Comparative summary of CARO 2016 vs CARO 2020

1/23
Comparative summary of CARO 2016 vs CARO 2020
taxguru.in/company-law/comparative-summary-caro-2016-vs-caro-2020.html
Companies (Auditor’s Report) Order, 2020
The Companies Act, 2013 requires auditors of specified class of companies to include a
statement in their reports on specific matters as prescribed in the Companies (Auditor’s
Report) Order (CARO). In 2020, the Ministry of Corporate Affairs (MCA) issued a revised
CARO (CARO 2020) which is applicable to a wide range of companies. CARO 2020
brings enhanced reporting requirements which will provide more accurate insights to the
business of the Company. CARO 2020 is applicable for audits of financial years
commencing on or after April 1, 2021.
CARO 2016 had a total of 16 clauses, whereas CARO 2020 has 21 clauses (50 including
sub-clauses). Some of the important areas where reporting has been enhanced are:
> material uncertainty around repayment of liabilities;
> adequacy of internal audit;
> whistle-blower system and reporting of frauds;
> borrowings;
> investments;
> loans and advances and
> reporting on matters relating to consolidated entities.
Many of the new reporting requirements require the auditor to apply the principles of
professional judgement and materiality, rather than application of a pure objective test.

2/23
While reporting requirements have been enhanced, the applicability of CARO 2020
remains similar to CARO 2016. Just like CARO 2016, CARO 2020 is applicable to every
company including a foreign company as defined in clause (42) of section 2 of the
Companies Act, 2013, except
> a banking company as defined in clause (c) of section 5 of the Banking Regulation Act,
1949;
> an insurance company as defined under the Insurance Act,1938;
> a company licensed to operate under section 8 of the Companies Act;
> a One Person Company as defined in clause (62) of section 2 of the Companies Act;
> a small company as defined in clause (85) of section 2 of the Companies Act; and
> a private limited company, if it meets all of the following conditions:
It is not a subsidiary or holding company of a public company;
Its paid-up capital and reserves and surplus do not exceed Rs. 1 crore as on
the balance sheet date;
Its total borrowings from any bank or financial institution do not exceed Rs. 1
crore at any point of time during the financial year and
Its total revenue, as disclosed in Schedule III to the Companies Act, 2013
(including revenue from discontinued operations) does not exceed Rs. 10
crores during the financial year as per the financial statements.
A comparative summary of CARO 2016 vs CARO 2020 is tabulated below:
Clause
No.
CARO 2016 CARO 2020 Changes
3(i) (a) whether the
company is
maintaining proper
records showing full
particulars,
including
quantitative details
and situation of
fixed assets;
(b) whether these
fixed assets have
been physically
verified by the
management at
reasonable
intervals;
(a) (A) whether the
company is
maintaining proper
particulars, including
quantitative details
and situation of
Property, Plant and
Equipment;
(B) whether the
company is
maintaining proper
particulars of
intangible assets;
(b) whether these
Property, Plant and
Equipment have
1. In line with the changes
made in accounting standard
(AS-10) and reporting
requirements under Schedule
III, the term fixed assets has
now been replaced with
Property, Plant and Equipment
and Intangible assets in CARO
2020.
2. A format has been specified
in the order for reporting of
immovable properties for which
the title deeds are not held in
the name of the Company.
Earlier no format was
specified.

3/23
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;
(c) whether the title
deeds of
immovable
properties are held
in the name of the
company. If not,
provide the details
thereof;
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
(c) whether the title
deeds of all the
immovable properties
(other than properties
where the company
is the lessee and the
lease agreements
are duly executed in
favour of the lessee)
disclosed in the
financial statements
are held in the name
of the company, if
not, provide the
details thereof in the
specified format
(d) whether the
company has
revalued its Property,
Plant and Equipment
(including Right of
Use assets) or
intangible assets or
both during the year
and, if so, whether
the revaluation is
based on the
valuation by a
Registered Valuer;
specify the amount of
change, if change is
10% or more in the
aggregate of the net
carrying value of
each class of
Property, Plant and
Equipment or
intangible assets
3. In case of revaluation of
PP&E (including ROU asset as
per Ind AS 116) or intangible
asset, the auditor has to verify:
a. whether the revaluation is
based on the valuation
provided by registered valuer
and also whether the
provisions of section 247 of the
Companies Act, 2013 including
the corresponding rules thereto
relating to valuation by
registered valuers have been
duly complied with; and
b. if the amount of change is
10% or more of the total net
carrying value of each class of
PP&E or intangible asset, the
amount of change needs to be
specified.
This is a new subclause.
4. With respect to benami
properties, the auditor has to
verify whether any proceedings
have been initiated against the
Company by appropriate
authority under the Benami
Property Act and/ or any
proceedings are pending with
the appropriate authorities as
on the balance sheet date for
holding any benami property.
The reporting is not applicable
where the notice is received by
the Company as a beneficial
owner.
For the purpose of reporting,
appropriate disclosures in the
financial statements would
include nature of property,
carrying value of the property
in the books of accounts,
status of proceedings before
the relevant authority,
consequential impact on the
financial statements and/ or
the liability that may arise in
case the proceedings are
decided against the company.

