Comparative summary of CARO 2016 vs CARO 2020-converted

1. Comparative summary of CARO 2016 vs CARO2020 taxguru.in/company-law/comparative-summary-caro-2016-vs-caro-2020.html • Companies (Auditor’s Report) Order,2020 • The Companies Act, 2013requires auditors of specified class of companies to includea statement in their reports on specific matters as prescribed in the Companies (Auditor’s Report) Order (CARO). In 2020, the Ministry of Corporate Affairs (MCA) issued a revised CARO (CARO 2020) which is applicable to a wide range of companies. CARO 2020 brings enhanced reporting requirements which will provide more accurate insights to the business of the Company. CARO 2020 is applicable for audits of financial years commencing on or after April 1,2021. • CARO 2016 had a total of 16 clauses, whereas CARO 2020 has 21 clauses (50including sub-clauses). Some of the important areas where reporting has been enhancedare: • material uncertainty around repayment ofliabilities; • adequacy of internalaudit; • whistle-blower system and reporting offrauds; • borrowings; • investments; • loans and advancesand • reporting on matters relating to consolidatedentities. • Many of the new reporting requirements require the auditor to apply the principles of professional judgement and materiality, rather than application of a pure objectivetest.

2. While reporting requirements have been enhanced, the applicability of CARO2020 • remains similar to CARO 2016. Just like CARO 2016, CARO 2020 is applicable toevery company including a foreign company as defined in clause (42) of section 2 ofthe • Companies Act, 2013,except • a banking company as defined in clause (c) of section 5 of the Banking RegulationAct, 1949; • an insurance company as defined under the InsuranceAct,1938; • a company licensed to operate under section 8 of the CompaniesAct; • a One Person Company as defined in clause (62) of section 2 of the CompaniesAct; • a small company as defined in clause (85) of section 2 of the Companies Act;and • a private limited company, if it meets all of the followingconditions: • It is not a subsidiary or holding company of a publiccompany; • Its paid-up capital and reserves and surplus do not exceed Rs. 1 crore ason the balance sheetdate; • Its total borrowings from any bank or financial institution do not exceed Rs.1 crore at any point of time during the financial yearand • Its total revenue, as disclosed in Schedule III to the Companies Act,2013 (including revenue from discontinued operations) does not exceed Rs.10 crores during the financial year as per the financialstatements. • A comparative summary of CARO 2016 vs CARO 2020 is tabulatedbelow: • Clause CARO 2016 CARO 2020 Changes No. 3(i) whetherthe companyis maintaining proper records showingfull particulars, including quantitativedetails and situation of fixedassets; whetherthese fixed assetshave been physically verified bythe managementat reasonable intervals; (a) (A) whetherthe companyis maintaining proper records showingfull particulars,including quantitative details and situation of Property, Plant and Equipment; (B) whetherthe companyis maintaining proper records showingfull particularsof intangibleassets; In line with thechanges made in accountingstandard (AS-10) andreporting requirements under Schedule III, the term fixed assets has now been replaced with Property, Plant and Equipment and Intangible assets inCARO 2020. A format has beenspecified in the order for reportingof immovable properties forwhich the title deeds are not held in the name of theCompany. Earlier no formatwas specified. (b) whether these Property, Plantand Equipmenthave

