3. PREFACE
Auditor Reporting a few additional matters as a part of Audit report for a
specified list of companies which helps the stakeholders to understand the
company in a much better way.
4. INTRODUCTION
Came into Enforcement on 29th March 2016.
CARO 2016 has replaced into CARO 2015 with additional focus on Frauds
committed by company, Fund raising & its utilisation etc.
Applicable for reporting for the FY 2015-16 i.e. as it was made applicable
from the 1st April 2016.
5. APPLICABILITY OF CARO 2016
Applicable for all companies including the foreign company u/s 42 of CA 2013.
Exceptions –
Banking Company
Insurance Company
Section 8 Companies
OPC##
Private Limited-
Paid up Capital & Reserves- Not Exceeding INR 1 Cr
Total Borrowings Outstanding- Not Exceeding INR 1 Cr from any Bank or
FI
Turnover not exceeding INR 10 cr during FY at any point of time
6. Reporting on Fixed Assets
Reporting on the Maintenance of proper books
records like quantitative details of fixed
assets
Verification of fixed assets by the
management at fixed intervals to verify if any
material discrepancies exist, if any.
Verify theTitle deeds of Immovable assets if
there are held in the name of the company.
CRITICAL ANALYSIS
Quantitative details mainly include items like
Asset Classifications, Freehold Premises,
Assets under Deferred payment Guarantee,
Source of procuring funds.
PhysicalVerification always depends on the
case to case i.e. type & size of company.
Verification of title deeds is a new provision as
per CA 2013 which ensures that the director’s
personal property is not added in the
companies Books of accounts.
7. Reporting on Inventory
Reporting on the Physical verification of
Inventory at reasonable intervals.
Verify if any material discrepancies were
noticed during such stock verification and try
to understand the reason of such discrepancies
if material.
CRITICAL ANALYSIS
Inventory mainly includes Raw material ,
Work in Progress & Finished goods.
PhysicalVerification always depends on the
case to case i.e. type & size of company.
Proper records include the inventory reports,
verification reports, scrap report from costing
department.
Internal controls for inventory should be
checked so that any weaknesses should be
reported and rectified by them management
8. Reporting on Secured &
Unsecured Loans
Maintenances of Register under
Section 189 of CA 2013 for the
grant of Secured, Unsecured
loans to LLP, Companies, Firms.
Verify whetherT&C for grant of
loans are not against the
interest of the companies.
Schedule of Interest & Principal
amount is duly maintained by
the company.
Amounts overdue for 90 days,
proper action has been taken to
recover the same.
CRITICAL ANALYSIS
Increase of the auditor
responsibility to cover LLP’s even
in the grant of loans by company.
Bringing better transparency in
terms of defaulters by replacing
the monetary value of INR 1 lac in
CARO 2015 with the pre-defined
period of 90 days.
Verification of the Loan
agreements & Related party
transactions.
9. Reporting on Section 185 & 186
Compliance with Section 185 & 186.
If not, the details have to be submitted reasons
stating about the particulars.
CRITICAL ANALYSIS
Increase of the auditor responsibility to
ensure that the auditors along with directors
be punishable for non-compliance of the
provisions.
Boom to Private companies post Notification
inJune 2015 mentioning the applicability to
Pvt Ltd.
Additional step to bring more transparency
for the corporate where public has vested
interest.
10. Reporting on Deposits
Compliance to the Directives issues by RBI and
compliance to Section 73-76 & rules framed
under CA 2013.
If not, the nature of contravention has to be
mentioned.
Any order passed by Company Law Board or
NationalCompany LawTribunal or Reserve
Bank of India or any court or any other tribunal
has to be specified.
Reporting on Cost Audit
Compliance of Cost Records u/s 148 of CA 2013
whether proper accounts & books have been
maintained.
11. Reporting on Statutory dues
Company’s timely payment of Statutory dues
like EPF, ESI, Income tax, SalesTax, Customs ,
Service tax & Excise.
If there is any amount outstanding for a period
more than 6 months as on the 31st March it has
to be reported along with the reason.
Any Statutory amount pending against
disputes, if not deposited against the order
raised by concerned department has to be
reported
CRITICAL ANALYSIS
CARO 2016 has abolished the focus on
Wealth tax and included Service tax into the
compliance list
CARO 2016 has removed the IPEF transfer of
funds which was a part of CARO 2015.
12. Reporting on Default on payment
to Banks & Fin Institutions
Report if any company has defaulted in
repayment to Financial institutions or banks or
debenture holders at any point of time during
the year.