4/23
(e) whether any
proceedings have
been initiated or are
pending against the
company for holding
any benami property
under the Benami
Transactions
(Prohibition) Act,
1988 (45 of 1988)
and rules made
thereunder, if so,
whether the company
has appropriately
disclosed the details
in its financial
statements
3(ii) whether physical
verification of
inventory has been
conducted at
reasonable
intervals by the
management and
whether any
material
discrepancies were
noticed and if so,
whether they have
been properly dealt
with in the books of
account
(a) whether physical
verification of
inventory has been
conducted at
reasonable intervals
by the management
and whether, in the
opinion of the auditor,
the coverage and
procedure of such
verification by the
management is
appropriate;
whether any
discrepancies of 10%
or more in the
aggregate for each
class of inventory
were noticed and if
so, whether they
have been properly
dealt with in the
books of account
(b) 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 banks or
financial institutions
on the basis of
security of current
assets; whether the
1. In addition to reporting
whether the physical
verification is conducted at
reasonable intervals (what is
reasonable is dependent on
circumstances of each case),
the auditor also has to report
whether the coverage of such
verification, methods and
procedures adopted for such
verification are appropriate,
considering the size of the
Company and nature of its
business.
Furthermore, the auditor has to
report whether a discrepancy
of 10% or more arises in the
value for any class of inventory
and also whether the
difference has been
appropriately accounted for in
the books of accounts. It is
pertinent to note that the
materiality threshold is not
relevant here and as such a
discrepancy of 10% or more in
the value of any class of
inventory would be reported,
even if it is immaterial. Lastly,
10% should be applied on net
basis i.e. after adjusting for
excesses and shortfall within
the class.
2. In case the Company has
been sanctioned working
capital limits (sanction includes

5/23
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 details
new sanctions during the year
as well as limits renewed or
due for renewal during the
year) exceeding Rs. 5 crores
on the security of current
assets (thus all unsecured
facilities and those sanctioned
on the basis of security of
other assets are not covered
here), then auditor has to verify
the quarterly returns submitted
by the Company to the bank
(for e.g., stock statement, book
debt statement, ageing
analysis of debtors, etc) and
ensure that the same agree to
the books of accounts. Any
discrepancies in the same are
to be appropriately reported. It
is pertinent to note here that
the limits are to be determined
in reference to the sanction
letter and would include both
fund based and non-fund-
based credit facilities.
Moreover, this subclause will
be applicable even though the
outstanding balance is less
than Rs. 5 crores as at the
balance sheet date (as the
clause mentions sanctioned
limit).
3(iii) 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,
2013. If so,
(a) whether the
terms and
conditions of the
grant of such loans
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,
(a) whether during
the year the company
has provided loans or
provided advances in
1. The scope of this clause has
been increased to cover not
only loans and advances, but
investments made, guarantees
and securities provided as
well.
Moreover, in CARO 2016,
loans and advances granted
only to related parties were
covered, however, CARO 2020
covers loans and advances
granted to, investments made
in and guarantees and
securities provided to any
enterprise as such, regardless
whether it is a related party or
not.