3. whetherany material discrepancieswere noticed on such verification and if so, whether the same have been properly dealt with in the books of account; been physically verified by the managementat reasonableintervals; whether anymaterial discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books ofaccount 3. In case of revaluation of PP&E (including ROU assetas per Ind AS 116) or intangible asset, the auditor has toverify: a. whether the revaluation is based on the valuation provided by registered valuer and also whether the provisions of section 247 ofthe Companies Act, 2013including the corresponding rulesthereto relating to valuationby registered valuers havebeen duly complied with;and (c) whether thetitle deedsof immovable properties areheld in the name of the company. If not, provide the details thereof; (c) whether thetitle deeds of allthe immovableproperties (other thanproperties where thecompany is the lessee andthe lease agreements are duly executed in favour of the lessee) disclosed in the financial statements are held in thename of the company, if not, provide the details thereof in the specifiedformat b. if the amount of change is 10% or more of the total net carrying value of each classof PP&E or intangible asset, the amount of change needs tobe specified. This is a newsubclause. 4. With respect to benami properties, the auditor has to verify whether anyproceedings have been initiated against the Company by appropriate authority under the Benami Property Act and/ or any proceedings are pending with the appropriate authorities as on the balance sheet date for holding any benamiproperty. (d) whetherthe companyhas revalued itsProperty, Plant and Equipment (including Rightof Use assets)or intangible assets or both during theyear and, if so, whether the revaluation is based on the valuation bya RegisteredValuer; The reporting is not applicable where the notice is receivedby the Company as a beneficial owner. For the purpose of reporting, appropriate disclosures inthe financial statementswould include nature of property, carrying value of the property in the books of accounts, status of proceedings before the relevant authority, consequential impact on the financial statements and/ or the liability that may arise in case the proceedings are decided against thecompany. specify the amountof change, if change is 10% or more in the aggregate of the net carrying value of each class of Property, Plant and Equipmentor intangibleassets

4. (e) whether any proceedings have been initiated or are pending against the company for holding any benamiproperty under theBenami Transactions (Prohibition) Act, 1988 (45 of1988) and rules made thereunder, ifso, whether thecompany has appropriately disclosed thedetails in itsfinancial statements This is a newsubclause. 3(ii) whetherphysical verificationof inventory hasbeen conductedat reasonable intervals by the managementand whetherany material discrepancieswere noticed and if so, whether theyhave been properlydealt with in the booksof account (a) whetherphysical verificationof inventory hasbeen conductedat reasonable intervals by the management and whether, in the opinion of theauditor, the coverage and procedure of such verification bythe managementis appropriate; whether any discrepancies of10% or more in the aggregate for each class ofinventory were noticed and if so, whether they have beenproperly dealt with in the books ofaccount 1. In addition to reporting whether the physical verification is conductedat reasonable intervals (what is reasonable is dependent on circumstances of each case), the auditor also has to report whether the coverage ofsuch verification, methods and procedures adopted for such verification are appropriate, considering the size ofthe Company and nature ofits business. Furthermore, the auditor hasto report whether a discrepancy of 10% or more arises in the value for any class ofinventory and also whether the difference has been appropriately accounted for in the books of accounts. It is pertinent to note thatthe materiality threshold isnot relevant here and as such a discrepancy of 10% or morein the value of any classof inventory would be reported, even if it is immaterial. Lastly, 10% should be applied onnet basis i.e. after adjusting for excesses and shortfall within theclass. (b) whether during any point of time of the year, the company has been sanctionedworking capital limits in excess of fivecrore rupees, inaggregate, from banks or financial institutions on the basis of security of current assets; whetherthe 2. In case the Company has been sanctioned working capital limits (sanctionincludes

5. quarterly returns or statements filed by the company with such banks or financial institutions are in agreementwith the books of account of the Company, if not, givedetails new sanctions during the year as well as limits renewed or due for renewal during the year) exceeding Rs. 5 crores on the security of current assets (thus all unsecured facilities and those sanctioned on the basis of security of other assets are not covered here), then auditor has toverify the quarterly returns submitted by the Company to thebank (for e.g., stock statement,book debt statement, ageing analysis of debtors, etc) and ensure that the same agree to the books of accounts. Any discrepancies in the same are to be appropriately reported. It is pertinent to note here that the limits are to be determined in reference to thesanction letter and would includeboth fund based and non-fund- based creditfacilities. Moreover, this subclause will be applicable even thoughthe outstanding balance is less than Rs. 5 crores as at the balance sheet date (as the clause mentionssanctioned limit). This is a newsubclause. 3(iii) whether the company has granted anyloans, secured or unsecured to companies, firms, Limited Liability Partnerships or other parties coveredin theregister maintained under section 189 ofthe Companies Act, 2013. Ifso, (a) whether the terms and conditions of the grant of suchloans whether duringthe year the company hasmade investments in, provided any guarantee orsecurity or granted any loans or advances in the nature of loans, secured or unsecured, to companies, firms, Limited Liability Partnerships or any other parties, ifso, (a) whether during the year thecompany has provided loansor provided advancesin 1. The scope of this clausehas been increased to cover not only loans and advances,but investments made,guarantees and securities providedas well. Moreover, in CARO2016, loans and advances granted only to related parties were covered, however, CARO2020 covers loans and advances granted to, investmentsmade in and guarantees and securities provided to any enterprise as such,regardless whether it is a related party or not.

