|
Sr.
No.
|
Clause
of CARO 2020 (New / Modified / Reintroduced)
|
New
/ Modified Reporting requirements
|
Guidance
by ICAI for auditing / reporting on
new requirements
|
|
1
|
3(i)(a)(A)
& (B) – Modified and split into two
sub-clauses
|
(A)
Whether the company is maintaining proper records showing full particulars
including quantitative details and situation of property, plant &
equipment (PPE).
(B)
Whether the company is maintaining proper records showing full particulars
of Intangible Assets.
|
(i)
There is effectively no change here except for change in terminology to make
it compliant with revised Schedule III terminology (i.e., from fixed assets
to PPE and
Intangible Assets)
(ii)
Right of use assets (‘ROU’) as defined in Ind AS 116 – Leases, Investment
property as per Ind AS 40 and non-current assets held for sale as per Ind
AS 105 are required to be considered for the purpose of reporting under this
clause
(Page
17 & 18 of GN)
|
|
2
|
3(i)(c)
– Modified
|
Whether
title deeds of immovable properties are held in the name of the company
The
revision in the clause requires the following additional
details in cases where title deed is not in the name of the company:
•
Name of the person as per title deed and whether he is promoter, director,
their relative, or employee of the company
•
Period (range) for which the property is held by above person
•
Reason for not being held in the name of the company (also indicate if any
dispute)
|
Documents
which are generally referred to for checking the owner in case of immovable
property are registered sale deed / transfer deed / conveyance deed, etc.
In
case of mortgaged immovable properties, auditor may obtain confirmation from
Banks / FI with whom the
same is mortgaged
(Page
33 of GN)
|
|
Sr.
No.
|
Clause
of CARO 2020 (New / Modified / Reintroduced)
|
New
/ Modified Reporting requirements
|
Guidance
by ICAI for auditing / reporting on
new requirements
|
|
3
|
3(i)(d)
– New
|
Whether
company has revalued its PPE, ROU, Intangible Assets. If yes, whether such
revaluation is based on valuation by registered valuer. Also, auditor is required
to specify the change in amounts if it is 10% or more of net block of
respective class of PPE or Intangible Assets
|
It
may be noted that reporting under this clause would be limited to revaluation
model since under cost model revaluation is not permitted. Further, reporting
under this clause will cover both upward and downward revaluation under
revaluation model. Changes to ROU assets due to lease modifications under Ind
AS 116 are not considered as revaluation and hence not required to be reported
(Page
37 of GN)
|
|
4
|
3(i)(e)
– New
|
Whether
any proceedings have been initiated or are pending against the company for
holding any benami property under The Benami Transactions
(Prohibition) Act, 1988 and rules made thereunder. If so, whether the company
has appropriately disclosed the details in Financial Statements
|
Following
audit procedures are mainly required for purposes of reporting under the said
clause:
•
Management inquiries
•
MRL
•
Review of legal and professional fees ledger
•
Minutes of various committee meetings
Following
disclosures are required to be given in financial statements with respect to benami
properties:
•
Nature
•
Carrying value
•
Status of proceedings
•
Consequential impact on financials including liability that may arise in case
proceedings are decided against the company (also, if liability is required
to be provided or shown as contingent liability)
The
reporting is not required if the company is the beneficial owner of the benami
property
(Page
40 of GN)
|
|
5
|
3(ii)(a)
– Modified
|
Whether
the coverage and procedure of physical verification of
inventories by management is appropriate in the
opinion of the auditor
Whether
discrepancies of 10% or more were noticed in the aggregate for each
class of inventory during its physical verification and, if so, whether they
have been properly dealt with in the books of accounts
|
This
is reintroduced from legacy reporting
The
10% criterion is to be looked at from value perspective only. All
discrepancies of 10% or more in value for each class of inventory are to be
reported irrespective of materiality threshold for the company
(Page
45 of GN)
|
|
6
|
3(ii)(b)
– New
|
Whether
during any point of time of the year the company has been sanctioned working
capital limits in excess of Rs. 5 crores in aggregate from banks or financial
institutions on the basis of security of the current assets
Whether
quarterly returns or statements filed by the company with such banks or
financial institutions are in agreement with the books of accounts of the
company; if not, give details
|
•
Sanctioned limit (fresh / renewed) is to be considered and not utilised
limits
•
Non-fund-based limits like LC, BG, etc., are considered as working capital
•
If utilised limits exceed Rs. 5 crores with sanction below Rs. 5 crores, the
same is not required to be reported
•
Any unsecured sanctioned limit is to be excluded from reporting
•
The auditor is just required to match the inventory value as reported in
quarterly returns / statements submitted to banks / FI with value as per
books of accounts and report disagreement, if any. The auditor is not
required to audit the accuracy of the inventory values reported
•
Quarterly returns / statements to be verified include stock statements, book
debt statements, credit monitoring arrangement reports, ageing analysis of
debtors or other receivables and other financial information to be submitted
to Banks / FI
(Page
50 of GN)
|
|
Sr.
