To enhance the scope of the audit, the MCA in consultation with the National Financial Reporting Authority (NFRA) released the CARO 2020. It lists out the subject matters on which the applicable companies are mandatorily required to report. CARO 2020 is applicable for all statutory audits commencing on or after 1 April 2021 corresponding to the financial year 2020-21.
CARO 2020 comprises 21 reporting clauses in Paragraph 3.
● Whether the records maintained by the company display the complete particulars on the details, quantity and situation of tangible and intangible assets.
● Whether the management has carried out physical verification of the assets at different intervals reasonable with the size of the company.
● Whether the material discrepancies, if any, noticed on physical verification have been accounted for in the books of accounts.
● Whether the title deeds pertaining to the immovable properties (except properties which are leased by the company with duly executed lease agreements in the company’s favour) disclosed in the financial statements are held in the name of the company.
● If the title deeds are not held in the name of the company, the below details should be provided ● Whether a revaluation has been done by the company of its property, plant and equipment (including the 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.
● In case of a change in values upon revaluation, specify the amount of change, if the change is 10% or more in the aggregate of the net carrying value of each class of property, plant and equipment or intangible assets.
● 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 yes, whether the company has appropriately disclosed the details in its financial statements.
New clauses Inserted (MOST IMPORTANT)
Clause viii – Reporting on Unrecorded Income: requires auditors to report whether previously unrecorded income has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961, has been properly recorded in the books during the year.
Clause xiv – Reporting on Internal Audit
A new clause has been inserted in CARO 2020. Clause 14 requires auditors to report whether:-
1. The company has an internal audit system which is commensurable with the size and nature of its business.
2. the reports of the Internal Auditors for the period under audit were considered by the statutory auditor
Clause xvii – Reporting on Cash Losses
Clause xvii requires auditors to report whether the company has incurred cash losses in the financial year and in the immediately preceding financial year and if so, the amount of cash losses is to be disclosed.
Clause xviii – Reporting on Auditor’s Resignation
A new clause has been inserted in CARO 2020, which requires reporting on:-
1. resignation of the statutory auditors during the year, if any
2. whether the auditor has taken into consideration the issues, objections or concerns raised by the outgoing auditors
Clause xix – Reporting on Financial Position
A new clause has been inserted in CARO 2020, which requires the auditor to report on whether material uncertainty exists or not. Disclosure is required that the auditor is of the opinion that the company is capable of meeting its liabilities existing on the balance sheet date as and when they fall due within a period of one year from the balance sheet date.
Clause xx – Reporting on CSR Compliance
A new clause has been inserted in CARO 2020, which requires the auditor to report on whether unspent CSR amount has been transferred to:-
1. a fund as specified in Schedule VII (where no specific project has been carried out or assigned) or,
2. a special designated bank account (related to any ongoing project)