6. are notprejudicial to the company’s interest; the nature of loans, or stood guarantee, or provided security to any other entity [not applicable to companies whose principal businessis to give loans], if so, indicate- 2. Further, CARO2020 requires the auditor to report the following detailsseparately for Company’ssubsidiaries, joint ventures and associates and for other parties-total amount of loans andadvances granted and guarantees or securities provided during the year (loans and advances squared off during the yearare also to be reported) and outstanding amount of the same as on the balance sheet date. (b) whetherthe scheduleof repayment of principal and payment of interest has beenstipulated and whetherthe repaymentsor receiptsare regular; (A) the aggregate amount during the year, and balance outstanding at the balance sheet date with respect tosuch loans or advances and guarantees or security to subsidiaries, joint ventures and associates; (c) if theamountis overdue, state the total amount overdue for more than ninety days, andwhether reasonable steps have been takenby the companyfor recovery ofthe principaland interest It is pertinent to note here that clause 3(iii)(a) is notapplicable to Companies whose principal business is to give loansi.e. NBFCs, financialinstitutions, etc. (B) the aggregate amount during the year, and balance outstanding at the balance sheet date with respect tosuch loans or advances and guarantees or security to parties other than subsidiaries, joint ventures and associates; 3. Clause 3(iii)(e) requiresthe auditor to identify andreport instances of evergreening of loans and advances and is applicable to all companies, except for companieswhose principal business is togive loans, for e.g., NBFCs, financial institutions, etc. The auditor has to reportaggregate amount of loans renewed or extended or settled by grant of fresh loans and the %age thereof to the total amountof loans and advances in the nature of loans (what is advance in the nature ofloans is dependent on the circumstances of each case) granted during theyear. Reporting under this clause would also cover loansfalling due as on the balancesheet date and which wererenewed/ extended/ settled post the balance sheet date andbefore the date of auditreport. (b) whetherthe investments made, guaranteesprovided, security given and the terms and conditions of the grant of all loans and advances in the nature of loans and guarantees provided are not prejudicial to thecompany’s interest; (c) in respect ofloans and advances in the nature ofloans, whether theschedule of repaymentof This is a newsubclause. 4. CARO 2020 hasintroduced another new subclause which requires disclosure ofgross

7. principal and payment of interest has beenstipulated and whetherthe repaymentsor receipts areregular; amount of loans or advances in the nature of loans which are either repayable on demand or do not specifyany terms or period of repayment in the auditor’sreport. (d) if the amount is overdue, state the total amountoverdue for more than ninety days, andwhether reasonable steps have been takenby the companyfor recovery of the principal andinterest; If a company has granted such loans, then specificdisclosures would need to be provided for aggregate amount ofsuch loans granted, %age thereofto total loans granted and loans granted to promotersand related parties as defined under relevant provisions of the Companies Act, 2013.For the purpose ofreporting, related party relationship is to be evaluated for the entireyear and not just as on the balance sheetdate. (e) whether anyloan or advance in the nature of loan granted which has fallen due duringthe year, hasbeen renewed orextended or fresh loans granted to settle the overdues ofexisting loans given to the same parties, if so, specify theaggregate amount of such dues renewed or extended or settled byfresh loans and the percentage of the aggregate to thetotal loans or advances in the nature of loans granted during the year [not applicable to companies whose principal business is to giveloans]; This is a newsubclause. (f) whether the company hasgranted any loans or advances in the nature of loans either repayable on demand or without specifying any terms or periodof repayment, if so, specify theaggregate

