CARO 2016


The Companies (Auditor’s Report) Order, 2016 is notified on 29th March 2016 in supersession of the Companies (Auditor’s Report) Order, 2015 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O. 990 (E), dated the 10th April, 2015, except as respects things done or omitted to be done before such supersession.

Applicability

The Companies (Auditor’s Report) Order, 2015, discussed earlier here, shall apply to financial commenced on or after 1st April 2014 but before 1st April 2015.

For the Financial year commenced on or after 1st April 2015, The Companies (Auditor’s Report) Order, 2016 shall apply. Every auditor report on the accounts of every company audited by him issues for these Financial Years to which this Order applies shall, in addition, contain the matters specified in paragraphs 3 and 4, as may be applicable.

The Order shall not apply to the auditor’s report on consolidated financial statements.

Matters to be included

(i) Fixed Assets

(a) Whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets;

(b) Whether these fixed assets have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of account;

(c) Whether the title deeds of immovable properties are held in the name of the company. If not, provide the details thereof;

This may be interesting if some games meant for crèche to be uses by children of women workers found in managing directors farmhouse. Title deed need may need legal verification for sub – registrar office for its legal authenticity as random check.

(ii) Physical Verification

Whether physical verification of inventory has been conducted at reasonable intervals by the management and whether any material discrepancies were noticed and if so, whether they have been properly dealt with in the books of account;

This is just a tick box exercise to be done after getting management representation and have little audit value.

(iii) Granted Loans

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 so,

(a) Whether the terms and conditions of the grant of such loans are not prejudicial to the company’s interest;

(b) Whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are regular;

(c) 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;

Ensuring about terms and conditions is subjective and require legal or secretarial opinion.

(iv) Loan Compliances

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.

Reporting about compliance of any law, need secretarial or legal backing rather than financial one. This is advisable to obtain one.

(v) Deposits

In case, the company has accepted deposits, whether the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the rules framed 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 Tribunal or Reserve Bank of India or any court or any other tribunal, whether the same has been complied with or not?

Reporting about compliance of any law, need secretarial or legal backing rather than financial one. This is advisable to obtain one.

(vi) Cost Records

Whether maintenance 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 and records have been so made and maintained.

(vii) Taxes

(a) whether the company is regular in depositing undisputed statutory dues including 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, shall be indicated;

(b) Where dues of income tax or sales tax or service tax or 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 the forum where dispute is pending shall be mentioned. (A mere representation to the concerned Department shall not be treated as a dispute).

(viii) Repayments

Whether 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. (in case of defaults to banks, financial institutions, and Government, lender wise details to be provided).

(ix) Purpose of Fund

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;

(x) Fraud

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;

This is interesting that fraud by the company is also to be reported. This reporting of Fraud under CARO, 2016 is different form fraud reporting sub – section (12) of Section 143 with new sub – section as discussed earlier here. Under Section 143(12) fraud against company are reported not fraud by the company.

(xi) Managerial Remuneration’

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;

This is very important for all persons dealing with Section 197. Any excess payment as managerial remuneration is not only refundable to the company but also reportable under CARO 2016 along with steps taken by the company for securing refund of the same.

(xii) Nidhi Compliances

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;

(xiii) Related Parties

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;

(xiv) Issue of Share Capital

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;

(xv) Non – cash Transaction

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;

(xvi) Non – Banking Finance Company

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.

Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.

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2 responses to “CARO 2016

  1. Pingback: Index of Companies Law Posts | AishMGhrana

  2. There is no provision for Fraud in earlier years , in any year during the period of Company existence, made by any Company. Purposefully and hid the matter from all sides, Hon. Courts and Shareholders most important. Not only this but Auditors are also involved in non reporting this facts to shareholders.

    Liked by 1 person

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