Guía del CARO 2020 | Análisis por cláusulas

Companies (Auditor’s Report) Order (CARO) is an extended version of an Audit report wherein the Auditor provides more information in his audit report about the auditee company to make the report more transparent and reliable. Under the Companies Act, CARO has been in place for a very long time. However, it has been amended over a period of time as per changes of business and the economy.

Now, new version of CARO has been notified by the Ministry of Corporate Affairs (MCA) by Companies (Auditor’s Report) Order, 2020 (hereinafter referred to as ‘CARO 2020’). The latest version - CARO, 2020 is having 21 clauses and it is applicable for all statutory audits commencing on or after 1^st April 2021. With this, the companies have to keep more control over its activities and share information with auditors and users of financial statements for more transparency and accountability.

This article will help you in learning about the new CARO 2020 requirements in detail.

1.   Applicability of CARO, 2020

CARO 2020 is applicable to all companies including foreign companies. However, the following are the exceptions:

1. A banking company (as defined in section 5(c) of the Banking Regulation Act, 1949);

2. An insurance company (as defined under the Insurance Act, 1938);

3. A company licensed to operate u/s 8 of Companies Act

4. One Person Company; 

5. Small company as defined in Section 2(85) of the Companies Act, 2013. As per the Companies Act, Small company is those companies that are not public companies and has:
   1. Paid-up share capital does not exceed INR 4 Crores; and 
   2. Gross turnover does not exceed INR 40 Crores as per its last profit and loss accounts.

The threshold limit for small companies has been revised recently through a press release dated 16th September 2022. The earlier threshold limit for share capital was INR 2 Crores and Gross turnover was INR 20 Crores.

6. Private Company (not being a subsidiary or holding company of a public company), having-
   1. Paid up Share capital and reserves and surplus not more than INR 1 crore as on the balance sheet date; and
   2. Total borrowings have not exceeded INR 1 Crores from any bank or financial institution at any point time during the financial year; and
   3. Total revenue, as disclosed in Schedule III to the Act (including revenue from discontinuing operations), was up to INR 10 crore during the financial year as per the financial statements. 

2.   Matters to be included in Auditor’s Report

• Audit report of every auditor, to which CARO applies,  shall contain the matter discussed below.
• CARO, 2020 is applicable from Financial Year commencing from 01.04.2019.
• The table is given below lists down all matters required to be reported in the auditor’s report under the purview of CARO, 2020:

Clause (i): Property, Plant & Equipment & Intangible Asset

Clause(ii): Inventory

Clause (iii): Investments made, Guarantee or security given

1. This clause requires reporting of:
   1. Investments made, 
   2. The guarantee provided or security provided or
   3. Loan or advances granted, secured or unsecured, 

to companies, firms, LLP, or any other parties during the year.

2. If the company has provided loans or advances or stood guarantee or provided security to any other entity during the year then the auditor shall report:
   1. loans or advances and guarantees or security to subsidiaries, joint ventures and associates: the aggregate amount given during the year and balance outstanding at the balance sheet date 
   2. Loans or advances and guarantees or security to other: the aggregate amount given during the year and balance outstanding at the balance sheet date.

3. Whether these investments or guarantees or security and their terms and conditions are not prejudicial to the company’s interest;
4. In the case of loans and advances, whether the repayment schedule of principal and interest has been stipulated and whether the repayments are regular. In case of an amount overdue for more than 90 days, whether the company has taken reasonable steps for recovery.
5. In case any loan or advance is due during the year, whether the such loan has been renewed or extended or fresh loans are granted against existing loans. If yes, the auditor shall specify:
   1. Amount of dues renewed or extended or settled by fresh loans
   2. % of aggregate to the total loans or advances in the nature of loans granted during the year.
6. whether the company has granted any loans or advances without specifying any terms or period of repayment. In case of an affirmative answer, the auditor shall report:
   1. aggregate amount, 
   2. % of such loan to the total loans granted, the aggregate amount of loans granted to Promoters, related parties as defined in clause (76) of section 2 of the Companies Act, 2013;

Clause (iv): loans, investments, guarantees, and security given

• This clause requires the auditor to check whether the Company has complied following provisions:
  • provisions of Section 185 in case of loans to Directors; and
  • Provisions of Section 186 in case of Loans and Investment by Company.

• Compliance such as loan or advance to a whole-time director or managing director or any person in whom the director is interested is entered in the register of contract or arrangements. Further, investments made should have proper approvals of the board and of shareholders in case the amount of investments exceeds the prescribed threshold.

• In case of non-compliance, the auditor is required to provide details of non-compliance.

Clause (v): Deposits

• In case a company has accepted any deposits or amounts deemed as deposits, the auditor shall ensure that whether the company has complied with following provisions:
  • Directives issued by RBI;
  • Provisions of Sections 73 to 76 of the Companies Act
  • Any other applicable provisions of Companies At and Rules made thereunder

• In case of contravention, the auditor shall report the nature of the Contravention. 

• Further, in the case where any order has been passed by the Company law board or NCLT or RBI or Any court or tribunal, whether the same has been complied with or not.

Clause (vi): Cost Records

• The auditor shall report whether:
  • the company is required to maintain cost records;
  • Whether such cost records have been made and maintained if required.

‍Clause (vii): Statutory Dues

• The auditor shall check whether the company is regular in depositing undisputed statutory dues such as GST, Provident Funds, ESI, Income Tax, Service Tax, and any other statutory dues.
• In case of non-compliance, the auditor shall report:
  • Amount of statutory dues outstanding as of the last day of the Financial year for more than 6 months.
  • Whether such amount is not deposited on account of any dispute, if so, then the auditor shall report:
    • Amount involved;
    • Forum where the dispute is pending

• A mere representation to the concerned department shall not be considered as a dispute

Clause (viii): Prior period undisclosed Income

This clause reports whether there is any transaction that is not recorded in the books of accounts. However, such a transaction is disclosed as income under Income Tax Act. If so, whether previously unrecorded income has been properly recorded in books of accounts.

