n<tr>\n<td width=\"115\">Description of property<\/td>\n<td width=\"115\">Gross carrying value<\/td>\n<td width=\"115\">Held in the name of<\/td>\n<td width=\"115\">Whether promoter, director or their relative or employee<\/td>\n<td width=\"115\">Period held \u2013 indicate range, where appropriate<\/td>\n<td width=\"115\">Reason for not being held in the name of the company<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<ul>\n<li>New clause (i)(d): will be applicable if there is revaluation of fixed asset by registered valuer. Amount to be specified if\u00a0<strong>deviation is 10% or more<\/strong>.<\/li>\n<li>New clause (i)(e): Disclosure of details of proceedings against the company for holding\u00a0<strong>Benami Property<\/strong>\u00a0and whether the company has disclosed the details in its financial statements.<\/li>\n<\/ul>\n<p><strong>2. Inventory<\/strong><\/p>\n<ul>\n<li><strong>Clause (ii)(a) Expanded<\/strong>: Auditor is required to comment on coverage and procedure of inventory verification by management.<\/li>\n<\/ul>\n<p>Also Materiality has been defined as 10% or more in each class of Inventory.<\/p>\n<ul>\n<li><strong>New clause(ii)(b):<\/strong>\u00a0If the company has any working capital facility against current assets in excess of Rs. 5 crores at any time during the year, then the auditor has to confirm whether the quarterly submissions made to the lenders are in conformity with the books of accounts or not.<\/li>\n<\/ul>\n<p><strong>3. Loans granted<\/strong><\/p>\n<ul>\n<li>Modified clause(iii) of CARO, 2020: Details of all loans granted, advances in the nature of loans granted,\u00a0<strong>guarantees\/ security<\/strong>\u00a0given to any entity has to disclosed. This will not be applicable to companies whose principal business is to give loans.<\/li>\n<li>Details of loans which were renewed, extended or fresh loans are granted to settle overdue of existing loans given to same parties to be given. Inter alia percentage of such loans to aggregate loans granted is also to be given.<\/li>\n<li>Details of all loans or advances which are repayable on demand or without any stipulated period of repayment has to be disclosed.<\/li>\n<\/ul>\n<p><strong>4. Loans, investments, guarantees, and security\u00a0<\/strong>(Section 185 and 186 of Companies Act, 2013) : There is no change in CARO 2016<\/p>\n<p><strong>5. Deposits:<\/strong>\u00a0There is no change in CARO 2016<\/p>\n<p><strong>6. Cost records:<\/strong>\u00a0There is no change in CARO 2016<\/p>\n<p><strong>7. Statutory Dues:<\/strong>\u00a0There is no change in CARO 2016<\/p>\n<p><strong>8. Default in repayment<\/strong>\u00a0of loan or borrowings:<\/p>\n<ul>\n<li><strong>Modified clause (<\/strong><strong>ix)(a)<\/strong>: Defaults in repayment of principal or interest portion of\u00a0<strong>ANY loan\u00a0<\/strong>or other borrowings are now to be reported. Earlier defaults in loans from specified lenders like financial institutions, banks, Government or debenture holders were to be reported.<\/li>\n<\/ul>\n<p>A specific format below has been prescribed 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\u00a0<strong>any lender:<\/strong><\/p>\n<table width=\"535\">\n<tbody>\n<tr>\n<td width=\"126\">Nature of\u00a0 borrowing\u00a0 including\u00a0debt securities<\/td>\n<td width=\"88\">Name of lender<\/td>\n<td width=\"107\">Amount not paid on due date<\/td>\n<td width=\"108\">Whether principal or interest<\/td>\n<td width=\"105\">No. of days delay or unpaid<\/td>\n<td width=\"108\">Remarks, if any<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<ul>\n<li><strong>Newly inserted:<\/strong>\n<ul>\n<li><strong>Clause<\/strong><strong>(ix)(b)<\/strong>: Auditor has to report if the company is declared a WILFUL DEFAULTER by the bank, financial institution or any other lender.<\/li>\n<li>(ix)(c) Auditor to report whether term loans are applied for the purpose for which they were obtained<\/li>\n<li>(ix)(d) Auditor to report if funds raised for short term have been utilized for long term purposes.<\/li>\n<li>(ix)(e) If the company has taken any funds on account of meeting the liabilities of subsidiaries, joint ventures or associates, then such transaction details are to be reported.<\/li>\n<li>(ix)(f) Auditor to report if the company has availed loans on pledge of securities held in its subsidiaries, joint ventures or associates.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>9. Public offer:\u00a0<\/strong>Clause (xiv) of CARO 2016 regarding preferential allotment of shares has been merged in clause (x)(a) of CARO 2020<\/p>\n<p><strong>10. Fraud by\/on company: Modified Clause (xi)<\/strong><\/p>\n<p>(a) Earlier, auditor had to report on any fraud on the company done by its officer or employee. This specification has been removed. Now\u00a0<strong>ANY fraud<\/strong>\u00a0by the company or on the company has to be reported by the auditor.<\/p>\n<p>(b) If any reporting of fraud has been filed by the auditor under 143(12) of the Companies Act, 2013 then such reporting has to be disclosed here also.