ICAI Releases Guidance Note on the Companies (Auditor’s Report) Order, 2020

The Companies (Auditor’s Report) Order, 2020 (CARO 2020) was released by the Ministry of Corporate Affairs (MCA) in February 2020. Many new reporting requirements for auditors are included in CARO 2020, including revaluation of property, plant, and equipment (including the right of use assets) or intangible assets, Benami property, working capital limits based on the security of current assets, granting loans or advances in the nature of loans that are either repayable on demand or without specifying any terms or period of repayment, undisclosed income, company declared a wilful defaulter, material uncertainty in financial statements, and material uncertainty in financial statements In July 2020, the ICAI’s Auditing and Assurance Standards Board (AASB) produced the “Guidance Note on the Companies (Auditor’s Report) Order, 2020” (Guidance Note on CARO 2020) to provide extensive guidance on CARO 2020’s different clauses and reporting obligations for auditors.

The MCA has made corresponding amendments in Schedule III (Division I, Division II, and Division III) to the Companies Act, 2013 for the preparation of financial statements to ensure that the management of companies provides various disclosures that pertain to clauses of CARO 2020, particularly the aforesaid new reporting requirements. Various other disclosure obligations have also been added to Schedule III of the Companies Act, 2013, in addition to the aforementioned revisions.

Members should be aware that, in light of the aforementioned revisions, AASB is working on a full revision of the CARO 2020 Guidance Note. In the meantime, members should study CARO 2020 in connection with the related revisions to Schedule III of the Companies Act, 2013 for presentation and disclosure obligations, and conduct audit procedures accordingly.

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