Auditors Responsibility Widened: Key Changes in the Companies (Auditor’s Report) Order, 2020

MCA has notified new CARO 2020 wherein all the existing clauses are there.

Some new clauses are added and some are amended.

There are various reporting requirements on the auditor now.

Here is a brief analysis of the same and comparison between CARO 2015, CARO 2016 AND CARO 2020 as under:

1. If company has given any loans and advances to any party and same has been recovered or not as per stipulated terms is to be given by auditor.

Further, details of loans given should be provided.

This is intended curbed the problem of diverting funds as well as Money launderying.

It is specially incorporated so as to save banks NPA.

2. One of the most important change in CARO is that Inventory and debtors submitted to banks, for working Capital Limit, are matching with books of accounts or not.

This has indirectly cast  responsibility of certifying the details submitted to banks for wc limit of 5 crore or more. It will have long lasting effects.

3. Another clause (viii) requirea to report as to whether  any  transactions not recorded  in  the  books of account have  been surrendered or disclosed as income during the year in the tax assessments under the  Income Tax  Act,  1961  (43  of  1961),  if  so,  whether  the  previously unrecorded  income  has  been  properly  recorded  in  the  books  of  account during the year;
4. One more clause provides for reporting as to whether  during  any  point  of  time  of  the  year,  the  company  has  been sanctioned  working  capital  limits  in  excess  of  five  crore  rupees,  in  aggregate, from  b anks  or  financial  institutions  on  the  basis  of  security  of  current assets;  whether  the  quarterly  returns  or  statements  filed  by  the  company with  such  banks  or  financial  institutions  are  in  agreement  with  the  books of account of the Company, if not, give de tails;

Caro further requires to report whether Inventory and debtors submitted to banks, for working Capital Limit, are matching with books of accounts or not.

This has indirectly cast  responsibility of certifying the details submitted to banks for wc limit of 5 crore or more. It will have long lasting effects. It may be noted that auditors  do not have access to bank records and most of the time data is in soft format. No one on confirm its authenticity whether its same thats shared with bank or otherwise.

5. Reporting on revaluation of Property, Plant and Equipments by company

6. Reporting of proceedings under the Benami Transactions* (Prohibition) Act, 1988.

7. Reporting of *investments* in or  providing of any *guarantee or security* or granting any loans or advances.

9. Loans overdue for more than 90 days, *evergreening of loans, reporting on any *loan default*, etc.

10. Reporting of compliances with *RBI directives* and the provisions the Companies Act with respect to deemed deposits.

11. Reporting with respect to transactions not recorded in the books of account but now surrendered or disclosed as income in the income tax proceedings.

12. Reporting on treatment by auditor of *whistle-blower complaints* received during the year by the company

13. Reporting on internal audit system

14. Reporting on cash losses

15. Reporting on resignation of the statutory auditors

12. Reporting on *uncertainty of company capable of meeting its liabilities*

16.Reporting transfer of *unspent CSR* amount to Fund specified in Schedule VII

MCA has notified new CARO 2020 wherein all the existing clauses are there. Some new clauses are added and some are amended. There are various reporting requirements on the auditor now. Here is a brief analysis of the same and comparison between CARO 2015, CARO 2016 AND CARO 2020 as under: 1. If company has given any loans and advances to any party and same has been recovered or not as per stipulated terms is to be given by auditor. Further, details of loans given should be provided. This is intended curbed the problem of diverting funds as well as Money launderying. It is specially incorporated so as to save banks NPA. 2. One of the most important change in CARO is that Inventory and debtors submitted to banks, for working Capital Limit, are matching with books of accounts or not. This has indirectly cast responsibility of certifying the details submitted to banks for wc limit of 5 crore or more. It will have long lasting effects. 3. Another clause (viii) requirea to report as to whether any transactions not recorded in the books of account have been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961 (43 of 1961), if so, whether the previously unrecorded income has been properly recorded in the books of account during the year; 4. One more clause provides for reporting as to whether during any point of time of the year, the company has been sanctioned working capital limits in excess of five crore rupees, in aggregate, from b anks or financial institutions on the basis of security of current assets; whether the quarterly returns or statements filed by the company with such banks or financial institutions are in agreement with the books of account of the Company, if not, give de tails; Caro further requires to report whether Inventory and debtors submitted to banks, for working Capital Limit, are matching with books of accounts or not. This has indirectly cast responsibility of certifying the details submitted to banks for wc limit of 5 crore or more. It will have long lasting effects. It may be noted that auditors do not have access to bank records and most of the time data is in soft format. No one on confirm its authenticity whether its same thats shared with bank or otherwise. 5. Reporting on revaluation of Property, Plant and Equipments by company 6. Reporting of proceedings under the Benami Transactions* (Prohibition) Act, 1988. 7. Reporting of *investments* in or providing of any *guarantee or security* or granting any loans or advances. 9. Loans overdue for more than 90 days, *evergreening of loans, reporting on any *loan default*, etc. 10. Reporting of compliances with *RBI directives* and the provisions the Companies Act with respect to deemed deposits. 11. Reporting with respect to transactions not recorded in the books of account but now surrendered or disclosed as income in the income tax proceedings. 12. Reporting on treatment by auditor of *whistle-blower complaints* received during the year by the company 13. Reporting on internal audit system 14. Reporting on cash losses 15. Reporting on resignation of the statutory auditors 12. Reporting on *uncertainty of company capable of meeting its liabilities* 16.Reporting transfer of *unspent CSR* amount to Fund specified in Schedule VII