What are the new reporting requirements in CARO, 2020?

Key Takeaways:

Enhanced reporting requirements in CARO, 2020
Significant changes in CARO, 2020
Matters specified in Auditor's report
Comparison between CARO, 2020 and CARO, 2016

1. CS Meenakshi Jayaraman What are the new reporting requirements in Companies (Auditor's Report) Order, 2020?

2. Credits and Acknowledgments Sundar Rajan S

3. Legends used in the Presentation Act Companies Act, 2013 BRA Banking Regulation Act, 1949 CARO Companies (Auditor's Report) Order CFS Consolidated Financial Statements CG Central Government FY Financial Year HFC Housing Finance Company NBFC Non Banking Finance Company NFRA National Financial Reporting Authority OPC One Person Company RBI Reserve Bank of India Sec Section

4. Presentation Schema

5. Overview 5

6. Applicability and non-applicability

7. Exceptions 1. Banking Company defined under Sec 5(c) of BRA 2. Insurance Company defined under Insurance Act, 1938 3. Section 8 Company registered under the Act 4. OPC and small Company defined under the Act 5. Private Limited Company not being a subsidiary or holding Company of a public Company; and having a total revenue as disclosed in Schedule III to the Act (including revenue from discontinuing operations) <= Rs. 10 Crores during the FY as per the financial statements having total borrowings from any bank or financial institution <= Rs. 1 Crore throughout the FY; and having a paid up capital and reserves and surplus <= Rs. 1 Crore as on balance sheet date; and Applicability provisions are the same in CARO 2020 and CARO 2016

8. Non-applicability CARO 2020 shall not apply to auditor’s report on CFS except clause (xxi) of paragraph 3 Clause (xxi) of paragraph 3 states that, Hence, CARO 2020 is applicable to CFS only to the extent of clause (xxi) of paragraph 3 Non-applicability under CARO 2020 differs from CARO 2016. CFS is completely outside the ambit of CARO 2016

9. Summary of items to be disclosed in auditor’s report as per CARO 2020

10. Clauses Matters to be disclosed i Property Plant & Equipment (PPE) and Intangible assets ii Inventories iii Investments, guarantee, security and loans given by Company iv Compliance of Sec 185 & 186 of the Act v Acceptance of deposits vi Cost Records maintenance vii Payment of statutory dues viii Unrecorded transactions ix Default in repayment of loans or other borrowings x Utilisation of funds raised through specific modes Clauses Matters to be disclosed xi Fraud reporting xii Compliances by Nidhi Company xiii Compliance with Sec 177 and 188 xiv Internal Audit System xv Non-cash transactions with directors xvi Registration with RBI xvii Cash losses xviii Resignation of the statutory auditors xix Capability of Company meeting its liabilities existing at the date of balance sheet xx Compliance with Corporate Social Responsibility xxi Companies in CFS having qualifications or adverse remarks

11. Disclosure with respect to PPE and Intangible assets – Clause (i) Matters to be included in auditor’s report – Paragraph 3 of CARO 2020

12. 1. 2. In comparison with CARO 2016, point 1 is modified with change in terminology and point 2 remains the same

13. 3. Contd. If not, provide the details thereof stated below: In comparison with CARO 2016, point 3 is modified to provide specific details as mentioned herein

14. 4. Contd. 5. In comparison with CARO 2016, points 4 & 5 are newly added in CARO 2020

15. Disclosure with respect to inventories – Clause (ii)

16. 1. 2. In comparison with CARO 2016, Point 1 is modified with additional details to be reported on coverage and procedure of verification including quantification of discrepancies Point 2 is newly added with respect to disclosure of working capital loans

17. Disclosure with respect to investments made, guarantee or security granted, or loans and advances given – Clauses (iii) & (iv)

18. Whether during the year the Company has made investments in, provided any guarantee or security or granted any loans or advances in the nature of loans, secured or unsecured, to companies, firms, Limited Liability Partnerships or any other parties, if so, 1. 2. Clause (iii)

19. 3. In respect of loans and advances in the nature of loans, whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are regular If the amount is overdue, state the total amount overdue for more than 90 days , and whether reasonable steps have been taken by the Company for recovery of the principal and interest 4. 5. Contd.

