CARO 2016 – Companies Auditor Report Order Rules
CARO 2016 requires that the auditor’s report of specified companies should include a statement on certain prescribed matters as provided under the Companies Act, 2013. These requirements with respect to the Auditor’s Report have been provided under the Companies Auditor Report Order (CARO) Rules. In this article, we look at the various requirements placed on an Auditor under CARO 2016 rules.
CARO 2016 Applicability
CARO 2016 is not applicable on all audit reports issued by a Chartered Accountant for a company. CARO is only applicable to certain types of companies registered in India including a foreign company. CARO is applicable for the following types of companies:
- Companies with a paid-up capital of more than Rs.100 lakhs.
- Companies having a borrowing of more than Rs.1 crore from any bank and financial institution at any point of time during the financial year.
- Companies which are a subsidiary or holding company.
- Companies which have a total revenue exceeding Rs.10 crore during the financial year.
Companies Not Under the Purview of CARO
The following companies are outside the purview of Companies Auditor Report Order Rules (CARO). Hence, any Auditor issuing an audit report for any of the following company need not follow CARO requirements:
- Banking company
- Insurance company
- Section 8 Company
- One person company
- Private Limited Company that is defined as Small Company under the Companies Act, 2013.
CARO 2016 vs CARO 2015
The MCA in the CARO 2016 order has made some changes to the requirements. CARO 2016 additionally now requires the following information to be included:
- Information about fixed assets
- Loans to related parties
- Adequate internal control (Not required as per CARO 2016)
- Loan Guarantee Security
- Cost Records
- Statutory Dues
- Accumulated Losses (Not Required as per CARO 2016)
- Repayment of loan
- Guarantees (Not Required as per CARO 2016)
- Term loans
- Fraud reporting
- Managerial Remuneration – (Newly added to CARO 2016)
- Nidhi Company -(Newly added to CARO 2016)
- Related party transaction -(Newly added to CARO 2016)
- Private placement -(Newly added to CARO 2016)
- Non-cash transaction -(Newly added to CARO 2016)
- NBFC – (Newly added to CARO 2016)
MCA CARO 2016 Notification
The order issued by the Ministry of Corporate Affairs with respect to CARO 2016 is reproduced below for reference:CARO 2016
CARO 2016 Report Format
The following are major areas that must be provided in the Auditor Report under CARO. If in the auditor’s report, the answer to any of the questions are unfavourable or qualified, the auditor’s report should also state the basis for such unfavourable or qualified answer. Finally, if the auditor is unable to express any opinion on any specified matter, the auditor report must indicate the fact along with the reasons as to why it is not possible for him to give his opinion on the same.
Following matters should be included in the Auditor’s Report relating to the Fixed Assets of the company:
- Proper Records: Whether the company is maintaining proper records, including quantitative details and situation of the fixed assets.
- Physical Verification: Whether such assets have been physically verified by the management at reasonable intervals. Such intervals may vary from asset to asset. Whether any discrepancies came into the notice on the verification, if so whether the same have properly dealt with in the books of the accounts.
- Title Deeds: Whether the title deeds of the immovable property is in the name of the company. If not, provide the details, thereof;
Following matters should be included in the Auditor’s report relating to the inventory of the company:
- Whether physical verification of the inventory has been made at regular intervals by the management, and during such verification if any material discrepancies were noticed whether the same have been properly accounted for.
- Whether proper records of inwards and outwards of inventory has been maintained.
Loan Given by Company
Whether the company has granted any loans(secured or unsecured) to companies, firms, Limited Liability Partnership (LLP) or other parties covered under the Section 189 of the Companies Act. 2013.
- Whether the terms and conditions of the grant of loans are not prejudicial to the interest of the company.
- Whether the repayments are regular and within the stipulation.
- Whether the amount that is overdue for more than 90 days has been reported and reasonable steps has been taken by the company to recover the amount.
Loans and Investments
In respect of loans, investments and guarantee, whether provision of section 185 and 186 have been compiled with, and if not whether details are provided thereof.
- Whether the following requirements have complied with the Directives issued by the Reserve Bank of India, if the company has accepted deposits.
- The provisions of section 73 to 76 or any other relevant provisions of Companies Act, 2013 and the rules framed thereunder.
- Any order has been passed by NCLT or RBI or any other court or tribunal.
- If there is any non-compliance, the nature of contraventions is required be stated.
Where the maintenance of cost records under sec 148 (1) of Companies Act, 2013 has been specified by the Central Government and whether such accounts and records have been maintained.
Following points should be reported for statutory dues and disputes of taxes and duties:
Statutory dues for more than 6 months:
Whether the company is regular in depositing undisputed statutory dues with the appropriate authorities like:
If the company is not regular in depositing these Statutory dues, the extent of the arrears on the last day of the financial year concerned for the period of more than 6 months from the date they payable, shall be reported.
Disputes for taxes and duty:
In case of dues of Income tax, or Sales Tax, value added tax, service tax has not been deposited on account of any dispute, than the amount involved and the nature of tax should be mentioned.
Repayment of Loans
Whether the company has defaulted in repayment of loans or borrowings to financial institutions, banks, or to Government or debenture holder, if so the amount should be reported along with lender wide details.
Utilization of IPO and other public offers
Whether money raised by the company through IPO or other public offer(including debt) were applied for the purpose they were raised, if not details altogether with the default should be stated.
Reporting of Fraud
Whether any fraud by the company or any fraud on the company by its officers or employees have been noticed during the financial year. If yes, amount and nature of such fraud should be stated.
Approval of Managerial Remuneration
Whether managerial remuneration has been paid or provided in accordance with the requisite approvals as per the provisions of the section 197 of the Companies Act, 2013. If not, state the amount involved and steps taken by the company to secure the refund of the amount.
If the company is a Nidhi company, the auditors should ensure that the company has complied with the Net Owned Funds to Deposits in the Ratio 1:20 to meet out the liability and whether these companies are maintaining 10 % unencumbered term deposits as specified in the Nidhi Rules, 2014 to meet out the liability.
Related Party Transaction
Whether all the transactions with the related parties are in compliance with section 177 and 188 of the companies act 2013 and details have been disclosed in the financial statements as required by applicable accounting standards.
Private Placement or Preferential Issues
Whether the company has made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year, if so whether the requirement of sec 42 have been complied with and amount raised has been used
for the purpose for which it was raised. If not state the deviations.
Whether the company has entered into any non-cash transactions with the directors or the persons connected with him if so whether they are in the compliance with the Section 192, of the Companies Act 2013. If not, state the non-compliance.
Register under RBI Act
Whether the company is required to be registered under the sec 45-IA of the Reserve Bank of India, 1934. And if yes whether the registration has been obtained or not.
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