8. amount,percentage thereof to thetotal loans granted, aggregate amount of loans granted to Promoters, related parties as defined in clause (76) ofsection 2 of the Companies Act,2013 3(iv) in respect ofloans, investments, guarantees, and security whether provisions of section 185and 186 ofthe Companies Act, 2013 havebeen complied with.If not, provide the detailsthereof. in respect ofloans, investments, guarantees, and security,whether provisions ofsections 185 and 186 ofthe Companies Act have been complied with,if not, provide the detailsthereof; Nochange

9. 3(v) in case, the company has accepted deposits, whether the directives issuedby the Reserve Bank of India and the provisions of sections 73 to 76or any other relevant provisions ofthe Companies Act, 2013 and the rules framedthereunder, where applicable, have been complied with? If not, the nature of such contraventions be stated; If an order has been passed by Company Law Board or National CompanyLaw Tribunal orReserve Bank of India or any court or any othertribunal, whether the same has beencomplied with ornot? in respect of deposits accepted by the company or amounts which are deemed to be deposits, whether the directives issued by the Reserve Bank of India and the provisions ofsections 73 to 76 or any other relevant provisions of the Companies Act and the rules made thereunder, where applicable, have been complied with,if not, the nature of such contraventions be stated; if an order has been passed by Company Law Board or National Company Law Tribunalor Reserve Bank of India or any courtor any other tribunal, whether the same has been complied with ornot CARO 2020 has modifiedthe reporting requirementsrelating to acceptance of deposits by a company and requires auditor to verify the compliancewith RBI directives and provisions of the Companies Act, 2013 not just for depositsaccepted by the Company, but also for deemeddeposits. Reference may be drawnto section 2(31) of the Actto identify amounts deemed tobe deposits. 3(vi) whether maintenance of cost records has been specified by the Central Governmentunder sub-section (1) of section 148 of the Companies Act, 2013 and whether such accountsand records havebeen so madeand maintained. whethermaintenance of cost records has been specified by the Central Government under sub section (1) of section 148 of the Companies Act,2013 and whether such accounts andrecords have been so made andmaintained Nochange

10. 3(vii) whether the company isregular in depositing undisputed statutorydues includingprovident fund, employees’ stateinsurance, income tax, sales- tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues to the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as on the last day of the financial year concerned for a period of morethan six months fromthe date they became payable, shallbe indicated; where duesof income tax or sales tax or service taxor duty of customs or duty of excise or value added tax have not been deposited on account of any dispute, then the amounts involved and theforum where disputeis pending shallbe mentioned. (Amere representation to theconcerned Department shall not be treated asa dispute). whether the company is regular in depositing undisputed statutory dues includingGoods and Services Tax, provident fund, employees’state insurance, income- tax, sales tax,service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues to the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as on the last day of the financial year concerned for a period of more than six months from the date they became payable, shallbe indicated; where statutory dues referred to in sub-clause (a) have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned(a mere representation to theconcerned Department shallnot be treated as a dispute) No change, exceptfor inclusion of Goods andService Tax along with other statutory duespayable. 10/23

