All you want to know about CARO 2016
CARO has been a primary guide for conducting company audits. There has been change in CARO and its applicable for the financial year starting from April 2015 onwards.This article will focus on changes in CARO 2016.
What is CARO ?
CARO refers to Companies (Auditors Report) Order.It is applicable to every class of company , which covers foreign company and branches of the companies also, with exceptions listed as below.
Exceptions as per CARO 2015-
- Banking company
- Insurance company
- Companies under section 25
- Private limited company
a. which has paid up capital and reserves less than Rs 50 lakhs
b. which does not have outstanding loan exceeding Rs.25 lakhs from banks or financial institutions
c. which has turnover less than or equal to Rs. 5 crores
Changes in CARO 2016
- Applicability of CARO 2016 to companies
The private company monetary threshold for applicability of CARO 2016 has been changes as below.In order to apply CARO 2016 to private company , it should have
a. paid up capital and reserves exceeding Rs. 1 crore.
b. Loans and borrowings of more than Rs.1 crore.
c. Turnover of more than Rs.10 crores.(this includes turnover from discontinuing operations).
- Private limited company as a subsidiary or holding of public company
Such companies were out of purview before , however it has been included in CARO 2016 orbit.Such company will be covered under CARO 2016 irrespective of monetary threshold.
- Fixed Assets
It is required to report whether title deed of immovable property are held in the name of the company.If such deed is not in the name of the company , then ownership details thereof have to be provided.
- Loans and borrowings of the company
It has to be reported whether provisions of section 185 and 186 of Companies Act 2013 are complied with or not.Such provisions are with respect to loans , borrowings , investment , guarantee , and security.
Also , it should be checked whether loans or borrowings are not granted on prejudicial to interest of the
The reporting mandate also suggests inclusion of default in repayment of loan to government , financial institution , bank or debenture holders , if any.
- Loans and borrowings granted by company
The auditor shall check and ensure that appropriate steps and efforts are taken by the company for recovering the outstanding dues ( both principal and interest).The report should have schedule for repayment of principal and interest. Also the auditor has been mandated to report dues above 90 days outstanding.
- Managerial remuneration
CARO 2016 mandates reporting whether the managerial remuneration is paid according to section 197.If its not as per the Act , then the report shall disclose the actual amount paid and provided for the same.
- Nidhi Company
The report shall cover disclosure on following with respect to Nidhi company
a. Maintenance of ratio of Net Owned Fund to Deposits to 1:20 and,
b. Maintenance of unencumbered deposits at 10% for meeting liability.
- Related party transactions
The CARO 2016 mandate's reporting on whether the related party transactions are as per section 177 and section 188 of Companies Act .Also it needs to report on disclosure with respect to details of such related party transactions as required under the Act.
- Preferential allotment or private placement
The auditor shall report on following issues with respect to private placement or preferential allotment
a. If the company has made such allotment or placement of shares
b. Whether the requirements with respect to such allotment are complied with as per section 42.
c. Whether the amount raised through subscription of such privately placed shares has been applied for the reason for which funds were raised.
d. In case of contravention or non compliance of any of such relevant provisions, the report shall mention the amount so raised and details of application.
- Non cash transactions with directors
Disclosure with respect to such transactions has been mandated by CARO 2016.Also compliance of section 192 in this respect is sought by the CARO report.
- Registration with RBI
CARO 2016 requires that the report should state whether it is required to be registered with RBI.If it is required then has the company applied for registration and got the same.
- Consolidated Financials statements
CARO 2016 shall not be applicable to consolidated financial statement.
- Wealth tax
CARO 2016 excludes wealth tax from the list of statutory tax payments.
- The items on which no longer reporting is mandated by CARO 2016
a. Procedure of physical verification of inventory.
b. Records of inventory
c. Internal Controls system
d. Transfer to Investor Education and protection fund
e. Where accumulated losses are less than 50% of net worth and cash losses.
This article sums up important amendments , additions and deletions in the CARO.CARO 2016 is applicable from financial year 2015-16, hence please be aware of the changes while proceeding with the audit report.