Companies (Auditor’s Report) Order, 2020 (CARO)

The Ministry of Corporate Affairs has announced the notification of Companies (Auditor’s Report) Order, 2020 (CARO).

Key Features

  • Disclosure of details of proceedings against company for holding Benami property.
  • The auditor should provide details of investments made by the company.
  • Fraud committed by the company or on the company should be reported.
  • The cash losses in the financial year and the preceding financial year should be reported.
  • The report should hold details of loan repayment period and amount to be repaid.

What are the changes introduced in the order?

The CARO introduced changes to the rules governing audit reports of companies. The changes proposed that non-audit services shall not be provided to the audit clients. The auditors should provide reports that are factual.

Transferred Responsibilities

The CARO has now sought to transfer greater responsibility to provide complete information to the auditors. The auditors have essentially been forced to demand more information. This will provide positive outcomes to the shareholders and stakeholders. It requires the auditors to comment on fifty matters. Earlier, CARO required to comment only on 21 matters.

About the new order

  • The Auditors shall now report on how the company will use its connections of joint ventures and subsidiaries. That is, the report should provide details if the loan is raised to finance them or is being taken against them.
  • The auditors will have to examine the reports of the auditors of subsidiaries of the company. These reports should also be reported in their own reports.
  • Several requirements have been designed to ease the load on the banks. For instance, the order has included that the amount of loans that do not have terms of repayment should also be specified.

Significance of CARO

The CARO 2020 enhances the information available to both investors and financial institutions. It is a major step for transparency in accounts.

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