The Ministry of Corporate Affairs,
on 29th March 2016, notified the Companies (Auditor’s Report) Order,
2016 (CARO) in supersession of CARO, 2015.
Here is the analysis
of the provisions of CARO, 2016 vis-à-vis CARO, 2015. Hope you find the comparison useful.
CARO, 2016 Clause-wise comparison
with CARO, 2015
Clause
No.
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CARO 2015
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CARO 2016
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Change
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1
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It shall apply to every company including a
foreign company as defined in clause (42) of section 2 of the Companies Act,
2O13 (18 of
2O13) [hereinafter referred to as the
Companies Act], except :
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It shall apply to every company including a
foreign company as defined in clause (42) of section 2 of the Companies Act,
2O13 (18 of
2O13) [hereinafter referred to as the
Companies Act], except :
|
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(i) a banking company as defined in clause
(c) of section 5 of the Banking Regulation Act, 1949 (1O of
1949);
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(i) a banking company as defined in clause
(c) of section 5 of the Banking Regulation Act, 1949 (1O of 1949);
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No Change
|
|
(ii) an insurance company as
defined under the Insurance
Act,1938 (4 of 1938)
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(ii) an insurance company as
defined under the Insurance
Act,1938 (4 of 1938)
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No Change
|
|
(iii) a company licensed to operate under
section 8 of the Companies Act;
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(iii) a company licensed to operate under
section 8 of the Companies Act;
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No Change
|
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(iv) a One Person Company as defined under
clause (62) of section 2 of the Act and a small company as defined under
clause (85) of section 2 of the Companies Act;
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(iv) a One Person Company as
defined under clause (62) of section 2 of
the Companies Act
and a small company as defined under clause
(85) of section 2 of the Companies Act
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No Change
|
|
(v) a private limited company with a paid up
capital and reserves not more than rupees fifty lakh and which does not have
loan outstanding exceeding rupees twenty five lakh from any bank or financial
institution and does not have a turnover exceeding rupees five crore at any
point of time during the financial year.
 |
(v) a private limited company, not being a
sub sidiary or holding of a public company, having a paid up capital and
reserves and surplus not more than rupees one crore
as at the balance sheet date and which does
not have total borrowings exceeding rupees one crore from any bank or
financial institution at any point of time during the financial year and which does not have a total revenue as
disclosed in Scheduled III to the Companies Act, 2013 (including revenue from
discontinuing operations) exceeding rupees ten crore during the financial
year as per the financial statements.
|
There is a change in the criteria defined
applicability of CARO for Private Companies.
- The paid up capital has been revised from
50 lakhs to 1 crore
-Outstanding loan has been revised from 25
Lakhs to 1 crore.
- The turnover criteria is specifically
defined to be at any point of time during
the financial year including
revenue from
discontinuing operations
and the amount
specified has been
increased from 5 crore
to 10 crore.
|
|
Applicability of CARO to Private Limited
Company
1.
Paid
up capital and reserves of the company more than 50 lacs. OR
2.
Loan
outstanding from all the financial institution is more than Rs. 25 lacs. OR
3.
Turnover
exceeding Rs. 5 crore
during FY.
|
Applicability of CARO to Private Limited
Company
1.
Subsidiary
or holding company of any public company
2.
Paid
up capital and reserves of the company more than 1 crore. OR
3.
Loan
outstanding from all the financial institution is more than Rs. 1 Crore. OR
4.
Turnover
exceeding Rs. 10 crore
during FY. Including TO from discontinuing operations.
|
||
2
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Auditor's report to contain matters
specified in paragraphs 3 and 4. Every report made by the auditor
under section 143 of the Companies Act, on
the accounts of every company examined by him to which
this Order applies for the financial year
commencing on or after 1st April, 2014, shall contain the matters specified in paragraphs
3 and 4.
|
Auditor's report to contain matters
specified in paragraphs 3 and 4. Every report made by the auditor under section
143 of the Companies Act, 2013 on the
accounts of every company audited by him, to
which this
Order applies, for the financial year
commencing on or after 1st April, 2015, shall in addition, contain the matters specified
in paragraphs 3 and 4, as may be applicable. Provided the Order shall not
apply to the auditor’s report on consolidated financial statements.
|
Applicability of the draft CARO 2016 to be effective from 1/4/2015.
