CARO 2020 is an amended audit report format for statutory audits of Companies covered under the Companies Act, 2013. CARO 2020 now includes additional reporting obligations after consultations with the National Financial Reporting Authority (NFRA).

The goal of CARO 2020 is to improve the overall quality of audit reporting. In this article, we discuss the additional requirements that need to be maintained by the management for finalization of financial statements for the FY 2021-22, the companies falling under CARO applicability and so on.

An Overview Of CARO 2020

The aim of CARO 2020 Order is to enhance the overall quality of reporting by the company auditors. This Order is an advancement to strengthen the corporate governance framework. These changes are imperative and tighten the Auditor’s reporting requirements.

Therefore, the company’s management must be aware of additional details the Auditor requires to sign off on the reporting framework.

What Is The Applicability Of CARO 2020?

Implementation of CARO 2020 has been deferred for FY 2021-2022 owing to COVID-19 contingencies. All companies that were covered by CARO 2016 are subject to the order. As a result, the order applies to all firms except the following:

  • One person company.
  • Insurance organisations.
  • Banking organisations.
  • Small organisations (Companies with a paid-up capital of less than or equal to Rs 50 lakh and a latest reported turnover of less than or equal to Rs 2 crore are eligible).
  • Companies that are registered as charitable organisations.

The following private companies are also exempt from CARO 2020 applicability:

  • Whose gross receipts or revenue (including revenue from discontinued operations) in the financial year is less than or equivalent to Rs 10 crore;
  • Whose paid-up share capital plus reserves as of the balance sheet date is less than or equal to Rs 1 crore (i.e., usually at the end of the FY);
  • Not a public company’s holding or subsidiary; and
  • At any point during the fiscal year, whose borrowings are less than or equivalent to Rs 1 crore.

Now, Let Us Look At The Additional Requirements That Need To Be Maintained By The Management As Per CARO 2020 For Finalization Of Financial Statements Of FY 2021-22.

