CARO,2020

ALL ABOUT CARO 2020 Applicability and Exceptions

5. Report or Certificate? Test or 100%
1. Why CARO? Check? This Order shall be applicable for the financial years commencing on or

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Section 143(11) confers power to the CARO is a report given by the auditor & not after 1st April, 2020

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CG to issue order to the auditor of the a certification. Hence, auditor is expected to
company for matters to be included in conduct test check only though being a It shall apply to Every Company including Foreign Company.
his report. Under that section, Central

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specific order the sample size would be
Government has notified CARO larger than usual. Further, CARO reporting is
(Companies Auditor Report Order, 2020) no guarantee and still suffers from risk of A Private
Except

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making it mandatory for auditor of certain material misstatements remaining A Banking Company
companies covered under such order to undetected by the auditor.
furnish his comments on matters Company not being
specified in this Order. 6. Report for the year or as on the as defined in An holding or

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reporting date? section 5(c) Insurance subsidiary of
A OPC and
2. Compulsory Reporting or Exception of Banking Company Public
The report given is not just on the year end Small
Regulation Company

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Reporting? but for the full year. Thereby provisions of as defined Section 8 Company
CARO are not just to be checked for Act,1949 under under
Report to compulsory mention all the Company
points in CARO, whether the comments compliance at year end but for the whole Insurance under Companies

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are affirmative, qualifatory, explanatory year. Act, 1938 Companies Act, 2013

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or the clause is not applicable. For example, while reporting on regularity Act, 2013 Having
of statutory dues if auditor finds delays

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during the year he would be expected to
3. CARO - Financial or Propriety Audit? report the matter even if the defaults are
paid off by year end.

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Though an auditor is concerned with
7. Whether CARO Report part of Auditor s
truthful and fairness of financial
Report?
statements presentation, under CARO Total Revenue as

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Paid up share capital & reserve Total Borrowings < 1cr.
an auditor is also required to report on The auditor's comments in the terms of disclosed in schedule III <
various other matters which are & surplus < 1 crore from Bank or F.I
order forms part of his report & therefore 10 cr.
any time during

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propriety in nature and not necessarily the Board will be bound to give in its on the balance sheet date during the financial
affect F.S. like delays in repayment of Director's Report under Section 134 the F.Y.
year
dues to lenders, statutory dues, etc. fullest information & explanation regarding

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every adverse comment in the auditor s
report, as required u/s 134 Director's Report FAST ka GURU GYAN
4. Limits or Enhances Responsibility?
Exhaustive or Inclusive? in Directors Responsibility Statement

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The requirements of the Order are in 8. Order on Companies or Auditor?
 CARO would not apply to a NBFC converts itself into a Banking company at year end.
addition (supplemental) to the existing Contravention of CARO would attract  CARO is applicable to Govt. Company also and it is in addition to directions of C &AG
provisions of Section 143 of the Act. any penalty to company? under section 143(5)
Order not to limit, but requires a
statement on specified matters to be The Order is direction to auditor and not  The CARO is also applicable to audit of Branches of a company.
included in the audit report. the companies, for inclusion of certain
matters in the auditor s report and
 CARO is not applicable to Public Financial Institution as the same is not a company but a
accordingly auditor to modify their audit body corporate.
procedures.  CARO is not applicable to the Auditor s report on CFSs except clause (xxi) of CARO 2020

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42 CARO, 2020 & CARO, 2016
 CARO,2020
AUDIT AREAS UNDER CARO
(i) Property, Plant, Equipment and (iii)
(ii) Inventories Investments, guarantee, security & loans granted by the Co.
intangible assets

(a) (i) Whether the company is maintaining (a) (i) Whether physical Whether during the year the company has made investments in, provided any guarantee or

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proper records showing full particulars, verification of inventory security or granted any loans or advances in the nature of loans, secured or unsecured, to co's,

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including quantitative details and has been conducted at firms, LLPs or any other parties, if so,-
situation of PPE; reasonable intervals by (a) Whether during the year the company has provided loans or provided advances in the nature of
(ii) whether the company is maintaining the Mgmt and loans, or stood guarantee, or provided security to any other entity (except companies whose

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proper records showing full particulars (ii) Whether, in the opinion
of the auditor, the principal business is to give loans], if so, indicate-
of intangible assets; (A) The agg. amt. during the year, and bal. o/s at the BS date with respect to them to sub., JVs and
coverage and procedure

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(b) (i) Whether these PPE; have been of such verification by associates;
physically verified by the management at the Mgmt is (B) The agg. amt. during the year, and bal. o/s at the BS date with respect to them to parties
reasonable intervals; appropriate; other than Sub/JVs/Associates;
(ii) Whether any material discrepancies were (iii) Whether any (b) Terms and conditions are not prejudicial to the company s interest;

