COMPANIES (AUDITOR’S REPORT) ORDER, 2020*

Ministry of Corporate Affairs ‘MCA’ notifies Companies (Auditor’s Report) Order, 2020 (CARO
2020) which is applicable for audit of financial statements of eligible companies for the financial
years commencing on or after the 1st April, 2020.*
The criteria of eligibility of companies on which the CARO, 2020 shall be applicable has not been
changed and hence it shall be applicable to all those companies on which CARO, 2016 was
applicable. Accordingly CARO 2020 will be applicable to all the companies including foreign
companies except banking company, insurance company, section 8 company, OPC [section
2(62)], small company [section 2(85)], certain private limited co. This order stated that every
report of the auditor under Section 143 of Companies Act, 2013 must contain the matters stated
in 21 clauses as specified under paragraphs 3 and accord reasons for unfavorable or qualified
answer as stated in paragraph 4 of CARO 2020 (mentioned below in clause by clause analysis).
CARO 2020 will not be applied with respect to auditor’s report on Consolidated Financial
Statements except clause (xxi) of paragraph 3 (Reporting requirements on qualifications or
adverse remarks by the auditors in the CARO reports). The order 2020 elaborated on all the
matters which are to be included in the auditor’s report. Wherein, the following details of the
subject-matter are described:
1. Whether the company is maintaining proper records showing full particulars such as:
i. The quantitative detail and situation of property, plant, and equipment,
ii. Physical verification of the property, plant, and equipment by the management at
reasonable intervals,
iii. The details of the title deeds of the immovable properties held in the name of
company,
iv. Revaluation of the property, plant, and equipment or intangible assets or both and if
there is more than 10% of the change in the property, plant, and equipment or
intangible assets,
2. Details of proceedings against the company on the holding of any Benami property.
3. Physical verifications of inventory by the management at reasonable intervals and proper
treatment of any discrepancies of 10% or more found.
4. Quarterly returns or statement filed by company having working capital limit more than
5 crore rupees with such banks or financial institution
5. Details of the investments made by the company(except companies dealing in loans),
security or guarantee given by the company,

* Govind Agarwal, Assistant Director, The ICSI.

Views expressed in the Article is the sole expression of the Author and it does not express the views of the
Institute.

* Applicability of Companies (Auditor’s Report) Order, 2020 shall be made applicable from the financial year 2020-
2021 instead of from 2019-2020 notified earlier.

STUDENT COMPANY SECRETARY | MARCH 2020 1

Article

6. Details of the payment pertaining to the undisputed statutory dues such as GST,
provident Funds, Custom Duty, etc.
7. Details of any default done by the company in making the repayment of the loan,
8. Details of the funds raised by a company by the way of the Initial public offer,
9. Details of fraud done by the company, and many more.
10. The Auditor’s Report Order 2020 of any company is supposed to state the reasons for
unfavorable or qualified answers.
Clause by Clause Comparison of the Reporting Companies (Auditor’s Report) Order 2020
vis a vis Previous CARO 2016

Clauses Companies (Auditor’s Report) Companies (Auditor’s Report) Order, 2020

Order, 2016

CARO 2016 contains Total 16 CARO 2020 contains Total 21 reporting

reporting clauses clauses

(i) CARO 2016 required to report Reporting requirements on

on all fixed assets
 Property, Plant, Equipment and
intangible assets only.
 Revaluation of Property, Plant,
Equipment including rights of use
assets or intangible assets
 Proceedings under the Benami
Transactions (Prohibition) Act, 1988
and disclosure in financial
statements.

(ii) Reporting requirement on Reporting requirements on

physical verification of
 Physical verification of inventory at
inventory at reasonable
reasonable interval by management
interval by management and
and the Opinion of the auditor on the
material discrepancies noticed
coverage and procedure of such
if any
verification
 The material discrepancies of 10% or
more noticed if any
 Compliances if company was
sanctioned working capital limits in
excess of five crore rupees or more
from banks or financial institutions.

(iii) Reporting requirement of Reporting requirements of investments

granting any loans or advances in or providing of any guarantee or
to companies, firms, Limited security or granting any loans or
2 MARCH 2020 | STUDENT COMPANY SECRETARY
 Article
Liability Partnerships or any advances to companies, firms, Limited
other parties. Liability Partnerships or any other
parties.