If yes, the following details have to
provided-
Period of default.
Amount
Lender wise details in case of default to bank
& FI’s .
CRITICAL ANALYSIS
Awaking call by Govt to ensure we don’t see
any more Sahara’s or any other Financial
frauds happening..
Step to increase the transparency and
Corporate governance by keeping a eye of
defaulters.
List of Lender will the help Govt to
understand the exposure of each of Lender to
the company.
13. Reporting on Utilisation of money
raised
Reporting on Utilisation of money raised by
the way of Public Issue / Further issue / Debt
funding raising or term loans for purpose it has
been raised.
If not, then the details together with delays /
default and subsequent rectification, if any, as
may be applicable, be reported.
CRITICAL ANALYSIS
New emphasis has been made on Public issue
& Further issue has been made in addition to
the term loans.
Focus towards the Primary & Secondary
market helps to keep the track on how &
where the money is spent.
Delay in utilisation of fund raised helps the
management to be cautious before the fund
raise.
14. Fraud Reporting
Reporting on the frauds which have been
committed on or by company or any frauds
which have been committed its officers /
employees.
CRITICAL ANALYSIS
Special focus has been made for the frauds
which have been committed which have
committed by the officers/ employees
towards the company.
This is a addition to CARO 2015 where the
focus was restricted to frauds by the
company.
Strict check to ensure the employees don’t
take the company for granted and the
regulators are vigilant to ensure we don’t see
another Satyam again.
15. Reporting on Managerial
Remuneration
Reporting on whether the Remuneration
payable to board of directors i.e. MD,Whole
time directors, Non Executive directors has
been in compliance to section 197 of the CA
2013.
If not, the excess amount has to be stated and
process should be initiated to get the refund .
CRITICAL ANALYSIS
A new inclusion in CARO 2016 to keep the
check that profit making companies don’t
take the step to decrease the profits and end
in losses to avoid of taxes.
A checkpoint to ensure the black money
through tax evasion is been caught hold and
the dummy directors been cautioned.
16. Reporting on Nidhi Company
Reporting on whether the Nidhi Company has
complied with the Net Owned Fund in the ratio
of 1: 20 to meet out the liability &
whether the Nidhi Company is maintaining
10% liquid assets to meet out the
unencumbered liability.
CRITICAL ANALYSIS
A new inclusion in CARO 2016 which was
earlier in CARO 2003 where the special
emphasis was laid towards chit fund
companies.
17. Reporting on Related party
transactions
Reporting on all the related party transactions
by ensuring the compliance to Section 177 &
188 of the CA 2013, Accounting standard,
where ever applicable.
The same should be disclosed in the financial
statements too
CRITICAL ANALYSIS
A new inclusion in CARO 2016 to ensure the
false practice are put a check by the
regulatory and bring in the concept of Arm
length Pricing transactions for conduct of
business.
Additional responsibility on auditor to prevent
the frauds happening like DLF & RobertVadra
case.
18. Reporting on Funds raising
Reporting whether company has made any
preferential allotment / private placement of
shares or fully or partly convertible debentures
during the year
If YES, then the compliance to Section 42 of
the CompaniesAct, 2013 & the amount raised
have been used for the purposes for which the
funds were raised.
If not, the details have to be reported.
CRITICAL ANALYSIS
A new inclusion in CARO 2016 as India has
been undergoing through a Fund Raising
activities for many start-ups & Mid-size
companies.
Earlier CARO 2003 have focused only on
preferential allotment only and Private
placement has newly been added.
19. Reporting on Non-Cash
transactions
Reporting on whether any directors or any
persons concerned with of the company has
entered in any non-cash transactions.
If yes, verify whether the compliance of
Section 192 of the CA 2013.
CRITICAL ANALYSIS
This is a new inclusion in CARO 2016
The significance of this section is to identify if
that no director takes any undue advantage
for entering into a non-cash transaction with
passing a proper board resolution and
mentioning the particulars of such asset & its
value as per the registered value.
20. CONCLUSION
It is now clearly evident that areas mentioned in the Companies (Audit Report) Order 2016
will help the stakeholders to identify any weaknesses in the company will help them to take
a decision whether the financial statements showTrue and fair view of the company.
The new additions relating to the Managerial remuneration, non-cash
transactions with directors, Nidhi Company regulations, Related party transactions have put
a heavy load on the Auditor to report any deviations from the provisions of the act.
It’s always better early than be late……………….
Hinweis der Redaktion
##- Once it exceeds the borrowing limits of INR 1cr, they too fall applicable for the caro reporting