20. 6. Contd. Clause (iv)

21. Contd. In comparison with CARO 2016, clause (iii) is modified in CARO 2020 as follows: Scope of this clause is extended to include investments, security or guarantee apart from loans Point 1 is newly inserted to provide disclosure on loans, security or guarantee given by the Company and to report such transactions with group companies and other than group companies Point 2 is modified to the extent of inclusion of investments, guarantee and security apart from loans Points 3 and 4 remain unchanged Points 5 and 6 are newly inserted to provide additional disclosures on fresh loans granted to repay previous loans and loans repayable on demand, which leads to identification of potential risk on the balance sheet of the Company In comparison with CARO 2016, clause (iv) remains unchanged in CARO 2020

22. Disclosure with respect to deposits – Clause (v)

23. In comparison with CARO 2016, this clause is modified in CARO 2020 by including deemed deposits also in the disclosure

24. Disclosure with respect to maintenance of cost records and payment of statutory dues – Clauses (vi) & (vii)

25. Whether maintenance of cost records has been specified by the CG under Sec 148 (1) of the Act and whether such accounts and records have been so made and maintained Where statutory dues referred above 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) 1. 2. In comparison with CARO 2016, point 1 remains unchanged whereas point 2 is modified by including GST in the statutory dues and it provides for disclosure of amount involved and the forum where dispute is pending for non-disclosure of all statutory dues

26. Disclosure with respect to unrecorded transactions – Clause (viii)

27. In comparison with CARO 2016, this clause is newly inserted in CARO 2020 to make disclosure with respect to unrecorded transactions by the Company

28. Disclosure with respect to default in repayment of loans or other borrowings – Clause (ix)

29. 1.

30. 2. 3. 4. Whether the Company is a declared wilful defaulter by any bank or financial institution or other lender Whether term loans were applied for the purpose for which the loans were obtained ; If not, the amount of loan so diverted and the purpose for which it is used may be reported Whether funds raised on short term basis have been utilised for long term purposes If yes, the nature and amount to be indicated Whether the Company has taken any funds from any entity or person on account of or to meet the obligations of its subsidiaries, associates or joint ventures If so, details thereof with nature of such transactions and the amount in each case 5. 6. Whether the Company has raised loans during the year on the pledge of securities held in its subsidiaries, joint ventures or associate companies If so, give details thereof and also report if the Company has defaulted in repayment of such loans raised Contd.

31. Contd. In comparison with CARO 2016, this clause is modified in CARO 2020 as follows: Point 1 is extended to cover default in repayment of borrowings to any lender Points 2 to 6 are newly inserted to provide additional disclosures for default in repayment of borrowings and to identify if the amount of loan was diverted for the use of group companies

32. Disclosure with respect to specific fund raising – Clause (x)

33. 1. 2. In comparison with CARO 2016, this clause is modified in CARO 2020 as follows: Point 1 excludes money raised by way of term loans since it is covered under clause (ix) Point 2 includes confirmation to the compliance of the provisions of Section 62 as an additional requirement

34. Disclosure with respect to fraud reporting – Clause (xi)

35. Whether any fraud by the Company or any fraud on the Company has been noticed or reported during the year If yes, the nature and the amount involved is to be indicated 1. 2. 3. Whether any report under Sec 143 (12) of the Act has been filed by the auditors in Form ADT 4 as prescribed under rule 13 of Companies (Audit and Auditors) Rules, 2014 with CG Whether the auditor has considered whistle blower complaints , if any, received during the year by the Company In comparison with CARO 2016, this clause is modified in CARO 2020 as follows: Point 1 remains unchanged Points 2 and 3 are newly inserted to provide additional disclosures for fraud reporting

