Analysis of newly added clauses of CARO 2020

Analysis of newly added clauses of CARO 2020

MCA has notified new CARO 2020 in replacement of CARO, 2016. With the enforcement of new order some new clause has been added to reporting while some of the existing clauses have been amended. Also, some clause has been deleted from old order. We’ll study all newly added, amended, deleted clauses of the order while comparing the same with the old order. In this part one we are going to enumerate the newly added clauses which were not there in CARO, 2016.

Analysis of newly added clauses of CARO 2020
Analysis of newly added clauses of CARO 2020
Clause no. in CARO, 2020 Clause text as mentioned under CARO, 2020 Analyses
1. 3(i)(a)(B) “Whether the company is maintaining proper records showing full particulars of intangible assets” Earlier this clause was for tangible assets only. Now, same has been inserted for intangible assets also.
2. 3(i)(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” Following needs to be reported-

  1. Whether company has revalued any of its assets during the year;
  2. If yes, whether it is based on the revaluation by Registered valuer;
  3. Amount of change, if change is 10% or more in the net carrying value of each class of assets.
4. 3(i)(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” Following needs to be reported-

  1. Any proceeding initiated and pending under Benami Transactions (Prohibition) Act, 1988;
  2. Whether details has been disclosed in financial statements.
5. 3(ii)(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 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” Following needs to be disclosed-

  1. Working capital limit sanctioned above Rs. 5 Crore on the bases of security of current assets;
  2. Whether quarterly statement filed with banks are in agreement with books of accounts.
6. 3(viii) “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” Following needs to be disclosed-

  1. Transactions not recorded in books but disclosed in the income tax assessment;
  2. Whether previously unrecorded transactions have been recorded.
7. 3(ix)(b) “Whether the company is a declared wilful defaulter by any bank or financial institution or other lender” If the company has been declared as wilful defaulter, same needs to be reported.
8. 3(ix)(d) “Whether funds raised on short term basis have been utilised for long term purposes, if yes, the nature and amount to be indicated” If funds raised for short term basis has been utilized for the purpose of long term, same needs to be reported.
9. 3(ix)(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” Any funds raised from any entiry to meet the obligation of its subsidiaries, associates or joint ventures.
10. 3(ix)(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” If loan raised on pledge of securities held in its subsidiaries, associates or joint ventures, then details and defaults on such loans needs to be reported.
11. 3(xi)(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” Reporting of ADT-4, if any filed by the auditors and complaint of whistle-blower considered. With this clause scope has been widened regarding reporting pertaining to fraud.
12. 3(xi)(c) “Whether the auditor has considered whistle- blower complaints, if any, received during the year by the company”
13. 3(xii)(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” Pertaining to Nidhi companies new clause has been added which requires disclosure of default in payment of interest on deposits and repayment thereof.
14. 3(xiv)(a) and (b) “(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;”

Clause was removed when CARO, 2016 was notified and now again added in CARO 2020. Further, it is required to specifically disclosed whether report of internal audit has been considered by the statutory auditors..
15. 3(xvi)(b), 3(xvi)(c), 3(xvi)(d) “(b) whether the company has conducted any Non-Banking Financial or Housing Finance activities without a valid Certificate of 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”

Earlier there was reporting whether company is required to get itself registered under section 45-IA of Reserve Bank of India, Act 1934.

Now along with this 3 more such requirements (mentioned under col. 2) needs to be analysed and reported.

16. 3(xvii) “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” Cash losses incurred by company in current and previous financial year needs to be reported.
17. 3(xviii) “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” When a new auditor has been appointed after resignation of previous auditor, then whether new auditor has considered the issues, concerns or objections raised by the previous auditors.
18. 3(xix) ”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” Auditor needs to give its opinion that whether company will be able to meets its liabilities, existing on the balance sheet date as and when they fall due within 1 year.

Auditor needs to analyse following to comment on above-

  1. Financial ratios,
  2. Ageing of financial assets and financial liabilities,
  3. Expected realization of those assets and liabilities.
19. 3(xx) “(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 subsection (6) of section 135 of the said Act”

This reporting needs to be checked with pursuant of the sections of corporate social responsibility under Companies Act, 2013.
20. 3(xxi) “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” Any qualification or adverse remark mentioned in the CARO of any company included in the audit report on consolidated financial statements, needs to be mentioned here.

Note- Detail clause-wise analysis can be given once institute issues any guidance note on the above.

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