No.
|
Clause
of CARO 2020 (New / Modified / Reintroduced)
|
New
/ Modified Reporting requirements
|
Guidance
by ICAI for auditing / reporting on
new requirements
|
|
7
|
3(iii)(a)(A)
& (B) – Modified
|
Whether
company has provided loans or advances in nature of loans or stood guarantee
or provided security to any other entity and, if so, indicate aggregate
amounts of transactions during the year and outstanding as at balance sheet
date for subsidiaries, JV, associates and others
Reporting
under this clause is not applicable to companies whose principal business is
to give loans
|
The
better way would be to disclose the requisite details in financial statements
and give reference in CARO
The
format of reporting is given in GN issued by ICAI on page 60
(Page
54 of GN)
|
|
8
|
3(iii)(e)
– New
|
Whether
any loans or advance in nature of loans granted which have fallen due during
the year, have been renewed or extended or fresh loans granted to settle the
overdues. If so, specify aggregate amounts of such fresh / renewed loans
granted and % of such loans to total loans as at balance
sheet date.
Reporting
under this clause is not applicable to companies whose principal business is
to give loans
|
The
objective of reporting on this clause is to identify instances of
ever-greening of loans / advances in
nature of loans
The auditor should obtain list of all parties to whom
loan or advance in nature of loan has been granted and check for dues with
respect to such loans. The auditor would be required to inquire with respect
to uncleared dues on such loans, if any. If the same are renewed or extended,
it would require reporting under this clause. If they are settled through
receipt of fresh loan, the same would be visible in party’s ledger in the
form of inflow first and outflow thereafter.
Format
for reporting is specified on page 68 of GN
(Page
55 of GN)
|
|
9
|
3(iii)(f)
– New
|
Whether
company has granted any loans or advances in nature of loans either repayable
on demand or without specifying any terms or period of repayment, if so,
specify the aggregate amount, % to total loans and aggregate loans granted to
promoters, related parties as defined in section 2(76) of Companies Act, 2013
|
The auditor should prepare master file containing
party-wise details of various terms and conditions of loans or advances in
nature of loans given and the same should be updated as and when required.
The parties can be tagged as promoter or related party as per definition of
2(69) or 2(76) of the Companies Act, respectively
Format for reporting is specified on page 69 of GN
(Page
55 of GN)
|
|
10
|
3(v)
– Modified
|
In
respect of deposits accepted or amounts which are deemed to be deposits,
whether RBI directives or Companies Act sections 73 to 76 have been complied
with. If not, nature of contraventions to be stated along with compliance of
order, if any, passed by CLB / NCLT / RBI etc.