6/23
are not prejudicial
to the company’s
interest;
(b) whether the
schedule of
repayment of
principal and
payment of interest
has been stipulated
and whether the
repayments or
receipts are
regular;
(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
the nature of loans,
or stood guarantee,
or provided security
to any other entity
[not applicable to
companies whose
principal business is
to give loans], if so,
indicate-
(A) the aggregate
amount during the
year, and balance
outstanding at the
balance sheet date
with respect to such
loans or advances
and guarantees or
security to
subsidiaries, joint
ventures and
associates;
(B) the aggregate
amount during the
year, and balance
outstanding at the
balance sheet date
with respect to such
loans or advances
and guarantees or
security to parties
other than
subsidiaries, joint
ventures and
associates;
(b) whether the
investments made,
guarantees provided,
security given and
the terms and
conditions of the
grant of all loans and
advances in the
nature of loans and
guarantees provided
are not prejudicial to
the company’s
interest;
(c) in respect of loans
and advances in the
nature of loans,
whether the schedule
of repayment of
2. Further, CARO 2020
requires the auditor to report
the following details separately
for Company’s subsidiaries,
joint ventures and associates
and for other parties-total
amount of loans and advances
granted and guarantees or
securities provided during the
year (loans and advances
squared off during the year are
also to be reported) and
outstanding amount of the
same as on the balance sheet
date.
It is pertinent to note here that
clause 3(iii)(a) is not applicable
to Companies whose principal
business is to give loans i.e.
NBFCs, financial institutions,
etc.
3. Clause 3(iii)(e) requires the
auditor to identify and report
instances of evergreening of
loans and advances and is
applicable to all companies,
except for companies whose
principal business is to give
loans, for e.g., NBFCs,
financial institutions, etc. The
auditor has to report aggregate
amount of loans renewed or
extended or settled by grant of
fresh loans and the %age
thereof to the total amount of
loans and advances in the
nature of loans (what is
advance in the nature of loans
is dependent on the
circumstances of each case)
granted during the year.
Reporting under this clause
would also cover loans falling
due as on the balance sheet
date and which were renewed/
extended/ settled post the
balance sheet date and before
the date of audit report.
4. CARO 2020 has introduced
another new subclause which
requires disclosure of gross

7/23
principal and
payment of interest
has been stipulated
and whether the
repayments or
receipts are regular;
(d) 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;
(e) whether any loan
or advance in the
nature of loan
granted which has
fallen due during the
year, has been
renewed or extended
or fresh loans
granted to settle the
overdues of existing
loans given to the
same parties, if so,
specify the aggregate
amount of such dues
renewed or extended
or settled by fresh
loans and the
percentage of the
aggregate to the total
loans or advances in
the nature of loans
granted during the
year [not applicable
to companies whose
principal business is
to give loans];
(f) whether the
company has granted
any loans or
advances in the
nature of loans either
repayable on
demand or without
specifying any terms
or period of
repayment, if so,
specify the aggregate
amount of loans or advances
in the nature of loans which
are either repayable on
demand or do not specify any
terms or period of repayment
in the auditor’s report.
If a company has granted such
loans, then specific disclosures
would need to be provided for
aggregate amount of such
loans granted, %age thereof to
total loans granted and loans
granted to promoters and
related parties as defined
under relevant provisions of
the Companies Act, 2013. For
the purpose of reporting,
related party relationship is to
be evaluated for the entire year
and not just as on the balance
sheet date.

8/23
amount, percentage
thereof to the total
loans granted,
aggregate amount of
loans granted to
Promoters, related
parties as defined in
clause (76) of section
2 of the Companies
Act, 2013
3(iv) in respect of loans,
investments,
guarantees, and
security whether
provisions of
section 185 and
186 of the
Companies Act,
2013 have been
complied with. If
not, provide the
details thereof.
in respect of loans,
investments,
guarantees, and
security, whether
provisions of sections
185 and 186 of the
Companies Act have
been complied with, if
not, provide the
details thereof;
No change

9/23
3(v) 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?
in respect of deposits
accepted by the
company or amounts
which are deemed to
be 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 made
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
CARO 2020 has modified the
reporting requirements relating
to acceptance of deposits by a
company and requires auditor
to verify the compliance with
RBI directives and provisions
of the Companies Act, 2013
not just for deposits accepted
by the Company, but also for
deemed deposits.
Reference may be drawn to
section 2(31) of the Act to
identify amounts deemed to be
deposits.
3(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.
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
No change

10/23
3(vii) (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,
cess and any other
statutory dues to
the appropriate
authorities and if
not, the extent of
the arrears of
outstanding
statutory dues as
on 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;
(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).
(a) whether the
company is regular in
depositing
undisputed statutory
dues including Goods
and Services Tax,
provident fund,
employees’ state
insurance, income-
tax, sales tax, service
tax, duty of customs,
duty of excise, value
added tax, cess and
any other statutory
dues to the
appropriate
authorities and if not,
the extent of the
arrears of
outstanding statutory
dues as on 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;
(b) where statutory
dues referred to in
sub-clause (a) 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)
No change, except for
inclusion of Goods and Service
Tax along with other statutory
dues payable.