36. Disclosure with respect to Nidhi Companies – Clause (xii)

37. Whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of 1: 20 to meet out the liability 1. 2. 3. Whether the Nidhi Company is maintaining 10% unencumbered term deposits as specified in the Nidhi Rules, 2014 to meet out the liability Whether there has been any default in payment of interest on deposits or repayment thereof for any period and if so, the details thereof In comparison with CARO 2016, this clause is modified in CARO 2020 as follows: Points 1 and 2 remain unchanged Point 3 is newly inserted to provide additional disclosures for Nidhi Companies

38. Disclosure with respect to related party transactions and non-cash transactions – Clauses (xiii) & (xv)

39. Whether all transactions with the related parties are in compliance with Sec(s) 177 and 188 of the Act where applicable and the details have been disclosed in the financial statements , etc., as required by the applicable accounting standards Whether the Company has entered into any non-cash transactions with directors or persons connected with him If so, whether the provisions of Sec 192 of the Act have been complied with 1. 2. In comparison with CARO 2016, both the above clauses remain unchanged in CARO 2020

40. Disclosure with respect to internal audit – Clause (xiv)

41. Whether the Company has an internal audit system commensurate with the size and nature of its business Whether the reports of the Internal Auditors for the period under audit were considered by the statutory auditor 1. 2. In comparison with CARO 2016, this clause is newly inserted in CARO 2020 to make disclosure with respect to internal audit system

42. Disclosure with respect to RBI registration – Clause (xvi)

43. Whether the Company is required to be registered under Sec 45-IA of the RBI Act, 1934 If so, whether the registration has been obtained Whether the Company has conducted any Non Banking Financial or Housing Finance activities without a valid Certificate of Registration (CoR) from RBI as per the RBI Act, 1934 Whether the Company is a Core Investment Company (CIC) as defined in the regulations made by RBI If so, whether it continues to fulfil the criteria of a CIC In case the Company is an exempted or unregistered CIC, whether it continues to fulfil such criteria* 1. 2. 3. Whether the Group has more than one CIC as part of the Group If yes, indicate the number of CICs which are part of the Group* 4. * CIC regulations are provided under “ Master Direction - Core Investment Companies (Reserve Bank) Directions, 2016 ”

44. In comparison with CARO 2016, this clause is modified in CARO 2020 as follows: Points 1 remains unchanged Points 2 to 4 are newly inserted to provide additional disclosures with respect to unregistered NBFCs and HFCs, and Core Investment Companies Contd.

45. Disclosure with respect to cash losses and auditor resignation – Clauses (xvii) & (xviii)

46. Whether the Company has incurred cash losses in the FY and in the immediately preceding FY If so, state the amount of cash losses Whether there has been any resignation of the statutory auditors during the year If so, whether the auditor has taken into consideration the issues, objections or concerns raised by the outgoing auditors 1. 2. In comparison with CARO 2016, this clause is newly inserted in CARO 2020 to make disclosure with respect to cash losses and auditor’s resignation

47. Disclosure with respect to capability of Company meeting its liabilities existing at the date of balance sheet – Clause (xix)

48. In comparison with CARO 2016, this clause is newly inserted in CARO 2020 which provides qualitative remarks about the Company

49. Disclosure with respect to Corporate Social Responsibility – Clause (xx)

50. Whether, in respect of other than ongoing projects , the Company has transferred unspent amount to a Fund specified in Schedule VII to the Act within a period of 6 months of the expiry of the FY in compliance with second proviso to Sec 135 (5) of the Act Whether any amount remaining unspent under Sec 135 (5) of the Act, pursuant to any ongoing project , has been transferred to special account in compliance with the provision of Sec 135 (6) of the Act 1. 2. In comparison with CARO 2016, this clause is newly inserted in CARO 2020 to make disclosure on compliance with provisions of Corporate Social Responsibility

51. Removal of Clause with respect to managerial remuneration

52. Reasons to be stated for unfavourable or qualified answers

53. 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

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