It’s an attempt to provide a brief synopsis of the rationale for issuing the revised version of the CARO, its revised applicability and clause by clause comparison between CARO 2015 and CARO 2016.
There were various reasons for modifying the already issued CARO 2015, which may be categorized as follows:
2. Brief Summary
2.1 The need: There were various reasons for modifying the already issued CARO 2015, which may be categorized as follows:
2.1.1 Compatibility with the Companies Act, 2013 (the Act 2013): The Companies Act, 1956 had largely ceased to be in force effective from 1 April, 2014 (barring those sections which are still applicable) and, consequently, CARO 2003 (as amended), issued under section 227(4A) of the said Act also lost its validity from the said date. With the introduction of the Act 2013, CARO 2015 was issued; however, a need was felt to further revise the same in such a short span of time for making it more compatible with the Act 2013. Consequently, following changes have been done to CARO 2015:
§ Reporting on Internal Control Systems deleted, due to a separate reporting on Internal Financial Controls, as mandated by the Act 2013.
§ Reporting with respect to loans, investments, guarantees and security under sections 185 and 186 of the Act 2013 added.
§ Reporting of the fraud by the company and on the company by its officers or employees is mandated now, as against all the frauds on or by the company earlier.
§ Reporting on managerial remuneration added as per the Act 2013.
§ Reporting on compliance with section 177 (Audit Committee) and section188 (Related Party Transactions) of the Act 2013 added.
§ Reporting on non-cash transactions with directors, etc., as per the provisions of section 192 of the Act 2013 added.
2.1.2 Further improvements
§ Increasing of the applicability limits for private companies for scoping out small sized companies
§ Adding new provisions for more transparency or complete reporting, e.g.,
o Reporting on holding the title deeds of immovable properties in the name of the company.
o Reporting of loan, etc., given to Limited Liability Partnerships.
o Reporting on schedule of repayment of loans.
o Reporting on lender-wise details to be made with respect to defaults on dues.
o Reporting on moneys raised by way of IPO or further public offer.
2.1.3 Applicability: Every statutory audit report issued by an auditor under section 143 of the Act 2013 on the financial statements of a company, having CARO 2016 applicable for the FY commencing on or after 1 April 2015, shall report matters specified under CARO 2016.
Order 2016 shall not apply to the auditor’s report on consolidated financial statements.
CARO 2016 is applicable to every company including a foreign company, barring following companies:
§ a banking company;
§ an insurance company;
§ a company licensed to operate under section 8 of the Act 2013;
§ an OPC and a Small Company as defined under the Act 2013; and
§ a private limited company (not being a subsidiary or holding company of a public company) with:
o a paid-up capital and reserves and surplus not more than Rs. 1 crore as on the balance sheet date;
o which does not have total borrowings exceeding ` 1 crore from any bank or financial institution at any point of time during the financial year; and
o Which does not have a total revenue as disclosed in Scheduled III to the Act 2013 (including revenue from discontinuing operations) exceeding RS. 10 crore during the financial year as per the financial statements.
2.1.4 Reporting on adverse comments by the auditors: In case the answer to any of the clauses under CARO 2016 is unfavorable or qualified, the auditor shall also provide the basis for such unfavorable or qualified responses. However, in those instances where the auditor is unable to express any opinion on a specified matter, he shall indicate this fact along with the reasons for the same.
For more, please refer Taxmann’s Corporate Professionals Today nVolume 35 nIssue 7 nApril 1 to 15, 2016