11/23
3(viii) No corresponding
clause in CARO
2016
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
CARO 2020 has introduced a
new reporting requirement
wherein an auditor should
report whether there are any
transactions which have not
been recorded in the books of
accounts of a company but
have been surrendered or
disclosed as income during the
year in Income Tax
assessments. If yes, then an
auditor would also need to
report whether the previously
undisclosed income has now
been properly recorded in the
books of accounts during the
year. It is pertinent to note that
the clause mentions
“surrendered or disclosed”
which implies that the
company must have voluntarily
admitted to the addition of
such income and as such
additions made by income tax
authorities would not be
covered over here.
This is a new clause.
3(ix) whether the
company has
defaulted in
repayment of loans
or borrowing to a
financial institution,
bank, Government
or dues to
debenture holders?
If yes, the period
and the amount of
default to be
reported (in case of
defaults to banks,
financial
institutions, and
Government, lender
wise details to be
provided)
(a) whether the
company has
defaulted in
repayment of loans
or other borrowings
or in the payment of
interest thereon to
any lender, if yes, the
period and the
amount of default to
be reported as per
the specified format;
(b) whether the
company is a
declared wilful
defaulter by any bank
or financial institution
or other lender;
(c) whether term
loans were applied
for the purpose for
which the loans were
obtained; if not, the
amount of loan so
diverted and the
1. CARO 2020 has increased
the scope of reporting under
this clause as against CARO
2016 and now the auditor has
to report default in payment of
interest in addition to default in
repayment of loans to any
lender (as against default in
repayment to financial
institution, bank and
Government as was required
in CARO 2016). Further, a
specific format has been
prescribed for reporting the
defaults, which was not
specified in CARO 2016.
2. CARO 2020 introduces a
new reporting requirement
relating to whether the
company has been declared
as a wilful defaulter by any
bank, financial institution or
other lender during the year
under audit till the date of
auditor’s report. The term

12/23
purpose for which it
is used may be
reported;
(d) whether funds
raised on short term
basis have been
utilised for long term
purposes, if yes, the
nature and amount to
be indicated;
(e) 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;
(f) 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
‘wilful defaulter’ has to be
understood with reference to
the RBI circular thereon.
3. Another new reporting
requirement under CARO 2020
pertains to whether the terms
loans obtained by the company
from bank, financial institution
or any other person/ entity
have been used for the
purpose for which they were
sanctioned. If the proceeds
have been diverted, then the
auditor has to report the
amount of funds diverted and
the purpose for which they
were used. Diversion of funds
is to be understood with
reference to the RBI circular on
wilful defaulters.
4. Similar to clause 3(ix)(c),
clause 3(ix)(d) requires the
auditor to verify whether the
short-term loans obtained by
the company from banks,
financial institution or any other
person/ entity have been used
for long term purposes or not.
If yes, then the amount of
diversion along with the
purpose for which they were
used needs to be reported.
5. CARO 2020 further requires
the auditor to verify whether
the company has obtained any
funds (long term or short term)
from any entity/ person during
the year and thereafter granted
the same as loans or advance
in the nature of loans or
invested the same in its
subsidiaries, associates or joint
ventures. If yes, then the
auditor is required to provide
the details along with the
nature of such transactions
and the amount in each case.

13/23
Details are to be provided even
if the funds have been repaid
before the year end date.
6.Under CARO 2020, an
auditor is required to report
whether the company has
raised any loan from any
lender during the year on
specific pledge (and not
general or residual charge) of
the investment of the company
in its subsidiaries, associates
or joint ventures. If yes, then
the auditor has to report the
details of such loans and
defaulted in repayment of such
loans or not. It is pertinent to
note here that only new loans
taken during the year are
covered under this clause
(even if repaid during the
year). Thus, loans taken in
earlier years and outstanding
as on the balance sheet date
would not be covered.

