CARO 2016 Analysis

By | June 13, 2016
(Last Updated On: June 13, 2016)

CARO 2016

CARO 2016 [ Companies (Auditor’s Report) Order 2016 ]  has been notified on 29.03.2016 by the Ministry of Corporate Affairs. It is applicable for audits of financial year 2015-16 and onwards. It shall apply to every report made by the auditor under section 143 of the Companies Act, 2013 on the accounts of every company audited by him. Read complete Notification Companies (Auditor’s Report) Order 2016 Notified.

Salient Features of CARO 2016

  • CARO 2016 has total 16 clauses compared to 12 clauses in CARO 2015
  • CARO 2016  apply to every company including a foreign company
  •  Following categories of Companies Not covered in CARO 2016
    • Banking Company,
    • Insurance Company ,
    • Section 8 Company,
    • One person Company,
    • Small Company u/s 2( 85),
    • a private limited company,
      • not being a subsidiary or holding company of a public company,
      • having a paid up capital and reserves and surplus not more than rupees one crore as on the balance sheet date and
      • which does not have total borrowings exceeding rupees one crore from any bank or financial institution at any point of time during the financial year and
      • which does not have a total revenue as disclosed in Scheduled III to the Companies Act, 2013 (including revenue from discontinuing operations) exceeding rupees ten crore during the financial year as per the financial statements.
  • CARO 2016 shall not apply to the auditor’s report on consolidated financial statements.
  • New requirements under CARO 2016 for reporting by auditor :-
    • As per CARO 2016 , now auditor has to report whether the title deeds of immovable properties are held in the name of the company. If not, provide the details thereof [Clause 3(i)(c)]
    • As per CARO 2016 , now auditor has to report, whether the terms and conditions of the grant of loans to company are not prejudicial to the company’s interest; [Clause 3(iii)(a)]
    • As per CARO 2016 , now auditor has to report, whether managerial remuneration has been paid or provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Companies Act? If not, state the amount involved and steps taken by the company for securing refund of the same; [Clause 3(xi)]
    • As per CARO 2016 , now auditor has to report, whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of 1: 20 to meet out the liability and whether the Nidhi Company is maintaining ten per cent unencumbered term deposits as specified in the Nidhi Rules, 2014 to meet out the liability;[Clause 3(xii)]
    • As per CARO 2016 , now auditor has to report, in respect of loans, investments, guarantees, and security whether provisions of section 185 and 186 of the Companies Act, 2013 have been complied with. If not, provide the details thereof. [Clause 3(iv)]
    • As per CARO 2016 , now auditor has to report, whether all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in the Financial Statements etc., as required by the applicable accounting standards;[Clause 3(xiii)]
    • As per CARO 2016 , now auditor has to report , whether the company has made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review and if so, as to whether the requirement of section 42 of the Companies Act, 2013 have been complied with and the amount raised have been used for the purposes for which the funds were raised. If not, provide the details in respect of the amount involved and nature of non-compliance;[Clause 3(xiv)]
    • As per CARO 2016 , now auditor has to report,whether the company has entered into any non-cash transactions with directors or persons connected with him and if so, whether the provisions of section 192 of Companies Act, 2013 have been complied with;[Clause 3(xv)]
    • As per CARO 2016,now auditor has to report, whether the company is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934 and if so, whether the registration has been obtained.[Clause 3(xvi)]
  • New Additions in reporting requirement in CARO 2016
    • As per CARO 2016 ,where the company has defaulted in repayment of loans or borrowing to a financial institution, bank, Government or dues to debenture holders? If yes, the period and the amount of default to be reported.[ Note : Government has been newly included in this clause  ][Clause 3(viii)]
    • As per CARO 2016 , where the company has defaulted in repayment of loans or borrowing to a financial institution, bank, Government, lender wise details to be provided. [ words in Bold is a new addition in CARO 2016] [Clause 3(viii)]
    • whether moneys raised by way of initial public offer or further public offer (including debt instruments) and term loans were applied for the purposes for which those are raised. If not, the details together with delays or default and subsequent rectification, if any, as may be applicable, be reported;[Clause 3(ix)][words in Bold is a new addition in CARO 2016]
    • whether any fraud by the company or any fraud on the Company by its officers or employees has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated;[Clause 3(x)][words in Bold is a new addition in CARO 2016, earlier fraud by third parties were also required to be reported]
    • whether the company has granted any loans, secured or unsecured to companies, firms, Limited Liability Partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013.[Clause 3(iii)][words in Bold is a new addition in CARO 2016]
    • whether the company has granted any loans, secured or unsecured to companies, firms, Limited Liability Partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013 , if the amount is overdue, state the total amount overdue for more than ninety days, and whether reasonable steps have been taken by the company for recovery of the principal and interest;.[Clause 3(iii)][words in Bold is a new addition in CARO 2016]

Also Read :

Companies (Auditor’s Report) Order 2016 Notified

ICAI Guidance Note on CARO 2016

Guidance Note on Accounting for Real Estate Transactions

Guidance Note on Reporting on Fraud u/s 143(12) of Companies Act 2013

Guidance Note on Audit of Banks 2016 edition released by ICAI

ICAI released Guidance Note on Accounting for Depreciation as per Schedule II to the Companies Act, 2013

ICSI GUIDANCE NOTE ON GENERAL MEETINGS

Guidance Note on SS1 and SS2 ( Meetings of Board of Directors)

CBDT Guidance Note on Foreign Account Tax Compliance Act

Guidance Note on Reporting on Fraud under Section 143(12) of the Companies Act, 2013

5 Guidance Notes Withdrawn by ICAI

SEBI Guidance note on Insider Trading

Guidance Note on CSR (Corporate Social Responsibility )

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