The Company Auditor’s Report Order (CARO), 2016, issued by the Ministry of Corporate Affairs (MCA), holds significant importance in the audit landscape of Indian companies. It delineates specific reporting requirements for auditors, ensuring transparency and accountability in financial reporting. In this guide, we delve into the intricacies of CARO, 2016, exploring its applicability, exclusions, and detailed reporting criteria. Understanding CARO, 2016, is essential for auditors, company directors, and stakeholders to adhere to regulatory standards and uphold the integrity of financial reporting practices.
- Existence and Objective of CARO, 2016: The Ministry of Corporate Affairs (MCA) introduced CARO, 2016 to ensure specific issues vital to financial statements are reported in audit reports. This order replaced CARO 2015.
- Applicability: CARO 2016 applies to all companies except banking, insurance, charitable, one-person, and small companies meeting specified criteria. Some private companies are also exempt based on certain financial thresholds.
- Matters Specified: CARO 2016 mandates reporting on various aspects including fixed assets, inventory, loans given by the company, statutory dues, managerial remuneration, fraud, and more.
- Reporting Requirements under Each Clause:
- Fixed Assets: Verification of proper records maintenance and physical verification.
- Inventory: Verification of physical inventory and reporting discrepancies.
- Loans Given by Company: Assessment of loans granted to ensure compliance and proper repayment.
- Loan to Directors and Investment by Company: Examination of loans and guarantees to directors.
- Deposits: Verification of compliance with RBI directives on deposits acceptance.
- Cost Records: Assessment of maintenance of prescribed cost records by the Central Government.
- Statutory Dues: Reporting on regular depositing of statutory dues and disclosures for non-compliance.
- Repayment of Loans: Reporting defaults in repayment of loans.
- Utilization of Funds: Ensuring funds raised are utilized for intended purposes.
- Reporting of Fraud: Reporting instances of fraud by the company or employees.
- Approval of Managerial Remuneration: Ensuring compliance with prescribed limits for managerial remuneration.
- Nidhi Company: Compliance assessment with regulations specific to Nidhi companies.
- Related Party Transactions: Verification of compliance with rules for transactions with related parties.
- Private Placement of Preferential Issues: Verification of compliance with rules for private allotments of shares and debentures.
- Non-Cash Transactions: Assessment of compliance with limits and conditions for non-cash transactions with directors or relatives.
- Registration under RBI Act: Verification of registration under RBI Act if required.
- Mandatory Reporting: Auditors must report on all specified clauses and provide appropriate disclosures.