|
Deemed
deposits as defined under Rule 2(1)(c) of the Companies (Acceptance of
Deposits) Rules, 2014 defines deposits to include any receipt of money by way
of deposit or loan or in any other form, by a company but does not include
amounts specified therein
Examine
form DPT-3 filed by the company
(Page
75 of GN)
|
|
11
|
3(vii)(a)&(b)
– Modified
|
Whether
company is regular in depositing undisputed statutory dues including
GST and if not, the extent of arrears of outstanding dues, or if not
deposited on account of dispute, then the amounts involved and the forum
where the dispute is pending shall be mentioned
|
The
modification is only to the extent of reporting on GST along with other
statutory dues
(Page
84 of GN)
|
|
12
|
3(viii)
– New
|
Whether
any transactions not recorded in the books of accounts have been surrendered
or disclosed as income during the year in tax assessments under the Income
Tax Act, 1961, if so, whether the previously unrecorded income has been
properly recorded in the books of accounts during the year
|
Reporting
is required only if the company has voluntarily disclosed in its return or
surrendered during search / seizure. Thus, if addition is made by IT
authorities and the company has disputed such additions, reporting under this
clause is not required
Review
all tax assessments completed during the year and subsequent to balance sheet
date but before signing of auditor’s report
Reporting is also required for adequate disclosure in
financial statements or impact as per AS / Ind AS after due consideration to
exceptional items, materiality, prior period errors, etc.
(Page
98 of GN)
|
|
Sr.
No.
|
Clause
of CARO 2020 (New / Modified / Reintroduced)
|
New
/ Modified Reporting requirements
|
Guidance
by ICAI for auditing / reporting on
new requirements
|
|
13
|
3(ix)(a)
– Modified
|
Whether
the company has defaulted in repayment of loans or other borrowings or in the
payment of interest thereon to any lender, if yes, the period and
amount of default to be reported
|
Preference
share capital would not be considered as borrowings for reporting under this
clause
Whether
ICD taken would be considered as borrowings for the purpose of reporting
under this clause will require evaluation
(Page
101 of GN)
|
|
14
|
3(ix)(b)
– New
|
Whether
company is a declared wilful defaulter by any bank or FI or other lender
|
Reporting
under this clause is restricted to wilful defaulter declared by banks or FI
or any other lender (irrespective of whether such bank / FI has lent to the
company) as the same are governed by RBI Master Circular RBI/2014
-15/73DBR.No.CID.BC.57/20.16.003/2014-15 dated 1st July, 2014 on
wilful defaulters
The
GN clarifies that such declaration should be restricted to the relevant
financial year under audit till the date of audit report
With
respect to wilful defaults to other lenders, the same would be reported only
if the government authority declares the company as wilful defaulter
Auditor
may check information on websites of credit information companies like CIBIL,
CRIF, Equifax and Experian. Auditors may also check RBI websites, CRICIL
database and information available in public domain
(Page
106 of GN)
|
|
15
|
3(ix)(d)
– Reintroduced
|
Whether
funds raised on short-term basis have been utilised for long-term purposes,
if yes, the nature and amount to be indicated
|
Practical
approach to verify such a possibility is to analyse the cash flow position
containing overall sources and application of funds. Also, certain companies
do follow the Asset Liability Management department which tracks the maturity
lifecycle of different assets and liabilities
Review
of bank statements specifically during the period of receipt of short-term
loans / working capital loans and its application thereafter can sometimes
provide direct nexus between receipts and application
(Page
114 of GN)
|
|
16
|
3(ix)(e)
– New
|
Whether
the company has taken any funds from an entity or person on account of or to
meet obligations of its subsidiaries, associates, or JV, if so, details thereof
with nature of such transactions and amount in each case
|
First
check point would be whether loans or advances are given during the year or
investments (equity or debt) are made in order to meet obligations of
subsidiaries, associates, or JV. Reporting under this clause would cover
funds taken from all entities and not restricted to banks and FIs. The
reference details could be disclosure of related party transactions
Format
for reporting is specified on page 120 of GN
(Page
117 of GN)
|
|
17
|
3(ix)(f)
– New
|
Whether
the company has raised loans during the year on pledge of securities held in
its subsidiaries, JV, associates, if so, give details thereof and also report
if the company has defaulted in repayment of such loans
|
The
reporting may be cross-referenced to
reporting under 3(ix)(a)
Format
for reporting is specified on page 123-124 of GN
(Page
120 of GN)
|
|
|
|
|
|
18
|
3(xi)
– Modified
|
Whether
any fraud by the company or any fraud on the company has been noticed or
reported during the year, if yes, the nature and amount involved to be
indicated
|
The
modification has widened the reporting responsibility of the auditor by
