02/12/2021

Bhavna Maam

Company Auditor’s Report

Order (CARO), 2016 –
Reporting Requirements

The Existence of CARO, 2016

MCA was of the objective that there are certain particular issues which are
important to be reported with the financial statements for certain entities as a
part of their audit reports. The auditor of such prescribed entities is required to
report on the points mentioned under this order after performing procedures
for verification of the same.

Applicability of CARO 2016

CARO 2016 is applicable to all the companies except the following (which) are
specifically excluded from its purview:

A. Banking Companies

B. Insurance Companies

C. Companies registered for Charitable Purposes

D. One Person Company

E. Small Companies (Companies with Paid up capital less than or equal to

Rs. 50 Lakhs and Last reported turnover less than or equal to Rs. 2 Crores)

F. The following Private Companies are also exempt from the requirements of
CARO, 2016

 Not a holding or subsidiary of a Public company

 Paid up Capital plus Reserves less than or equal to Rs. 1 Crore as at the
reporting date

 Borrowings less than or equal to Rs. 1 Crore at any time during the year

 Revenue less than or equal to Rs. 10 Crores in the financial year

The auditors of all other class or classes of companies are required to report
on the matters specified in this order. This order applies to foreign companies
also and thus, the auditors for such companies are also required to report on
the matters specified in CARO, 2016.

Matters specified in CARO 2016

The Company Auditor’s Report Order (CARO), 2016 includes the following
matters on which the auditor is required to report mandatorily:
A. Fixed Assets

B. Inventory

C. Loans given by Company

D. Loan to Directors and Investment by the Company

E. Deposits

F. Cost records

G. Statutory Dues

H. Repayment of Loans

I. The utilisation of funds

J. Reporting of Fraud

K. Approval of Managerial Remuneration

L. Nidhi Company

M. Related Party Transactions

N. Private placement of Preferential Issues

O. Non-Cash Transactions

P. Registration under RBI Act

Reporting Requirement Under Each
Clause
A brief of reporting requirements under each of the above clauses is
hereunder:

Fixed Assets

i. Whether the company maintains proper records showing full particulars

including details of quantity and situation of the fixed assets

ii. Whether physical verification of the fixed assets is conducted by the

management at reasonable intervals

iii. If any material discrepancies were noticed on physical verification, whether

it has been accounted for in books of accounts

Inventory

i. Whether at reasonable intervals the management has conducted physical

verification of inventory

ii. If any material discrepancies were noticed on physical verification, whether

it has been accounted for in books of accounts
Loans given by Company

Whether the company has granted any secured or unsecured loans to related
parties. IF they have granted such loans, to check the following:

i. Whether the terms of such loans are not prejudicial to company’s interest

ii. Whether the repayment and its receipt are proper

iii. To report with loans repayment outstanding for more than 90 days and
what is the recovery position

Loan to Directors and Investment by the

Company

Whether the loans and guarantees to directors are in order and in compliance
with the limits prescribed.

Deposits

Whether the company has accepted any deposits and if yes, have they
followed RBI’s directives as under:

i. The provisions regarding acceptance of deposits under section 73 to 76 of

the Companies Act, 2013 have been followed

ii. If the order is passed by the court or any other tribunal like RBI, CLB, etc
iii. In case of non-compliance, the nature of the same has to be reported

Cost Records

If Central Government has prescribed maintaining cost records, whether the

same have been properly maintained or not.

Statutory Dues

The auditor shall report whether the company:

i. Is regularly depositing its statutory dues

ii. If not regular, statutory dues outstanding for more than 6 months should be
disclosed

iii. If any taxes have not been deposited because of any dispute, the amount
of dispute and the forum where the litigation is ongoing should be disclosed

Repayment of Loans

If the company has defaulted in repayment of loans to banks, government,

debenture-holders, etc. then the amount and period of default is to be
reported.
Utilisation of funds

If any funds were raised under a public offer or loan, have they been applied
to the purpose for which they were raised. Also, the auditor has to report in
case of any delay and defaults.

Reporting of Fraud

If any fraud by the company or its employees has occurred during the year. If
yes, nature and amount involved have to be reported.

Approval of Managerial Remuneration

Whether the limits prescribed under the Company’s Act 2013 for managerial
remuneration have been adhered to. If not, the amount of excess amount
involved and steps for recovery being taken have to be reported.

Nidhi Company
In case of a Nidhi company, whether the following have been complied with
has complied with:

i. Maintain net owned funds to deposit in the ratio of 1:20 to meet out the
liability

ii. Maintain 10% unattached term deposits to meet out the liability
Related Party Transactions

The compliances with rules specified in Companies Act 2013 for transactions
with related parties have been complied with or not. Also, the same is
disclosed appropriately in the financial statements or not.

Private placement of Preferential Issues

Whether the company has made any preferential or private allotments of

shares and debentures. Also, whether the amount Raised has been utilized
towards the purpose for which it was raised.

Non-Cash Transactions
Whether the company has followed the limits and conditions as per
Companies Act 2013 in respect of non-cash transactions with directors or their
relatives.

Registration under RBI Act

Whether the company is required to be registered under RBI Act and if yes,
then whether the registration is obtained or not. All the above-stated clauses
are mandatory to be reported on. Also, the disclosures are to be given
appropriately.