<\/p>\n<p>(c) Auditor has to disclose if he considered any whistle blower complaint received by the company during the year.<\/p>\n<p><strong>11. Managerial Remuneration<\/strong>: Clause (xi) of CARO 2016 has been removed in CARO 2020.<\/p>\n<p><strong>12. Nidhi Company<\/strong>: Defaults in repayment of principal or interest portion of deposits now to be reported in newly inserted clause (xii)(c)<\/p>\n<p><strong>13. Related Party Transactions<\/strong>: There is no change in CARO 2016<\/p>\n<p><strong>14. Internal Audit: New clause(xiv) inserted<\/strong>\u00a0under which auditor has to report whether-<\/p>\n<p>(a) Company has internal audit system commensurate to the size of the company.<\/p>\n<p>(b) Such internal audit report has been considered by the auditor to reach his Opinion<\/p>\n<p><strong>15. Non-cash Transactions:\u00a0<\/strong>There is no change in CARO 2016<\/p>\n<p><strong>16.\u00a0<\/strong><strong>RBI Registration:<\/strong>\u00a0<strong>New clause (xvi)<\/strong>\u00a0has been inserted in CARO 2020. Accordingly, auditor has to comment if the company has done any NBFC activity without valid registration from RBI.<\/p>\n<p>Whether the company is fulfilling the criteria of Core Investment Company (CIC) or exempted CIC, is to be reported by the auditor<\/p>\n<p>If the company has more than one company as part of the group, then the number of CICs which are part of the group are to be reported.<\/p>\n<p><strong>17. Cash losses:<\/strong>\u00a0<strong>New clause (xvii)<\/strong>\u00a0has been inserted in CARO 2020.<\/p>\n<p>If the company has incurred cash losses for 2 consecutive years, then the amount of such cash losses are to be reported.<\/p>\n<p><strong>18. Resignation of auditor<\/strong>: Newly inserted clause (xviii)<\/p>\n<p>The current auditor to report if he has taken into consideration the issues, objections or concerns raised by the outgoing auditor, in case the outgoing auditor had resigned during the year.<\/p>\n<p><strong>19. Material uncertainty<\/strong>: Newly inserted clause (xix)<\/p>\n<p>Auditor has to comment whether material uncertainty with regards to company meeting its liabilities is existing at the Balance Sheet date as and when they fall due for the next one year on the basis of:<\/p>\n<p>(a) Financial ratios<\/p>\n<p>(b) Ageing &amp; expected realization dates of financial assets &amp; liabilities<\/p>\n<p>(c) Other information accompanying the financial statements<\/p>\n<p>(d) Knowledge of the Board and Management Plans<\/p>\n<p><strong>\u00a020.\u00a0<\/strong><strong>Corporate Social Responsibility: Newly inserted clause (xx)\u00a0<\/strong>regarding transfer of unspent CSR funds to a specified fund within 6 months from the expiry of the F.Y. is to be reported.<\/p>\n<p><strong>21. Qualifications<\/strong>\u00a0or adverse remarks by auditor in CFS: clause(xxi)<\/p>\n<p>Auditor has to report whether there have been any qualifications or adverse remarks by the respective auditors in the Companies (Auditor\u2019s Report) Order (CARO) reports of the companies included in the consolidated financial statements and details of those companies thereof.<\/p>\n<p><strong>Closing Thoughts<\/strong><\/p>\n<p>The CARO, 2020 is expected to significantly improve the overall quality of reporting by the Auditors on the financial statements of the Companies and thereby lead to greater transparency and faith in the financial affairs of the companies. This is automatically expected to bring greater inflow of investment by and in Indian companies.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In pursuance of its objective of strengthening the corporate governance framework under the\u00a0Companies Act, 2013\u00a0to attain the national objective of becoming a $ 5 Trillion economy, powers conferred under sub-section (11) of section 143 of the Companies Act, 2013 and in supersession of the Companies (Auditor\u2019s Report) Order, 2016, the Central Government has notified the\u00a0Companies &hellip;<\/p>\n","protected":false},"author":1,"featured_media":61,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_seopress_robots_primary_cat":"","_seopress_titles_title":"","_seopress_titles_desc":"","_seopress_robots_index":""},"categories":[12],"tags":[21],"_links":{"self":[{"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/60"}],"collection":[{"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=60"}],"version-history":[{"count":2,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/60\/revisions"}],"predecessor-version":[{"id":63,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/60\/revisions\/63"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/media\/61"}],"wp:attachment":[{"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=60"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=60"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/pkchopra.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=60"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}