14/23
3(x) 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 or default
and subsequent
rectification, if any,
as may be
applicable, be
reported.
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 the details
in respect of the
amount involved
and nature of non-
compliance
(a) whether moneys
raised by way of
initial public offer or
further public offer
(including debt
instruments) during
the year were applied
for the purposes for
which those are
raised, if not, the
details together with
delays or default and
subsequent
rectification, if any, as
may be applicable,
be reported
(b) whether the
company has made
any preferential
allotment or private
placement of shares
or convertible
debentures (fully,
partially or optionally
convertible) during
the year and if so,
whether the
requirements of
section 42 and
section 62 of the
Companies Act, 2013
have been complied
with and the funds
raised have been
used for the
purposes for which
the funds were
raised, if not, provide
details in respect of
amount involved and
nature of non-
compliance
CARO 2020 now covers
private placement/ preferential
allotment of optionally
convertible debentures in
addition to fully or partly
convertible debentures.

15/23
3(xi) whether any fraud
by the company or
any fraud on the
Company by its
officers or
employees has
been noticed or
reported during the
year;
If yes, the nature
and the amount
involved is to be
indicated
(a) 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;
(b) whether any
report under sub
section (12) of
section 143 of the
Companies Act has
been filed by the
auditors in Form
ADT-4 as prescribed
under rule 13 of
Companies (Audit
and Auditors) Rules,
2014 with the Central
Government;
(c) whether the
auditor has
considered whistle-
blower complaints, if
any, received during
the year by the
company
1. CARO 2020 has increased
the auditor’s reporting
requirements relating to fraud.
Earlier, reporting on fraud on
the Company was restricted to
fraud by its “officers or
employees”, however, the
revised clause has removed
this restriction and now fraud
on the company by any person
would be reported.
2. CARO 2020 additionally
requires to auditor to state
whether any report under
section 143(12) of the
Companies Act, 2013 (w.r.t.
reporting of fraud committed in
the Company by its officers or
employees involving an
amount of Rs. 1 crore or more
to Central Government) has
been filed by auditor (statutory
auditor, cost auditor or
secretarial auditor) during the
year up to the date of audit
report.
3. CARO 2020 has introduced
a new reporting requirement
which requires an auditor to
consider whistle-blower
complaints, if any received
during the year under audit.
The auditor should also check
the compliance w.r.t. vigil
mechanism under section 177
and SEBI Regulations, as may
be applicable. It is pertinent to
note here that the whistle-
blower complaints pertaining to
earlier years are not to be
considered for the purpose of
reporting under this clause.

16/23
3(xii) (a) whether the
Nidhi Company has
complied with the
Net Owned Funds
to Deposits in the
ratio of 1: 20 to
meet out the liability
(b) whether the
Nidhi Company is
maintaining ten per
cent unencumbered
term deposits as
specified in the
Nidhi Rules, 2014
to meet out the
liability
1: 20 to meet out the
liability (b) whether
the Nidhi Company is
maintaining ten per
cent unencumbered
term deposits
as specified in the
Nidhi Rules, 2014 to
meet out the liability
(c) whether there has
been any default in
payment of interest
on deposits or
repayment thereof for
any period and if so,
the details thereof
the company has defaulted in
payment of interest on
deposits or repayment thereof.
If yes, then the auditor has to
report the following details:
1. Nature of default;
2. Amount of default;
3. Period of default;
4. Number of persons to whom
there was default in payments
and
5. Any other detail, if
necessary.
3(xiii) whether all
transactions with
the related parties
are in compliance
with sections 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
whether all
transactions with the
related parties are in
compliance with
sections 177 and 188
of Companies Act
where applicable and
the details have been
disclosed in the
financial statements,
etc., as required by
the applicable
accounting standards
No change.

