CARO 2020

Introduction to CARO 2020

CARO 2020 is a new format for issue of audit reports in case of statutory audits of companies under Companies Act, 2013. CARO 2020 has included additional reporting requirements after consultations with the National Financial Reporting Authority (NFRA). NFRA is an independent regulatory body for regulating the audit and accounting profession in India. The aim of CARO 2020 is to enhance the overall quality of reporting by the company auditors.

Applicability of CARO 2020

CARO 2020 is applicable for all statutory audits commencing on or after 1 April 2021 corresponding to the financial year 2020-21. The order is applicable to all companies which were covered by CARO 2016. Accordingly, the order applies to all the companies except the following companies specifically excluded from its purview:

• One person company.

• Small companies (Companies with paid up capital less than/equal to Rs 50 lakh and with a last reported turnover which is less than/equal to Rs 2 crore).

• Banking companies.

• Companies registered for charitable purposes.

• Insurance companies.

• The following private companies are also exempt from the requirements of CARO, 2020: –

  • Whose gross receipts or revenue (including revenue from discontinuing operations) is less than or equal to Rs 10 crore in the financial year.

  • Whose paid up share capital plus reserves is less than or equal to Rs 1 crore as on the balance sheet date (i.e. usually at the end of the FY).

  • Not a holding or subsidiary of a Public company.

  • Whose borrowings is less than or equal to Rs 1 crore at any time during the FY.

Reporting Requirements Under CARO 2020

The auditor’s report (CARO 2020) shall include a statement on the following matters, namely:

1. Details of tangible and intangible assets.

2. Details of inventory and working capital.

3. Details of investments, any guarantee or security or advances or loans given.

4. Compliance in respect of a loan to directors.

5. Compliance in respect of deposits accepted.

6. Maintenance of costing records.

7. Deposit of statutory liabilities.

8. Unrecorded income.

9. Default in repayment of borrowings.

10. Funds raised and utilisation.

11. Fraud and whistle-blower complaints.

12. Compliance by a Nidhi.

13. Compliance on transactions with related parties.

14. Internal audit system.

15. Non-cash dealings with directors.

16. Registration under section 45-IA of RBI Act, 1934.

17. Cash losses.

18. Resignation of statutory auditors.

19. Material uncertainty on meeting liabilities.

20. Transfer to fund specified under Schedule VII of Companies Act, 2013.

21. Qualifications or adverse auditor remarks in other group companies.

In a case where the auditor’s answer to any of the requirements mentioned above is unfavourable or negative, then the auditor’s report shall also state the basis for such unfavourable or qualified answer. Also, in a case where the auditor is unable to express any opinion on any specific matter, the report shall indicate such fact along with the reasons as to why it is not possible for the auditor to give an opinion on the same.