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    Proposed Caro, 2016 With Additional Reporting Requirements

    Background

    On 9th February, 2016 the Ministry of Corporate Affairs has proposed new Companies (Auditor's Report) Order (CARO), 2016. The Ministry had set-up a Committee on 16th September, 2015 to examine and recommend matter for inclusion in the statement to be attached with Auditor’s Report under Section 143(11) of the Companies Act, 2013 (2013 Act) for the financial year 2015-16 onwards.

    Section 143(11) of the Companies Act, 2013requires that the auditor’s report of specified class of companies should include a statement on the prescribed matters. As per the section 143 of the Companies Act, 2013, every report of the auditor under this section should contain matters specified under applicable CARO.

    The newly proposed CARO, 2016 contains 15 clauses, out of which some clauses have been carried forward from present CARO, 2015. MCA has issued exposure draft of CARO, 2016 for stakeholders’ comments. The draft, if approved, shall be applicable for FY 15-16 onwards.

    In comparison to CARO (2015), CARO (2016) proposes few additional reporting requirements and eliminates some of the reporting requirements.

    1. Applicability

    Every report made by the auditor under Section 143 of the 2013 Act for Financial Year commencing on or after April 1st 2015 would include CARO 2016. There is no difference between CARO, 2016 and CARO, 2015 from the point of view of applicability, except that CARO, 2016 is not applicable on private limited company, not being a subsidiary or holding of a public company, when its:

    • Paid up capital and reserves and surplus does not exceed Rs. 1 crore as at balance sheet date; and
    • Total borrowings from banks or financial institution at any point of time during financial year does not exceed Rs. 1 crore; and
    • Total revenue, including revenue from discontinuing operations, does not exceed Rs. 10 crore.

    Other companies not covered under CARO 2016

    • Banking company as defined under section 5(c) of the Banking Regulation Act, 1949.
    • Insurance company as defined under the Insurance Act, 1938
    • Companies incorporated with Charitable objects, that is companies licenses to operate under the Section 8 of 2013 Act.
    • One Person Company as defined under section 2(85) of the 2013 Act
    • Small company as defined under section 2(85) of the 2013 Act

    CARO, 2016 shall not apply to the auditor's report on consolidated financial statements whereas CARO, 2015 is applicable in such case. CARO is applicable to a foreign company as defined under Section 2(42) of the 2013 Act.

    2. REPORTING REQUIREMENTS

    As compared to CARO 2015, the reporting requirements under the CARO 2016 (draft) have been increased.

    .               Additional reporting requirements in CARO, 2016 Fixed Assets

    Auditor should report whether title deeds of immovable properties are held in the name of the company. If not, provide details thereof.

    Loans and investments

    Auditor should report whether the company has granted any loans, secured or unsecured to companies, firms or other parties covered by clause (76) of Section 2 of the Companies Act, 2013. If so whether the terms and conditions of the grant of such loans are not prejudicial to the company's interest.

    Auditor should report in respect of loans, investment and guarantees, whether provisions of section 185 and 186 of the Companies Act, 2013have been complied with. If not, details should be provided

     

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