17/23
3(xiv) No corresponding
clause in CARO
2016
(a) whether the
company has an
internal audit system
commensurate with
the size and nature of
its business;
(b) whether the
reports of the Internal
Auditors for the
period under audit
were considered by
the statutory auditor
CARO 2020 introduces a new
reporting requirement whereby
an auditor has to verify
whether the company has an
internal audit system/
department and whether the
same is adequate considering
the size and nature of its
business. The auditor also has
to verify the compliance w.r.t.
section 138 0f the Companies
Act, 2013 relating to internal
audit.
Furthermore, an auditor has to
obtain and verify the reports of
such internal audit for the
period under audit and has to
independently evaluate the
impact of the observation on
the financial statements.
3(xv) whether the
company has
entered into any
non-cash
transactions with
directors or persons
connected with him
and if so, whether
the provisions of
section 192 of
Companies Act,
2013 have been
complied with
whether the company
has entered into any
non-cash
transactions with
directors or persons
connected with him
and if so, whether the
provisions of section
192 of Companies
Act have been
complied with
No change.
3(xvi) 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
(a) whether the
company is required
to be registered
under section 45-IA
of the Reserve Bank
of India Act, 1934 (2
of 1934) and if so,
whether the
registration has been
obtained
(b) whether the
company has
conducted any Non-
Banking Financial or
Housing Finance
activities without a
valid Certificate of
CARO 2020 has introduced
new reporting requirements for
NBFCs, HFCs and CICs with a
view to ensure greater scrutiny,
transparency in operations and
safeguarding the interests of
those who undertake
transactions with them.
Unlike CARO 2016, CARO
2020 requires an auditor to
report:
a. Whether the company is
required to be registered as
NBFC/ HFC/CIC?

18/23
Registration (CoR)
from the Reserve
Bank of India as per
the Reserve Bank of
India Act, 1934;
(c) whether the
company is a Core
Investment Company
(CIC) as defined in
the regulations made
by the Reserve Bank
of India, if so,
whether it continues
to fulfil the criteria of
a CIC, and in case
the company is an
exempted or
unregistered CIC,
whether it continues
to fulfil such criteria;
(d) 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
b. Whether the company has
conducted any NBF or HF
activity without a valid CoR
from RBI?
c. In case the company is not
registered as CIC/ not required
to register as CIC, whether the
company continues to fulfil the
criteria for unregistered/
exempted CICs?
d. In case of companies in a
group (for e.g., holding-
subsidiary, joint venture,
associate, related parties)
whether there are more than 1
CIC in the group?
In order to evaluate the above,
the auditor would examine the
activities carried on by the
company and the RBI circulars
and directions relating to
NBFCs, HFCs and CICs. The
auditor would also verify the
financial statements of the
company to determine the
various threshold limits
specified in the RBI circulars
for registration as NBFC, HFC,
CIC (viz, financial assets,
income there from,
investments, net owned funds,
etc).
Any discrepancy is to be
appropriately reported by the
auditor under this clause.
Additionally, the auditor may
report any non-compliance
w.r.t. any of the applicable
provisions by NBFC, HFC, CIC
to RBI in the form of an
exception report in terms of
NBFCs Auditor’s Report
(Reserve Bank) Directions,
2016.

19/23
3(xvii) No corresponding
clause in CARO
2016
whether the company
has incurred cash
losses in the financial
year and in the
immediately
preceding financial
year, if so, state the
amount of cash
losses
another new reporting
requirement which requires an
auditor to comment on whether
the company has incurred any
cash losses in the year under
audit and in the immediately
preceding financial year. If yes,
then the auditor has to state
the amount of such cash
losses. It is pertinent to note
here that for the purpose of
determining cash losses, cash
flow (outflow) from operating
activities is not to be
considered as items such as
interest income, interest
expenses are also relevant for
determining cash losses. Cash
losses (if any) are to be
determined by adjusting all
non-cash expenditure (such as
depreciation and amortisation
expense, foreign exchange
loss, etc) from Net Profit/ Loss
after tax as per the Statement
of Profit and Loss.

20/23
3(xviii) No corresponding
clause in CARO
2016
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
Another new reporting
requirement in CARO 2020
requires an auditor appointed
during the year to fill in a
casual vacancy caused by
resignation of auditor to report
whether the newly appointed
auditor has considered the
issues, objections or concerns
raised by the outgoing auditor
(s).
An auditor is also required to
check compliance with the
relevant provisions of
Companies Act, 2013 and that
under any other Act/prescribed
by any other Authority, as may
be applicable (for e.g., LODR
by SEBI for listed companies).
It is pertinent to note here that
reporting under this clause is
not applicable in case of
change of auditor(s) on
account of mandatory rotation
as prescribed under the
Companies Act, 2013.