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noticed on such verification and if so, discrepancies of 10% or (c) Whether schedule of repayment of principal and Interest stipulated & whether the repayments or
(iii) Whether the same have been properly more in the aggregate receipts are regular?
dealt with in the books of account; for each class of

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(d) If amounts are overdue: *State amount overdue > 90 days.*Reasonable steps taken for recovery?
(c) (i) Whether the title deeds of all the inventory were noticed (e) (i) Whether any L&A in the nature of loan granted which has fallen due during the year, has
immovable properties (except Lease and
(iv) If so, whether they been renewed or extended or fresh loans granted to settle the overdues of existing loans

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properties) disclosed in the FS are held in given to the same parties,
have been properly
the name of co. (ii) If not, provide the dealt with in the books (ii) If so, specify the agg. amt. and the % of the agg. to the total loans or advances in the nature

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details thereof in the prescribed of account; of loans granted during the year [except companies whose principal business is to give loans];
format which includes: (f) (i) Whether the company has granted any loans or advances in the nature of loans either

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(b) (i) Whether during any
 Description of property point of time of the repayable on demand or without T&C
 Gross carrying value year, the co. has been (ii) If so, specify the agg. amt, % thereof to the total loans granted, agg. amt of loans

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 Held in name of sanctioned working granted to Promoters, related parties;
capital limits in excess
 Whether promoter, director or their of 5 crore Rs., in
relative or employee aggregate, from banks (v)

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Deposits
 Period held – indicate range, where or FIs on the basis of (vii) Statutory dues (viii) Disclosure of
appropriate security of current transactions
Deposits accepted by the company or

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 Reason for not being held in name of assets;
amounts which are deemed to be deposits, (a) (i) Whether the company is
(ii) Whether the quarterly (a) Whether any tran's
co. (also indicate if in dispute) (a) Directives of RBI and provisions of regular in depositing
(d) (i) Whether the company has revalued its PPE returns or statements not recorded in the
filed by the co. with section 73 to 76 or any other relevant undisputed statutory dues
BOA have been

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(including Right of Use assets) or intangible such banks or FIs are in provisions of CO S act 2013 & rules including GST, PF, ESI,
assets or both during the year and, if so, made followed? income-tax etc. surrendered or
agreement with BOA of
whether the revaluation is based on the the co., if not, give (b) If not, nature of such contravention (ii) If not, the extent of the disclosed as income
valuation by a Registered Valuer; specify details; (c) If order passed by CLB /NCLT/RBI or any arrears of o/s statutory during the year in

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the amount of change, if change is 10% court or any other tribunal whether dues as on the last day of the tax
or more in the aggregate of the net the same is complied or not? the FY concerned for a
(iv) Compliance of period of >6 months from assessments(IT)
carrying value of each class of Property, Section 185 & 186 (b) If so, whether the
the date they became
Plant and Equipment or intangible assets; (vi) payable, shall be indicated; previously
(a) In respect of loans, Cost Records
(e) (i) Whether any proceedings have been investments, guarantees, and (b) Where statutory dues referred unrecorded income
initiated or are pending against the co. for security, whether sections above have not deposited on
(i) Where maintenance of cost records has been properly
holding any benami property under Act & 185 and 186 of the Co's Act account of any dispute then
Rules has been specified by CG u/s 148(1) recorded in the
have been complied with, the amts involved and the
(ii) If so, whether the co. has appropriately (b) If not, provide the details of the Co's Act, forum where dispute is BOA during the
disclosed the details in its FSs; thereof; (ii) Whether such accounts and records pending shall be mentioned. year;
are made and maintained.

43 COMPANY AUDIT DRONE CHARTS BY CA. SARTHAK NIRAJ JAIN 43 1

 CARO,2020
AUDIT AREAS UNDER CARO
Default in repayment of loans or (xi) (xvi) (xviii) Resignation of the
(ix) Fraud reporting Registration with RBI statutory auditors
other borrowings
(a) Whether the company has defaulted in repayment (a) Whether any fraud by the co.or (a) Whether the co. is required to be (i) Whether there has been any resignation of the
of loans or other borrowings or in the payment of on the co. has been noticed/ registered u/s 45-IA of the RBI Act, 1934 statutory auditors during the year,

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interest thereon to any lender, if yes, the period and reported during the year, if yes, and if so, whether the reg.has been (ii) If so, whether the auditor has taken into

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the amount of default to be reported as per the nature & amt. involved is to be obtained; consideration the issues, objections or
prescribed format which includes: (b) Whether the co. has conducted any Non concerns raised by the outgoing auditors;
indicated;
 Nature of borrowing, including debt securities (b) Whether any report u/s 143(12) Banking Financial or Housing Finance