CARO shall not apply on Consolidated Financial
Statements.
|
3
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Matters to be included on the auditor's
report - The auditor’s report on the account of a company to which this Order
applies shall include a statement on the following matters, namely:
|
Matters to be included in the
auditor's report - The auditor's report on
the accounts of a company to which this Order applies shall include a
statement on the following matters, namely:
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No Change
|
(i)
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(a) whether the company is
maintaining proper records showing full
particulars, including quantitative details and situation of fixed assets;
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(a) Whether the company is
maintaining proper records showing full
particulars, including quantitative details and situation of fixed assets;
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No Change
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(b) whether these fixed assets have been
physically verified by the management at reasonable intervals; whether any
material discrepancies were
noticed on such verification and if so,
whether the same have been properly dealt with in the books of account;
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(b) Whether these fixed assets have been
physically verified by the management at reasonable intervals; whether any
material discrepancies were noticed on such verification and if so,
whether the same have been
properly dealt with in the books of account;
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No Change
|
|
(c) Whether title deeds of immovable
properties are held in the name of the company. If not, provide details
thereof.
|
New sub-
clause
introduced
|
||
(ii)
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(a) Whether physical verification of
inventory has been conducted at reasonable intervals by the
management;
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(a) Whether physical verification of
inventory has been conducted at reasonable intervals by the management andwhether any material discrepancies were
noticed and if so, how they have been dealt with in the books of account;
|
The sub-
clauses of CARO2015 have been merged into one clause.
|
(b) Are the procedures of physical
verification of inventory followed by the management reasonable and adequate
in relation to the size of the company an
d the nature of its business. If not, the
inadequacies in such procedures should be reported;
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Deleted
|
||
(c) Whether the company is maintaining
proper records of inventory and whether any material discrepancies were
noticed on physical verification and if so, whether the same have been
properly dealt with in the books of account;
|
This is merged into earlier sub-
clause. However, reporting on maintaining
proper records of inventory has been deleted.
|
||
(iii)
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Whether the company has granted any loans,
secured or unsecured to companies, firms or other parties covered in the
register maintained under section 189 of the Companies Act. If so,
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Whether the company has granted any loans,
secured or unsecured to companies, firms, Limited Liability Partnerships or
other parties covered in the register maintained under section 189 of the
Companies Act. If so,
|
The reporting is now covered wrt to LLP’s
also
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(a) Whether the terms and conditions of the
grant of such loans are not prejudicial to the company’s interest;
|
New sub-
clause
introduced
|
||
(a) whether receipt of the principal amount
and interest are also regular; and
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(b) Whether the schedule of
repayment of principal and payment of
interest has been
stipulated and whether the repayment or
receipts are regular.
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It is to be stated as to whether the
schedule of repayment of principal and payment of interest is stipulated and
whether they are regular.
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(b) if overdue amount is more than rupees
one lakh, whether reasonable steps have been taken by the company for
recovery of the
principal and interest;
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(c) If the amount is overdue, state the
total amount overdue for more than ninety days and whether reasonable steps
have been taken by the company for recovery of the principal and
interest;
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Details to be provided if principal amount
and
interest are overdue for more than 90 days.
Now Reporting is not based on monetary limits.
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(vi)
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Is there an adequate internal control
procedure commensurate with the size of the company and the nature of its
business, for the purchase of inventory and fixed assets and for the sale of
goods.
Whether there is a continuing failure to
correct major weaknesses in internal control;
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Deleted
|
|
--
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In respect of loans, investments and
guarantees, whether provisions of Section 185 and 186 of the Companies Act,
2013 have been complied with. If not, provide details thereof.
|
New Clause Introduced.
|
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(v)
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in case the company has accepted deposits,
whether the directives issued by the Reserve Bank of India and the provisions
of sections 73 to 76 or any other relevant provisions of the Companies Act
and the rules framed there under, where applicable, have been complied with?
II not, the nature of contraventions should be stated; If an order has been
passed by Company Law Board or National Company Law Tribunal or Reserve Bank
of India or any court or any
other tribunal, whether the same has been
complied with or not?
|
in case the company has accepted deposits,
whether the directives issued by the Reserve Bank of India and the provisions
of sections 73 to 76 or any other relevant provisions of the Companies Act,
2013 and the rules framed thereunder, where applicable, have been complied
with? If not, the nature of such contraventions be stated; If an order has
been passed by
Company Law Board or National Company Law
Tribunal or Reserve Bank of India or any court or any other tribunal, whether
the same has been complied with or not?
|
No Change
|
(vi)
|
whether maintenance of cost records has been
specified by the Central Government under sub-
section (1) of section 148 of the Companies
Act, 2013 and whether such accounts and records have been so made and maintained;
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whether maintenance of cost
records has been specified by the Central
Government under sub-section (1) of section 148 of the Companies Act, 2013
and whether such accounts and records have been so made and maintained;
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No Change
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(vii)
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(a) is the company regular in depositing
undisputed statutory dues including Provident Fund, Investor Education and
Protection Fund, Employees' State Insurance, Income tax, Sales tax, Wealth
Tax, Custom Duty, Excise Duty, cess and any other statutory dues with the
appropriate authorities and if not, the extent of the arrears of outstanding
statutory dues as at the last day of the financial year concerned for a
period of more than six months from the date they became payable, shall be
indicated
by the auditor.
|
(a) whether the company is regular in
depositing undisputed statutory dues including provident fund, employees'
state insurance,
Income tax, sales tax, service tax, duty of
customs, duty of excise, value added tax, and any other statutory dues with
the appropriate authorities and if not, the extent of the arrears of
outstanding statutory dues as at the last day of the financial year concerned
for a period of more than six months from the date they became payable, shall
be indicated.
|
No change
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(b) in case dues of income tax or sales tax
or wealth tax or service tax or duty of customs or duty of excise or value
added tax or cess have not been deposited on
account of any dispute, then the amounts
involved and the forum where dispute is pending shall be mentioned. (A mere
representation to the concerned Department shall not constitute a dispute).