removing the specific requirement of reporting on frauds by the officers or
employees of the company. Thus, all frauds by the company or on the company
should be reported here
The
auditor is not responsible to discover the fraud. His responsibility is
limited to reporting on frauds if he has noticed any during the course of his
audit or if management has identified and reported
Auditor
should review minutes of meetings of various committees, internal auditors
report, etc., to identify if frauds were discussed or reported. Additionally,
the auditor will also have to obtain written representations from management
while reporting under this clause
Reporting
under this clause will not relieve the auditor from complying with section
143(12) of the Companies Act which is specifically covered by new clause
3(xi)(b) as given below
(Page
138 of GN)
|
|
19
|
3(xi)(b)
– New
|
Whether
any report is filed under 143(12) by the auditors in Form ADT-4 as prescribed
in Rule 13 of the Companies (Audit & Auditors) Rules, 2014 with the
Central Government
|
The
objective of reporting under this clause is to check and report on the
compliance of section 143(12) in terms of reporting of frauds noticed by the
auditors in the company committed by officers or employees of the company to
the Central Government in Form ADT-4 after seeking comments from board /
audit committee (if the amount of fraud exceeds Rs. 1 crore)
The
reporting liability under 143(12) also lies with the company secretary
performing secretarial audit, cost accountant doing cost audit and thus
statutory auditor is required to report under this clause reporting by
aforesaid professionals on frauds noticed by them during their audits
(Page
144 of GN)
|
|
20
|
3(xi)(c)
– New
|
Whether
the auditor has considered whistle-blower complaints, if any, received during
the year by the company
|
The
objective of reporting under this clause is to make the auditor confirm that
he has gone through all whistle-blower complaints and performed / planned his
audit procedure accordingly, thereby addressing financial statements
presentation or disclosure-related concerns raised by whistle-blowers
Check
whether requirement of whistle-blower mechanism is mandated by law [SEBI LODR
and section 177(9) of the Companies Act]
If
the same is not mandated by law, the auditor may ask from the management all
the whistle-blower complaints received and action taken on the same
(Page
147 of GN)
|
|
21
|
3(xiv)(a)
– Reintroduced
|
Whether
the company has an internal audit system commensurate with the size and
nature of its business
|
The
auditor should evaluate the internal audit function / system like size of
internal audit team, the scope covered in the internal audit, internal audit
structure, professional compatibility of the team performing internal audits,
reporting responsibility, independence, etc., to comment on the above clause
(Page
161 of GN)
|
|
|
|
|
|
22
|
3(xiv)(b)
– New
|
Whether
the reports of the Internal Auditors for the period under audit were
considered by the statutory auditor
|
The
objective of reporting under this clause is just to obtain confirmation from
the statutory auditor that he has gone through the internal audit reports and
considered implications of its observations on the financial statements, if
any. Reporting under this clause will require the auditor to coordinate
closely with the Internal Auditor so that he considers the work done by the
Internal Auditor for his audit purposes, compliance with SA 610 (Revised);
‘Using the Work of Internal Auditors’, is mandatory for the statutory auditor
(Page
167 of GN)
|
|
23
|
3(xvi)(b)
– New
|
Whether
the company has conducted any non-banking finance or housing finance
activities without valid Certificate of Registration (CoR) from RBI
|
The
auditor is required to first identify whether the company is engaged in
non-banking financial or housing financial activities. If yes, the auditor
should discuss with management with regards to registration requirements of
RBI for such companies and report accordingly
(Page
181 of GN)
|
|
24
|
3(xvi)(c)
– New
|
Whether
the company is Core Investment Company (CIC) as defined by RBI regulations
and whether it continues to fulfil the criteria of CIC. If the company is
exempted or unregistered CIC, whether it continues to fulfil the exemption
criteria
|
The
auditor is required to identify whether the activities carried on by the
company, assets composition as at previous year-end, etc., satisfy the
conditions for it to be considered as CIC
He
should also go through RBI Master Direction – Core Investment Companies
(Reserve Bank) Directions, 2016 which are applicable to all CIC
(Page
183 of GN)
|
|
25
|
3(xvi)(d)
– New
|
Whether
the group has more than one CIC as part of the group, if yes, indicate number
of CIC’s which are part of the group
|
Companies
in the group are defined in Core Investment Companies (Reserve Bank)
Directions
(Page
187 of GN)
|
|
26
|
3(xvii)
– Reintroduced
|
Whether
the company has incurred cash losses in the financial year and in the
immediately preceding financial year, if so, state the amount of cash losses
|
The
term cash loss is not defined in the Act, accounting standards and Ind AS.