11. 3(viii) Nocorresponding clause in CARO 2016 whether any transactionsnot recorded in thebooks of account havebeen surrendered or disclosed as income during the year in the tax assessments under the IncomeTax Act, 1961 (43 of 1961), if so, whether the previously unrecorded income has beenproperly recorded in thebooks of account during the year CARO 2020 has introduceda new reportingrequirement wherein an auditorshould report whether there are any transactions which have not been recorded in the books of accounts of a company but have been surrendered or disclosed as income duringthe year in Income Tax assessments. If yes, then an auditor would also needto report whether the previously undisclosed income has now been properly recorded in the books of accounts during the year. It is pertinent to notethat the clausementions “surrendered ordisclosed” which implies thatthe company must havevoluntarily admitted to the addition of such income and as such additions made by income tax authorities would not be covered overhere. This is a newclause. 3(ix) whether the companyhas defaultedin repayment of loans or borrowing to a financial institution, bank, Government or dues to debentureholders? If yes, the period and the amount of default tobe reported (in caseof defaults to banks, financial institutions, and Government,lender wise details to be provided) whetherthe company has defaultedin repayment of loans or other borrowings or in the paymentof interest thereonto any lender, if yes,the period and the amount of default to be reported as per the specifiedformat; whether the company is a declared wilful defaulter by anybank or financial institution or otherlender; CARO 2020 has increased the scope of reporting under this clause as against CARO 2016 and now the auditor has to report default in payment of interest in addition to defaultin repayment of loans toany lender (as against defaultin repayment tofinancial institution, bank and Government as wasrequired in CARO 2016). Further, a specific format has been prescribed for reporting the defaults, which was not specified in CARO2016. CARO 2020 introducesa new reporting requirement relating to whetherthe company has beendeclared as a wilful defaulter by any bank, financial institution or other lender during the year under audit till the date of auditor’s report. Theterm (c) whetherterm loans wereapplied for the purposefor which the loanswere obtained; if not, the amount of loan so diverted andthe

12. purpose for whichit is used maybe reported; ‘wilful defaulter’ has to be understood with referenceto the RBI circularthereon. (d) whetherfunds raised on short term basis have been utilised for long term purposes, if yes, the nature and amountto beindicated; This is a newsubclause. 3. Another newreporting requirement under CARO2020 pertains to whether theterms loans obtained by thecompany from bank, financial institution or any other person/ entity have been used for the purpose for which they were sanctioned. If the proceeds have been diverted, then the auditor has to report the amount of funds diverted and the purpose for whichthey were used. Diversion offunds is to be understoodwith reference to the RBI circularon wilfuldefaulters. (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 eachcase; This is a newsubclause. 4. Similar to clause 3(ix)(c), clause 3(ix)(d) requires the auditor to verify whether the short-term loans obtained by the company from banks, financial institution or anyother person/ entity have been used for long term purposes or not. If yes, then the amount of diversion along with the purpose for which they were used needs to bereported. (f) whether the company has raised loans during theyear 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 defaultedin repayment ofsuch loansraised This is a newsubclause. 5. CARO 2020 further requires the auditor to verify whether the company has obtained any funds (long term or short term) from any entity/ person during the year and thereaftergranted the same as loans or advance in the nature of loansor invested the same in its subsidiaries, associates orjoint ventures. If yes, then the auditor is required to provide the details along with the nature of such transactions and the amount in eachcase.

13. Details are to be providedeven if the funds have been repaid before the year enddate. This is a newsubclause. 6.Under CARO 2020, an auditor is required toreport whether the company has raised any loan fromany lender during the year on specific pledge (and not general or residual charge) of the investment of thecompany in its subsidiaries, associates or joint ventures. If yes, then the auditor has to report the details of such loansand whether the company has defaulted in repayment ofsuch loans or not. It is pertinent to note here that only new loans taken during the year are covered under thisclause (even if repaid during the year). Thus, loans taken in earlier years andoutstanding as on the balance sheetdate would not becovered. This is a newsubclause.

14. 3(x) whethermoneys raised by wayof initial public offeror further public offer (includingdebt instruments) and term loans were applied for the purposes forwhich those areraised. If not, thedetails together with delays ordefault andsubsequent rectification, ifany, as may be applicable,be reported. whethermoneys raised by wayof initial public offeror further public offer (includingdebt instruments) during the year wereapplied for the purposes for which thoseare raised, if not, the details together with delays or defaultand subsequent rectification, if any,as may be applicable, bereported whether the company has made any preferential allotment or private placement of shares or convertible debentures (fully, partially oroptionally convertible) during the year and ifso, whetherthe requirements of section 42 and section 62 ofthe Companies Act,2013 have been complied with and thefunds raised have been used for the purposes forwhich the fundswere raised, if not,provide details in respect of amount involvedand nature of non- compliance CARO 2020 now covers private placement/preferential allotment of optionally convertible debentures in addition to fully or partly convertibledebentures. whether the company hasmade any preferential allotment or private placement of shares or fully or partly convertible debentures during the yearunder review and if so,as to whetherthe requirement of section 42 of the Companies Act, 2013 have been complied withand the amountraised have been usedfor the purposesfor which thefunds were raised. Ifnot, provide the details in respect of the amount involved and nature ofnon- compliance