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 Name of lender (lender wise details to be provided of the Co's Act has been filed by activities without a valid CoR from the Capability of co.of meeting its
in case of defaults to) RBI (xix)
the auditors in Form ADT-4 existing liabilities
 Amount not paid on due date (c) Whether the co. is a Core Investment

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 Whether principal or interest (c) Whether the auditor has consi- Company (CIC) as defined in the (i) On the basis of the financial ratios, ageing
 No. of days delay or unpaid dered whistle-blower compla- regulations made by the RBI, if so, and expected dates of realisation of financial
 Remarks, if any ints, if any, received during the whether it continues to fulfil the criteria assets and payment of financial liabilities,
(b) Whether the company is a declared wilful defaulter by year by the company; of a CIC, and in case the company is an other info. accompanying the FS the auditor s

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any bank or FI or other lender; exempted or unregistered CIC, whether knowledge of the BODs and MGTs plans,
(c) (i) Whether term loans were applied for the purpose it continues to fulfil such criteria; (ii) Whether the auditor is of the opinion that no
for which the loans were obtained; (xii) Nidhi Company (d) Whether the Group has more than material uncertainty exists as on the date of the

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(ii) If not, the amount of loan so diverted and the one CIC as part of the Group, if yes, AR that co. is capable of meeting its liabilities
purpose for which it is used may be reported; (a) Whether Net owned funds to indicate the number of CICs which are existing at the date of BS as and when they fall
(d) Whether funds raised on short term basis have been part of the Group; due within a period of 1 year from the BS date;

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Deposits ratio 1:20?
utilised for long term purposes, if yes, the nature and
(b) Whether the Nidhi Co.is

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amount to be indicated;
(e) (i) Whether the co. has taken any funds from any maintaining 10 %
(xvii) Cash losses (xx) Transfer of amt. remaining unspent –
unencumbered term deposits

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entity or person on account of or to meet the Sec.135(5) & Schedule VII
obligations of its sub/ass./ or JVs , as specified in the Nidhi Rules,
(ii) If so, details thereof with nature of such tran's & 2014 to meet out the liability; Whether the
company has incurred (a) Whether, in respect of other than ongoing projects, the co. has

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amt. in each case; (c) Whether there has been any cash losses in the FY transferred unspent amt. to a Fund specified in Schedule VII to the
(f) (i) Whether the co. has raised loans during the year default in payment of interest Companies Act within a period of 6 months of the expiry of the FY
and in the imme-
on the pledge of securities held in its sub./ass./ on deposits or repayment for in compliance with section 135(5)(ii) of the said Act;
diately preceding FY, if

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or JVs , any period if so, the details (b) Whether any amount remaining unspent under section 135(5) of
so, state the amount
(ii) If so, give details thereof and also report if the thereof; the Co's Act, pursuant to any ongoing project, has been transferred
company has defaulted in repayment of such loans of cash losses;
to special A/c in compliance of section 135(6) of the said Act;

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raised;
(xiii) Related party (xiv) Internal Audit
transactions System (xxi) Qualifications or Reasons to be stated for unfavourable or
(x) Moneys raised by IPO, FPO & adverse remarks qualified answers

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Preferential allotment/ private placement (a) In compliance (a) Whether the
with section 177 company has an (i) Whether there have
(a) (i) Whether the money raised through IPO or FPO and 188. been any qualifications Where, in the auditor's report, the answer to
and term loans were applied for the purpose they internal audit

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(b)Details have been system commen- or adverse remarks in any of the questions referred to in above clauses
were raised?
(ii) If not, details together with delays or default or disclosed in F.S or surate with the the CARO reports of the is unfavorable or qualified, the auditor's report
subsequent rectification. not (as per AS)? size and nature co's included in the shall also state the reasons for such unfavorable
(b) (i) Whether the co.has made any preferential of its business; CFSs,
(b) Whether the or qualified answer, as the case may be. Where
allotment or pvt. placement of shares or convertible Non-cash trans. (ii) If yes, indicate the
reports of the the auditor is unable to express any opinion in
debentures during the year and if so, (xv) with directors details of the companies
(ii) Whether the requirements of sec. 42 & sec. 62 of Internal Auditors answer to a particular question, his report shall
for the period and the para no. of the
the Co's Act, 2013 have been complied Whether provisions CARO report containing indicate such fact together with the reasons why it
(iii) Amt. raised are used for the purpose they were under audit were
of section 192 of Cos considered by the qualifications or is not possible for him to give his opinion on the
raised? If not, provide details in respect of amt. Act 2013 complied? adverse remarks. same.
involved and nature of non-compliance the statutory
auditor;

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44 CARO, 2020 & CARO, 2016