Thus, for accounting standards compliant companies it can be calculated by
making adjustments of transactions of non-cash nature like depreciation,
impairment, etc., to profit / loss after tax figure
Similarly,
for Ind AS companies, profit / loss (excluding OCI) can be adjusted for
non-cash transactions like depreciation, lease amortisation or impairment.
Further, cash profits / cash losses realised and recognised in OCI (not
reclassified to P&L) should be adjusted to above profit / loss to arrive
at cash profit / loss for the company
Adjustments
like deferred tax, foreign exchange gain / loss and fair value changes should
also be given effect to since they are non-cash in nature
(Page
189 of GN)
|
|
|
|
|
|
27
|
3(xviii)
– New
|
Whether
there has been any resignation of the statutory auditors during the year, if
so, whether the auditor has taken into consideration the issues, objections
or concerns raised by the outgoing auditors
|
The
reporting on this clause is applicable where a new auditor is appointed
during the year to fill a casual vacancy under 140(2) of the Act
The
incoming auditor who is required to report on this clause should take into
account the following before reporting on this clause,
•ICAI
code of ethics
•
Reasons stated by the outgoing auditor in Form ADT-3 filed with ROC in
compliance with 140(2) read with Rule 8
•
Implementation guide by ICAI on resignation / withdrawal from engagement to
perform audit of financial statements
•
Compliance with SEBI Circular applicable for auditors of listed companies
(Page
191 of GN)
|
|
28
|
3(xix)
– New
|
On
the basis of the financial ratios, ageing and expected dates of realisation
of financial assets and payments of financial liabilities, other information
accompanying the financial statements, the auditor’s knowledge of the board
of directors and management plans, whether the auditor is of the opinion that
no material uncertainty exists as on the date of audit report that company is
capable of meeting its liabilities existing as at balance sheet date as and
when they fall due within period of one year from balance sheet date
|
•
Prepare list of liabilities with due dates falling within next one year
•
Check payments subsequent to balance sheet date till the date of issuing
auditors report
•
Obtain plan from management indicating realisable value of assets and
payments of liabilities
•
Ratios to be considered are current ratio, acid-test ratio, cash ratio, asset
turnover ratio, inventory turnover ratios, accounts receivable ratio, etc.
•
Other details which should be obtained from management post-balance sheet
date are MIS, cash flow projections, etc.
Adverse
reporting under this clause should have similar reporting in the main report
regarding going concern as specified in SA 570
(Page
196 of GN)
|
|
29
|
3(xx)(a)
– New
|
Whether
in respect of other than ongoing projects, the company has transferred
unspent amount to a fund specified in schedule VII of the Companies Act
within a period of six months of expiry of the F.Y. in compliance with 135(5)
of the Companies Ac.
|
The
auditor should ask the management to prepare a project-wise report on amounts
spent during the year and considered under CSR activities
(Page
204 of GN)
Clause
(a) requires unspent amount not relating to any ongoing project to be
transferred to specified fund as per schedule VII of the Act and Clause (b)
requires unspent amount relating to ongoing projects to be transferred to
special bank account opened for CSR activities
(Page
209 of GN)
|
|
30
|
3(xx)(b)
– New
|
Whether
any amount remaining unspent under 135(5) of the Companies Act, pursuant to
any ongoing project has been transferred to special account in compliance
with 135(6) of the Companies Act
|
|