15. 3(xi) whether any fraud by the companyor any fraud on the Company by its officers or employees has been noticedor reported duringthe year; If yes, thenature and the amount involved is to be indicated whether anyfraud by the company or any fraud on the company has been noticed or reported during the year, if yes, the nature and the amountinvolved is to beindicated; whether any report undersub section (12)of section 143 of the Companies Acthas been filed by the auditors inForm ADT-4 asprescribed under rule 13of Companies (Audit and Auditors) Rules, 2014 with theCentral Government; 1. CARO 2020 hasincreased the auditor’sreporting requirements relating to fraud. Earlier, reporting on fraud on the Company was restrictedto fraud by its “officers or employees”, however,the revised clause has removed this restriction and now fraud on the company by anyperson would bereported. 2. CARO 2020additionally requires to auditor to state whether any report under section 143(12) ofthe Companies Act, 2013(w.r.t. reporting of fraud committedin the Company by its officers or employees involving an amount of Rs. 1 crore or more to Central Government) has been filed by auditor (statutory auditor, cost auditor or secretarial auditor) during the year up to the date ofaudit report. (c) whether the auditor has considered whistle- blower complaints,if any, received during the year by the company This is a newsubclause. 3. CARO 2020 hasintroduced a new reporting requirement which requires an auditor to consider whistle-blower complaints, if any received during the year underaudit. The auditor should alsocheck the compliance w.r.t. vigil mechanism under section 177 of the Companies Act, 2013 and SEBI Regulations, as may be applicable. It is pertinent to note here that the whistle- blower complaints pertainingto earlier years are not to be considered for the purposeof reporting under thisclause. This is a newsubclause.

16. 3(xii) whetherthe Nidhi Companyhas complied withthe Net OwnedFunds to Deposits in the ratio of 1: 20to meet out theliability whetherthe Nidhi Company is maintaining ten per centunencumbered term deposits as specified inthe Nidhi Rules,2014 to meet outthe liability 1: 20 to meet out the liability (b) whether the Nidhi Companyis maintaining ten per cent unencumbered termdeposits as specified inthe Nidhi Rules, 2014to meet out theliability (c) whether therehas been any default in payment of interest on depositsor repayment thereoffor any period and if so, the detailsthereof the company has defaulted in payment of interest on deposits or repaymentthereof. If yes, then the auditor hasto report the followingdetails: 1. Nature ofdefault; 2. Amount ofdefault; 3. Period ofdefault; 4. Number of persons towhom there was default in payments and 5. Any other detail,if necessary. This is a newsubclause. 3(xiii) whether all transactions with the relatedparties are in compliance with sections177 and 188of Companies Act, 2013 where applicable andthe details have been disclosed inthe Financial Statements etc.,as required by the applicable accounting standards whether all transactions with the related parties are in compliance with sections 177 and188 of CompaniesAct where applicableand the details havebeen disclosed in the financial statements, etc., as required by the applicable accountingstandards Nochange.