(iv) Reporting requirement on the Reporting requirement on the

compliances of provisions of compliances of provisions of section 185
section 185 and 186 of the and 186 of the companies Act, 2013 in
companies Act, 2013 in respect respect of loans, investments, guarantees
of loans, investments, and security. (No change)
guarantees and security.

(v) Reporting requirements of Reporting of compliances with RBI

compliances with RBI directives and the provisions the
directives and the provisions Companies Act with respect to deposits
the Companies Act with or deemed deposits.
respect to deposits.

(vi) Reporting requirements of Reporting requirements of Maintenance

Maintenance of Cost Record of Cost Record (No Change)

(vii) Reporting requirement on Reporting requirement on statutory dues

statutory dues (No Change)

(viii) Reporting requirements on Reporting requirements with respect to

default in repayment of loans transactions not recorded in the books of
or other borrowing account surrendered or disclosed as
income in the income tax proceedings.

(ix) Reporting requirement on Reporting requirements on

utilization of money raised by
 Default in repayment of loans or other
way of IPO or further public
borrowing or interest thereon
offer for the purposes for
which money has been raised  Declared as will defaulter by bank /
financial institution / other lender
 Utilization of term loan for the
purposes for which term loan has
been raised
 Fund raised on short term basis have
been used for loan term purposes
 Funds taken by the company to meet
obligation if its subsidiaries,
associates or joint ventures
 Loans raised on the pledge of
securities held in its subsidiaries,
associates, joint ventures

STUDENT COMPANY SECRETARY | MARCH 2020 3

Article

(x) Reporting requirement on Reporting requirement on

Notice of fraud by / on the
 Utilization of money raised by way of
company by its officers or
IPO or further public offer for the
employees
purposes for which money has been
raised
 Preferential allotment or private
equity placement of shares or fully or
partly convertible debentures and
compliance of section 42 of
Companies Act, 2013

(xi) Reporting requirement on Reporting requirement on

Managerial Remuneration
 Notice of fraud by / on the company
 Report u/s 143(12) filed by the
auditors in Form ADT-4
 Treatment by auditor of whistle-
blower complaints received during
the year by the company

(xii) Reporting requirements on Reporting requirements on

Net Owned Funds to Deposits
 Net Owned Funds to Deposits of Nidhi
in the ratio of 1:20 and
Company in the ratio of 1:20 and
maintaining of 10%
maintaining of 10% unencumbered
unencumbered terms deposits
terms deposits as per Nidhi Rules
as per Nidhi Rules 2014
2014 and
 for default in the payment of interest
on deposits or repayments thereof for
any period

(xiii) Reporting requirement on Reporting requirements on transaction

transaction with related with related parties (No Change)
parties

(xiv) Reporting requirement on Reporting requirements on internal audit

preferential allotment or system
private equity placement of
shares or fully or partly
convertible debentures and
compliance of section 42 of
Companies Act, 2013

(xv) Reporting requirement on Reporting requirements on non-cash

non-cash transaction with transaction with director or person
connected with him (No Change)
4 MARCH 2020 | STUDENT COMPANY SECRETARY
 Article
director or person connected
with him

(xvi) Reporting requirement of Reporting requirement of

registration u/s 45IA of the
 Registration u/s 45IA of the Reserve
Reserve Bank of India Act,
Bank of India Act, 1934
1934
 NBFC activities without valid
certificate of registration
 Fulfilling the criteria of Core
Investment Company (CIC)
 Number of CICs which are part of
group

(xvii) - Reporting on cash losses (clause added)

(xviii) - Reporting on resignation of the statutory

auditors (clause added)

(xix) - Reporting on uncertainty of company

capable of meeting its liabilities (clause
added)

(xx) - Reporting requirements on transfer of

unspent CSR amount to Fund specified in
Schedule VII (clause added)

(xxi) - Reporting requirements on qualifications

or adverse remarks by the auditors in the
CARO reports of companies included in
the consolidated financial statements
(clause added)

***

STUDENT COMPANY SECRETARY | MARCH 2020 5