21/23
3(xix) No corresponding
clause in CARO
2016
on the basis of the
financial ratios,
ageing and expected
dates of realisation of
financial assets and
payment of financial
liabilities, other
information
accompanying
the financial
statements, the
auditor’s knowledge
of the Board of
Directors and
management plans,
whether the auditor is
of the opinion that no
material uncertainty
exists as on the date
of the audit report
that company is
capable of meeting
its liabilities existing
at the date of balance
sheet as and when
they fall due within a
period of one year
from the balance
sheet date.
requirement whereby an
auditor has to comment on the
company’s ability to meet its
liabilities existing as on the
balance sheet date as and
when they fall due within a
period of one year from the
balance sheet date. This is to
be assessed based on the
analysis of financial ratios,
ageing statements and
expected dates of realisation of
financial assets and financial
liabilities, other information (for
e.g., Director’s report) and
auditor’s knowledge of the
company and management
plans.
It is to be noted here that,
‘liabilities falling due within a
period of one year’ and
‘current liabilities’ are not the
same. The auditor has to apply
the test of material uncertainty
w.r.t. settlement of liabilities
(existing as on the balance
sheet date) as on the date of
audit report, thus any material
development post the balance
sheet date but before the date
of audit report is also to be
considered.

22/23
3(xx) No corresponding
clause in CARO
2016
(a) whether, in
respect of other than
ongoing projects, the
company has
transferred unspent
amount to a Fund
specified in Schedule
VII to the Companies
Act within a period of
six months of the
expiry of the financial
year in compliance
with second proviso
to sub-section (5) of
section 135 of the
said Act;
(b) whether any
amount remaining
unspent under sub-
section (5) of section
135 of the
Companies Act,
pursuant to any
ongoing project, has
been transferred to
special account in
compliance with the
provision of sub-
section (6) of section
135 of the said Act
Pursuant to the amendments
made by MCA to section 135
and the Companies (CSR
Policy) Rules, 2014, CARO
2020 has introduced a new
reporting requirement wherein
an auditor has to comment on
the following:
a. For on-going CSR projects:
transferred the unspent CSR
amount to a special account
within a period of 30 days from
the end of financial year as per
section 135(6) of the
Companies Act, 2013;
b. For other than on-going
CSR projects: whether the
company has transferred the
unspent CSR amount to a fund
specified in Schedule VII to the
Companies Act, 2013 within a
period of six months from the
end of financial year in
compliance with the provisions
of section 135(5) of the
Companies Act, 2013.
The auditor has to check the
compliance with the provisions
of section 135 of the
Companies Act, 2013 (for
transfer of funds and utilisation
thereof) and discrepancy, if
any (for current or for previous
financial years), is to be
reported in the audit report.

23/23
3(xxi) No corresponding
clause in CARO
2016
whether there have
been any
qualifications or
adverse remarks by
the respective
auditors in the
Companies (Auditor’s
Report) Order
(CARO) reports of
the companies
included in the
consolidated financial
statements, if yes,
indicate the details of
the companies and
the paragraph
numbers of the
CARO report
containing the
qualifications or
adverse remarks
requirement whereby an
auditor has to comment
whether there are any
qualifications/ adverse remarks
in the CARO reports of the
companies included in the CFS
(for e.g., subsidiary company,
joint venture) by their
respective auditors. If yes, then
the auditor has to provide
details of such companies and
the paragraph/ clause numbers
of the respective CARO report
containing such qualification/
adverse remarks. Whether any
comment is in the nature of
qualification or adverse remark
is to be construed by the
principal auditor using
professional judgement and
experience.
It is important to note here that
reporting requirements of
CARO 2020 are not applicable
to auditor’s report on CFS,
except reporting on
qualifications for those entities
included in CFS to whom
CARO 2020 is applicable.

Comparative summary of CARO 2016 vs CARO 2020

Recommended

Recommended

More Related Content

Similar to Comparative summary of CARO 2016 vs CARO 2020

Similar to Comparative summary of CARO 2016 vs CARO 2020 (20)

More from taxguru5

More from taxguru5 (20)

Recently uploaded

Recently uploaded (8)

Comparative summary of CARO 2016 vs CARO 2020