17. 3(xiv) Nocorresponding clause in CARO 2016 whether the company hasan internal audit system commensurate with the size and natureof itsbusiness; whetherthe reports of theInternal Auditors for the period underaudit were considered by the statutoryauditor CARO 2020 introduces a new reporting requirementwhereby an auditor has toverify whether the company has an internal audit system/ department and whether the same is adequateconsidering the size and nature ofits business. The auditor alsohas to verify the compliance w.r.t. section 138 0f the Companies Act, 2013 relating to internal audit. Furthermore, an auditor hasto obtain and verify the reportsof such internal audit for the period under audit and has to independently evaluatethe impact of the observationon the financialstatements. This is a newclause. 3(xv) whether the company has entered into any non-cash transactions with directors orpersons connected with him and if so, whether the provisions of section 192of Companies Act, 2013 havebeen compliedwith whether thecompany has entered into any non-cash transactions with directors or persons connected with him and if so, whetherthe provisions of section 192 of Companies Act have been compliedwith Nochange. 3(xvi) whetherthe companyis required tobe registered under section 45-IA ofthe Reserve Bank of India Act, 1934and if so, whetherthe registrationhas beenobtained whether the company isrequired to be registered under section 45-IA of the ReserveBank of India Act, 1934 (2 of 1934) and ifso, whetherthe registration hasbeen obtained whether the company has conducted any Non- Banking Financialor Housing Finance activities without a valid Certificateof CARO 2020 has introduced new reporting requirements for NBFCs, HFCs and CICs with a view to ensure greaterscrutiny, transparency in operations and safeguarding the interests of those who undertake transactions withthem. Unlike CARO 2016,CARO 2020 requires an auditorto report: a. Whether the company is required to be registeredas NBFC/HFC/CIC?

18. Registration (CoR) from the Reserve Bank of India as per the Reserve Bankof India Act,1934; b. Whether the companyhas conducted any NBF or HF activity without a valid CoR fromRBI? c. In case the company isnot registered as CIC/ notrequired to register as CIC, whether the company continues to fulfil the criteria for unregistered/ exemptedCICs? (c) whether the company is a Core InvestmentCompany (CIC) as defined in the regulations made by the Reserve Bank of India, ifso, whether itcontinues to fulfil the criteriaof a CIC, and in case the company is an exempted or unregisteredCIC, whether itcontinues to fulfil suchcriteria; d. In case of companies ina group (for e.g., holding- subsidiary, joint venture, associate, relatedparties) whether there are more than1 CIC in thegroup? In order to evaluate theabove, the auditor would examine the activities carried on by the company and the RBIcirculars and directions relatingto NBFCs, HFCs and CICs. The auditor would also verify the financial statements of the company to determine the various threshold limits specified in the RBI circulars for registration as NBFC,HFC, CIC (viz, financialassets, income therefrom, investments, net ownedfunds, etc). (d) whether the Group has morethan one CIC as part of the Group, ifyes, indicate thenumber of CICs which are part of theGroup Any discrepancy is to be appropriately reported bythe auditor under thisclause. Additionally, the auditormay report anynon-compliance w.r.t. any of the applicable provisions by NBFC, HFC,CIC to RBI in the form of an exception report in termsof NBFCs Auditor’sReport (Reserve Bank)Directions, 2016.

19. 3(xvii) Nocorresponding clause in CARO 2016 whether thecompany has incurredcash losses in thefinancial year and inthe immediately preceding financial year, if so, statethe amount ofcash losses CARO 2020 hasintroduced another newreporting requirement which requires an auditor to comment onwhether the company has incurred any cash losses in the year under audit and in the immediately preceding financial year. If yes, then the auditor has to state the amount of suchcash losses. It is pertinent to note here that for the purpose of determining cash losses,cash flow (outflow) from operating activities is not to be considered as items suchas interest income, interest expenses are also relevant for determining cash losses.Cash losses (if any) are to be determined by adjusting all non-cash expenditure (suchas depreciation and amortisation expense, foreignexchange loss, etc) from Net Profit/Loss after tax as per the Statement of Profit andLoss. This is a newclause.