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(b) Where dues of income tax or sales tax or
service tax or duty of customs or duty of excise or value added tax have not
been deposited on account of any dispute, then the amounts involved and the
forum where dispute is pending shall be mentioned. (A mere representation to
the concerned Department shall not be treated as a dispute).
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No Change
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|
(c) whether the amount required to be
transferred to investor education and protection fund in accordance with the
relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made
thereunder has been transferred to such fund within time.
|
--
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Deleted
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(viii)
|
whether in case of a company which has been
registered for a period not less than five years, its accumulated losses at
the end of the financial year are not less than fifty per cent of its net
worth and whether it has incurred cash losses
in such financial year and in the
immediately preceding financial year;
|
--
|
Deleted
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(ix)
|
Whether the company has
defaulted in repayment of dues to a
financial institution or bank or debenture holders? If yes, the period and
amount of default to be reported:
|
Whether the company has defaulted in
repayment of dues to a financial institution, bank, government or dues to
debenture holders? If yes, the period and amount of default to be reported
(in case of defaults to banks,
financial institutions and government, lender
wisedetails to be provided).
|
In case of defaults, lender wise details are
to be provided
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(x)
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whether the company has given any guarantee
for loans taken by others from bank or financial institutions, the terms and
conditions whereof are prejudicial to the interest of
the company;
|
--
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Deleted
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(xi)
|
whether term loans were applied for the
purpose for which the loans were obtained;
|
Whether moneys raised by way of initial
public offer or further public offer (including debt instruments) and term loans were applied for the purposes
for which those are raised.
If not, the details together with delays
/default and subsequent rectification, if any, as may be applicable, be
reported.
|
Reporting is now also with respect to
utilization of moneys raised by way of public
offer or further public
offer (including debt instrum-
ents) in addition to reporting on term
loans. Further, in case of delays and default, details are to be provided
along with subsequent
rectification, if any
|
(xii)
|
whether any fraud on or by the company has
been noticed or reported during the year; If yes, the nature and the amount
involved is to be indicated.
|
Whether any fraud by the
company or any fraud on the Company by its
officers/ employees has been noticed or
reported during the year; If yes, the nature and the amount involved be
indicated.
|
Reporting of fraud on the Company by its
officers/employees has been specified.
|
--
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Whether managerial remuneration has been
paid / provided in accordance with the requisite approvals mandated by the
provisions of section 197 read with schedule V to the Companies Act? If not,
state the amount involved and steps taken by the company for securing refund
of the same.
|
New clause introduced.
|
|
--
|
Whether the Nidhi Company has complied with
the Net Owned Funds to Deposits in the ratio of
1: 20 to meet out the liability and whether
the Nidhi Company is maintaining ten percent unencumbered term deposits as
specified in the Nidhi Rules, 2014 to meet out the liability.
|
New clause introduced.
|
|
--
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Whether all transactions with the related
parties are in compliance with Section 177 and 188 of Companies Act, 2013
where applicable and the details have been disclosed in the Financial
Statements etc as required by the applicable
accounting standards.
|
New clause introduced.
|
|
--
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Whether the company has made any
preferential allotment or private placement of shares or fully or partly
convertible debentures during the year under review and if so, as to whether
the requirement of Section 42 of the Companies Act, 2013 have been complied
with and the amount raised have been used for
the purposes for which the funds were
raised. If not, provide details in respect of the amount involved and nature
of non- compliance.
|
New clause introduced.
|
|
--
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Whether the company has entered into any
non-
cash transactions with directors or persons
connected with him and if so, whether provisions of
Section 192 of Companies Act, 2013 have been
complied with.
|
New clause introduced.
|
|
--
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Whether the company is required to be
registered under Section 45-IA of the Reserve Bank of India Act, 1934, and if
so, whether the registration has been obtained.
|
New clause introduced.
|
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4
|
Reasons to be stated for
unfavorable or qualified answers.
|
Reasons to be stated for unfavorable or
qualified answers.
|
|
(1) Where, in the auditor's report, the
answer to any of the questions referred to in paragraph 3 is unfavorable or
qualified, the auditor's report shall also state the reasons for such
unfavorable or qualified answer, as the case may be.
|
(1) Where, in the auditor's report, the
answer to any of the questions referred to in paragraph 3 is unfavorable or
qualified, the auditor's report shall also state the basis for such
unfavorable or qualified answer, as the case may be.
|
No Change
|
|
(2) Where the auditor is unable to express
any opinion in answer to a particular question, his report shall indicate
such fact together with the reasons why it is not possible for him to give an
answer to such question.
|
(2) Where the auditor is unable to express
any opinion on any specified matter, his report shall indicate such fact
together with the reasons as to why it is not possible for him to give his
opinion on the same.
|
No Change
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