After the discussion with NFRA, ICAI’s guidance note on CARO 2020 of MCA, has amendments to the reporting requirements. The CARO 2020 – Enhanced reporting explains exclusively about the statutory audits. The audit order is suitable for companies that fall under CARO 2016. If the borrowings are less than one crore, paid-up capital is less than one crore, gross receipts and revenue are less than ten crores in the financial year, and not a subsidiary company of a public company, and they are exempted from CARO, 2020. The report format says about 21 points. If the auditor has negative points about the details, the auditor expresses his views or reasons about the particular clause. The changes with the revaluation of property, plant and machinery, intangible assets, Benami property, working capital, loans, advances, undisclosed income, material uncertainty, and CSR activity, are explained with a guidance note in CARO 2020. The financial audit is the internal audit that communicates the findings to the company management. GST audits and statutory audits are the external audits that become mandatory due to the capital infusion, ethics, principles and annual turnover. It is worth reading about the clauses in the CARO reporting format. This blog engages the readers with a new perspective on reporting. An announcement regarding further extension of the applicability of CARO discriminates the reporting formats.
What is CARO?
Section 143 of the Companies Act, 2013 describes the comments of audit reports. CARO applies to foreign companies and does not apply to banks, insurance companies, Person companies, a company registered under section 8 of the companies act, 2013, and a private ltd. Co. CARO does not apply to the branches of a company. CARO 2020 does not apply to the consolidated financial statements. CARO 2016 is only about the fixed assets with 16 clauses. CARO 2020 consists of 21 reporting clauses. The applicability of CARO 2016 and 2020 is the same. CARO 2016 focuses on the number of fixed assets, the situation of fixed assets, physical verification by the management at regular intervals, material discrepancies, and title deeds of the immovable property. CARO 2020 is about the dealings with property, plants, intangible assets and equipment. The records, maintenance and revaluation are monitored to highlight in the auditor report. The report on Benami transactions and working capital are the new schedules inserted. Investments, advances and loans section are modified in the CARO 2020. The difference between a statutory audit and a financial audit is the communication of the findings of the audit. The findings of the statutory audit go to the government and shareholders.
Clauses of CARO, 2020:
The following points explain the different clauses as per the CARO reporting model.
• The details of revaluation, title deeds of the company property, Benami property details, and physical verification of the tangible and intangible assets are provided in the first point.
• The second clause is about inventory and working capital. Here the details of physical verification, discrepancies, working capital of more than five crores from banks or financial institutions, and the details of non-agreement of the statement of returns are mentioned in the second clause.
• The loans to LLPs, firms, joint ventures, subsidiaries, associates or companies, investments, advances, and loans are mentioned in this section. And details of loans are termed as security or guarantee. The report should conclude that the investment, loans, and advances are not against the interest of the Company. The details of the period of overdue more than ninety days, repayment schedule, renewal of the loan, and percentage of the loan divided as per the year are mentioned in the report.
• The details of the loan to directors with compliances should be mentioned in this section.
• The deposits as per sections 73 to 76, Companies Act, 2013 are explained here. And the deposits as per the compliance of the tribunal or court are explained in this section.
• The compliance and non-compliance cost records are mentioned here.
• The statutory dues and disputed statutory dues with a forum of litigation are explained.
• The unrecorded income details are given in this section.
• The repayment of borrowings to the debenture holders, banks and government are explained along with a table. The details of a wilful defaulter, term loan details, loan usage details, funds raised for short term use, the amount borrowed for associates, joint ventures and subsidiaries, and loans raised during the year.
• The details of the public offer, preferential shares and convertible debentures are mentioned in this section.
• The nature of the fraudulent activity and the amount involved need to be reported to the central government with form ADT-4. The details of whistle-blower complaints are mentioned in this section.
• This section provides details of provisions applicable to a Nidhi.
• The details of the compliance on related party transactions are mentioned here. The financial statement needs to disclose the details with figures.
• If the internal audit report is conducted, it needs to be reviewed by the statutory auditor.
• The non-cash transactions with the director of the company and other professionals related to the director are mentioned here.
• If the company is involved in non-banking financial activity, housing finance activities, and core investment activities, it is mandatory to obtain registration from RBI Act.
• The details of cash losses are mentioned in this section.
• The statutory auditor details and the concerns raised by outgoing auditors are mentioned in this section.
• The material certainty with the financial assets, financial liabilities, financial ratios and management plans are mentioned here.
• The obligation of corporate social responsibility is mentioned here. Here the social obligation, unspent amount, and transfer are explained.
• The final point is about the adverse remarks and qualifications in another group of companies issued by the same auditor.
ICAI issues guidance notes on the companies. The financial reporting changes are as per the performance of the capital markets. The corporate failures also emphasize the regulators to change the reporting models. The changes are necessary to enhance performance and curb failure.