20. 3(xviii) Nocorresponding clause in CARO 2016 whether therehas beenany resignation ofthe statutoryauditors Another newreporting requirement in CARO2020 requires an auditorappointed during the year to fill in a casual vacancy causedby resignation of auditor toreport whether the newly appointed auditor has consideredthe issues, objections orconcerns raised by the outgoing auditor (s). An auditor is also requiredto check compliance withthe relevant provisionsof Companies Act, 2013 and that under any otherAct/prescribed by any other Authority, as may be applicable (for e.g., LODR by SEBI for listed companies). It is pertinent to note here that reporting under this clause is not applicable in case of change of auditor(s) on account of mandatory rotation as prescribed underthe Companies Act,2013. during the year, ifso, whetherthe auditor has takeninto consideration the issues,objections orconcerns raised by the outgoingauditors This is a newclause. 20/23

21. 3(xix) Nocorresponding clause in CARO 2016 on the basis of the financial ratios, ageing and expected dates of realisationof financial assets and payment offinancial liabilities, other information accompanying the financial statements,the auditor’sknowledge of the Boardof Directorsand management plans, whether the auditoris of the opinion that no material uncertainty exists as on the date of the audit report that company is capable ofmeeting its liabilities existing at the date ofbalance sheet as and when they fall due within a period of one year from the balance sheetdate. CARO 2020 hasintroduced another newreporting requirement whereby an auditor has to comment onthe company’s ability to meetits liabilities existing as on the balance sheet date as and when they fall due within a period of one year fromthe balance sheet date. This is to be assessed based on the analysis of financial ratios, ageing statements and expected dates of realisationof financial assets andfinancial liabilities, other information(for e.g., Director’s report) and auditor’s knowledge of the company and management plans. It is to be noted herethat, ‘liabilities falling due withina period of one year’and ‘current liabilities’ are not the same. The auditor has toapply the test of materialuncertainty w.r.t. settlement ofliabilities (existing as on thebalance sheet date) as on the date of audit report, thus any material development post thebalance sheet date but before thedate of audit report is also to be considered. This is a newclause.

22. 3(xx) Nocorresponding clause in CARO 2016 whether, in respect of other than ongoing projects, the company has transferred unspent amount to a Fund specified inSchedule VII to the Companies Act within a period of six months of the expiry of thefinancial year incompliance with secondproviso to sub-section (5)of section 135 of the saidAct; whether any amount remaining unspent under sub- section (5) ofsection 135 ofthe Companies Act, pursuant to any ongoing project, has been transferred to special account in compliance with the provision of sub- section (6) ofsection 135 of the saidAct Pursuant to theamendments made by MCA to section135 of the Companies Act, 2013 and the Companies (CSR Policy) Rules, 2014, CARO 2020 has introduced anew reporting requirementwherein an auditor has to comment on thefollowing: a. For on-going CSRprojects: whether the company has transferred the unspentCSR amount to a specialaccount within a period of 30 daysfrom the end of financial year asper section 135(6) ofthe Companies Act,2013; b. For other than on-going CSR projects: whetherthe company has transferred the unspent CSR amount to afund specified in Schedule VII tothe Companies Act, 2013 within a period of six months from the end of financial year in compliance with the provisions of section 135(5) ofthe Companies Act,2013. The auditor has to check the compliance with theprovisions of section 135 ofthe Companies Act, 2013 (for transfer of funds andutilisation thereof) and discrepancy, if any (for current or for previous financial years), is tobe reported in the auditreport. This is a newclause.

23. 3(xxi) Nocorresponding clause in CARO 2016 whether there have been any qualifications or adverse remarksby the respective auditors inthe Companies(Auditor’s Report)Order (CARO) reportsof thecompanies included in the consolidatedfinancial statements, ifyes, indicate the detailsof the companies and the paragraph numbers ofthe CARO report containing the qualifications or adverseremarks CARO 2020 hasintroduced another newreporting requirement wherebyan auditor has to comment whether there areany qualifications/ adverseremarks in the CARO reports of the companies included in theCFS (for e.g., subsidiarycompany, joint venture) bytheir respective auditors. If yes,then the auditor has to provide details of such companies and the paragraph/ clausenumbers of the respective CARO report containing such qualification/ adverse remarks. Whether any comment is in the nature of qualification or adverse remark is to be construed by the principal auditor using professional judgement and experience. It is important to note herethat reporting requirementsof CARO 2020 are notapplicable to auditor’s report on CFS, except reporting on qualifications for those entities included in CFS towhom CARO 2020 isapplicable. This is a newclause.