Dear Auditors, Get ready for New Reporting on Fraud in the Company (Auditors Report) Order, 2020

CARO 2020 which is applicable from 1st April 2021 provides for following disclosures on fraud and whistle-blower complaints in the auditors report:

1. Has there been any fraud by the company or any fraud done on the company. If any such fraud has been noticed or reported any time of the year. If yes, nature and amount involved have to be reported.

2. Whether the auditors of the company have filed a report in Form ADT-4 with the Central Government as prescribed under the Companies (Audit and Auditors) Rules, 2014.

3. In case of receipt of whistle-blower complaints, whether the complaints have been considered by the auditor.

4. Details of any legal action taken against the accused, along with the legal correspondence if any, must be provided and reported

In short, the onerous duty casted on the auditors is set to rise with CARO-2020. Auditors would be required more reporting and  involvement as far as the audit function is concerned. Needless to say, any error or ignorance is not only taken seriously by the ROC but also by the ICAI who is imposing severe penalties and fines on the erring Auditor. In the recent past, there has been a sudden rise in the cases of the auditors who are penalized by the ICAI for the default committed as per ICAI Guidelines.

The one very commonly known fact is that the auditors are questioned first even when there is disputes and litigation between the promoters/shareholder / Directors.And so, auditors have to act cautiously while doing the attest function.

The proper documentation and record keeping is certainly going to help the auditor from saving their hands during fire.

This is the time for auditors to get ready for CARO-2020 now.