Clause (ix): Default in repayment of loans and Borrowings

‍

Clause (x): Issuance of Security

1. IPO/FPO: 
   1. The auditor shall ensure that funds raised through IPO/FPO during the year were applied for the purpose for which funds were raised.
   2. If it is not the case, the auditor shall report:
      1. Delays or defaults
      2. Subsequent rectification, if any.

2. Preferential Allotment or Private Placement or Convertible Debentures:

El auditor deberá verificar:

1. si se han cumplido o no las disposiciones de las secciones 42 (colocación privada) y 62 (emisión de acciones con carácter preferente) de la Ley.
2. Que los fondos recaudados se utilicen para el fin con el que fueron obtenidos.

En caso de incumplimiento, el auditor deberá informar sobre el importe involucrado y la naturaleza del incumplimiento.

Cláusula (xi): Fraude

• Esta es otra cláusula importante en CARO 2020, en la cual el auditor deberá verificar si se ha detectado algún fraude por parte de la empresa o contra la misma. De ser así, el auditor deberá informar sobre la naturaleza y el importe involucrado.
• El fraude que implique importes de 1 crore de INR o más debe ser reportado por el auditor a la junta o al comité de auditoría y, tras sus respuestas, debe presentarse al Gobierno Central en el formulario ADT-4. Esta cláusula cubre la presentación del formulario ADT-4.
• En este sentido, esta cláusula también requiere informar sobre cualquier queja presentada por un denunciante ante la empresa durante el año en curso.

Cláusula (xii): Empresas Nidhi

• Se requiere informar si la empresa Nidhi ha cumplido con los siguientes requisitos:
  • Fondos Propios Netos frente a Depósitos en una proporción de 1:20
  • Se mantiene un 10% de depósitos a plazo no gravados
  • Si ha habido algún incumplimiento en el pago de intereses sobre los depósitos

Cláusula (xiii): Transacciones con partes relacionadas

• De acuerdo con esta cláusula, todas las transacciones con partes relacionadas realizadas deben verificarse para asegurar el cumplimiento, es decir, aprobaciones, límites, etc., de las secciones 177 (comité de auditoría) y 188 (transacciones con partes relacionadas) de la Ley.
• Asimismo, la divulgación de las transacciones con partes relacionadas en los estados financieros debe realizarse de acuerdo con las normas contables aplicables.

Cláusula (xiv): Auditoría interna y auditor

• La auditoría interna es un sistema importante que prevalece en las empresas que cotizan en bolsa y otras empresas específicas mencionadas en la sección 138 de la Ley de Sociedades de 2013.
• El auditor deberá asegurarse de si el sistema de auditoría interna implementado por la empresa es acorde con el tamaño y la naturaleza de su negocio.
• Si el informe del auditor interno es utilizado o no por el auditor.

Cláusula (xv): Transacciones no monetarias

• Esta cláusula establece un control sobre las transacciones no monetarias realizadas por una empresa que involucren al director o a cualquier persona relacionada con él/ella.
• Si dichas transacciones han tenido lugar en la empresa, asegúrese de que se hayan obtenido las aprobaciones adecuadas según lo requerido en la sección 192 de la Ley.

Cláusula (xvi): Empresas bancarias y de inversión

Esta cláusula requiere informar sobre los siguientes puntos:

• Si la empresa debe estar registrada bajo la Ley del RBI. De ser así, si se ha obtenido el registro.
• Si la empresa ha llevado a cabo actividades financieras no bancarias o de financiación de la vivienda sin un certificado de registro válido del RBI.
• Si la empresa es una Sociedad de Inversión Principal (CIC) y, de ser así, si sigue cumpliendo con los criterios de CIC.
• Si el grupo tiene más de una CIC. En caso afirmativo, el número de CIC.

Cláusula (xvii): Pérdidas de efectivo

El auditor deberá informar sobre las pérdidas de efectivo incurridas en el año actual y en el año anterior.

Cláusula (xviii): Renuncia de auditores estatutarios

Esta cláusula requiere informar sobre cualquier renuncia por parte de un auditor estatutario durante el año, junto con las objeciones y preocupaciones planteadas.

Clause (xix): Liquidity and solvency position

• This clause examines a company's solvency position for repayment of its liabilities over a period of one year considering various factors like financial ratios, ageing, knowledge of management and board of directors plan, and most importantly, non-existence of any material uncertainty in business.

Clause (xx): Transfer of unspent amount of CSR funds

• This clause is relating to CSR funds and their application. Confirmation from management is to be obtained about activities undertaken in accordance with Schedule VII of the Act.
• Details of the amount spent on projects should also be taken from management and verified with bank statements, vouchers, etc.
• The basis that, it should be reported that any unspent amount on projects is transferred to a fund specified in the aforesaid schedule for projects other than ongoing ones within 6 months of the close of the financial year and to a special account for ongoing projects within 30 days of the close of the financial year.

Clause (xxi): Qualification in CARO,2020 of standalone financial statements

• In case any qualifications or adverse remarks are included by the respective auditors,  then details of the companies and the paragraph numbers of the CARO, 2020 report containing the qualifications or adverse remarks are required to be included in the consolidated financial statements of the group.

3. Qualification in report/unfavorable report

A statutory auditor has to mention comments against each matter applicable to the company. In cases, where an auditor is unable to express any opinion on any such matter which is applicable to the company, he is also required to indicate in his report such a fact, together with the reasons why he is unable to express any opinion. 

Also, in case of a qualified or unfavorable opinion, the auditor shall state the basis for such opinion.