Disclosure requirements necessary for Immovable Property:
  • Details of all the immovable property held in the company’s name in the financial statements along with its holding period.
  • Details of all the immovable property held in the name of the Promoter, director or any relatives or the company’s employee along with its holding period should be disclosed in the financial statements.
  • Details of the immovable property, along with title documents and necessary resolutions which have been mortgaged with the banks/financial institutions for any loans raised by the company.
  • Details of those immovable properties are disclosed in the financial statement but not held in the name of the company and its holding period and with the reason for non-holding in Company name.
  • If any property is held in the capacity of the lessee, duly executed lease agreements are in favour of the lessee Company.
  • Details any proceedings initiated or pending against the company for holding Benami properties.
Relevant disclosures for forming an opinion on Intangible property classified under Other Property Plant & Equipment
  • Documentary records showing full particulars such as:
    • Quantitative details, carrying value, and situation of the property, plant & equipment.
    • Carrying Value of Intangible Property Rights.
    • Any impairment tests performed or required to be performed
  • If an asset (including intangible rights) is revalued, valuation report from registered valuer with detailed justification
Disclosure requirements necessary for Inventory:
  • Details of the coverage and procedure of the physical verification of the inventory adopted by management, frequency of physical stock verification.
  • Stock details shall be maintained in each class of inventory with a break-up of value and quantity and shall be accessible to auditors for reporting.
  • Further, the details of working capital loans borrowed from the banks/financial institutions for an amount more than INR 5 Crore. In such a case, any quarterly disclosures made to the banks about the loan shall be made available to Auditors for comparison with stock records as per books of accounts.
  • Details regarding any levy of interest, temporary overdrawing, or excess withdrawals, which has caused the sanctioned limit to exceed INR 5 Crores, must also be available.
Disclosure requirements for any loans granted or renewed by the Company:
  • The Management shall adhere on a real time basis to procedural requirements and maintain signed copies of Board/ shareholder meeting resolution as per criteria laid down under Section 186 of the Companies Act,2013. Further, all transactions shall be at Arm’s length, and adequate disclosure shall be made before the Auditor for the sake of compliance to this clause.
  • Documentary evidence is required to support any loans or advances that were due during the year and have been renewed or extended and any new loans granted to settle the overdues of existing loans.
  • Special disclosure shall be made in financial statements regarding granting loans either repayable on demand or without stipulation regarding terms or period of repayment and the aggregate amount of such loans.
  • Special disclosure shall be made for transactions with the promoters or related parties in compliance with the provision of Section 185 of the Companies Act,2013.
Details to be recorded by management with respect to Deposits:
  • A list of amounts received in the course of the business or for the business along with the Form DPT-3 must be made available to the auditor, It will help the auditor to assess if such amounts have assumed the nature of deposits as per the Companies (Acceptance of Deposits) Rules.
  • “Deemed deposits” shall also be reported under CARO 2020 along with the deposits accepted as per the directives of the Reserve Bank of India and in compliance of Section 73 to 76 of the Companies Act and its rules, irrespective of the fact whether the same is reported in DPT-3.
  • Details of any order passed by NCLT or RBI or any other tribunal for the contraventions of Section 73 to Section 76 must also be disclosed.
Undisclosed transactions under the Income Tax Act,1961:
  • Any Assessment order taxing any transactions not recorded in the books of account but have been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961. The Auditor is duty bound to report undisclosed assessed income in CARO,2020.
  • Such Assessment may arise mainly on account of Survey, Search and Seizure provision attracted under Income Tax Act, Surrender or disclosure under Laws related to Benami Properties or Black Money provisions.
  • It is in the imperative interest of the Management to disclose all the tax filings, assessment orders where an addition is made on the undisclosed income by the Assessing Officer. Any communication between the management and the Income Tax Department, where Management has defended the claim of undisclosed income should also be disclosed.
Details of Default in repayment to Banks, Financial Institutions, or any other lender:
  • The scope of Auditor has been widened to report defaults in repayment by the Company borrower to ‘any lender’ and not just the financial institution, Bank, Government, or dues to debenture holders. Even a one day delay in repayment of loan/ interest will be considered as “Default”. If any default exists for any part of the year, the Auditor shall report the same.
  • All the communications with the Lenders such as – sanction terms, agreements with creation of charges, repayment schedule, evidence showing end use of money, balance confirmation with lenders, any reminder letters and other legal correspondence towards default in repayment shall be produced before the Auditor.
  • Any application rescheduling/restructuring of loan proposals submitted to the financial lender under negotiation shall also be available to the auditor to form an opinion.
Details of Fraud committed on the Company:
  • The Company must have a Whistle-blower policy in place, and any complaints received must be addressed, and the same should be provided to the Auditors for further assessment.
  • Details of any legal action taken against the accused, along with the legal correspondence if any, must also be provided.
Details of Internal Audit System and Reports:
  • The System Operating Procedures (SOPs) and internal audit checkpoints must commensurate the nature & size of the business.
  • The Statutory Auditor must be provided with the scope of Internal Audit, Internal audit reports, Internal Auditor’s approach to derive his findings and management’s approach to resolve such loopholes (if any).
  • The minutes of the meeting of the Board of Directors and Audit committee after consideration of the internal audit report, if any shall be examined by the auditor.
Details related to Financial Activities conducted without valid Certificate of Registration (CoR):
  • Management shall assess Financial Income to Total Operating income and Financial Assets to total assets at regular intervals. If the ratio exceeds 50% for both the indicators, registration with the Reserve Bank of India (RBI) is necessary u/sec. 45(IA) of the Reserve Bank of India Act,1934.
  • Details about Financial and lease transactions with other group entities without a valid Certificate of Registration (CoR) must be reported to the Auditor.
  • Whether the company is a Core Investment Company (CIC) as defined in the regulations made by the RBI, if so, whether it continues to fulfill the criteria of a CIC, and in case the company is an exempted or unregistered CIC, whether it continues to fulfil such criteria.
  • Whether the Group has more than one CIC as part of the Group, if yes, indicates the number of CICs which are part of the Group.
Disclosure of Cash losses incurred by the company:
  • The Management shall prepare the Cash flow statement showing cash flow from operating activities, investing activities, and financing activities.
  • If the company has incurred any cash losses in the financial year and/or in the immediately preceding financial year, the same shall be reported.
  • The Management shall identify the cause for such cash losses and take relevant actions to mitigate such losses in the future.
  • These assessments backed by support shall be made available to the Auditor.
Details of Reasons for Resignation of past auditor:
  • Whether there has been any resignation of the statutory auditors during the year citing grounds of objections, concerns raised during his audit, the chain of communication shall be made available to the current Auditor apart from mere ‘No Objection’ Letter from the previous Auditor.
  • The manner in which such issues are addressed and resolved by the management shall be disclosed to the current Auditor.
Details of Financial analysis of company at the date of balance sheet:
  • The management shall provide the financial ratios, aging analysis, expected dates of realization of financial assets and payment of financial liabilities along with the Board of Directors’ action plan to mitigate financial risks.
  • The auditor shall assess the action plan of action designed by the Management and monitor the procedures performed to mitigate the risk associated with meeting its liabilities to opine on the going concern status of the company.
Details related to Transfer of unspent CSR amount to specified fund:
  • In case of an unspent amount relating to ‘other than ongoing projects’, such amount must be transferred to a fund specified in Schedule VII to the Companies Act within six months of the expiry of the financial year i.e., 30th September each year.
  • Minutes of the CSR Committee meetings, if any and their action plan pursuant to the CSR policy shall also be assessed by the Auditor.
Other material information to be provided under CARO applicability:
  • Details related to intimation about Qualification or Adverse Audit report of Companies should be included in the Consolidated Financial Statements.
  • Internal Audit report shall be issued regarding applicability Sec 138 of Companies Act 2013. However, the auditor is also required to report on the internal controls where Section 138 is not applicable. In such cases, the Management must place SOPs, Checklists, and Control points commensurate with their businesses’ nature and size.
  • The going concern assumption must be backed by positive financial ratios and a road map for the future. The Whistleblower policy must be designed, and its efficiency and effectiveness must strengthen the internal control.
  • These additional requirements must be put together and standardized before March 2022.


The amendment of CARO 2020 has brought in major changes, leading to a stringent and vigilant approach to the Auditor’s quality of reporting. Paramount importance has been given to the efficiency and effectiveness of Internal Controls, going concern assumption, whistleblower policies, and risk mitigating strategies adopted by management.

“Cost of Non-compliance is more than Cost of Compliance” – This holds true for New India, as the Indian economy continues to promote transparency by implementing additional Governance measures.

How Can InCorp Help You?

At Incorp, we have a dedicated team of professionals and experts, skilled in assurance services to guide and assist you through the entire CARO 2020 applicability process. We are here to guide you and ensure peace of mind from setting up your India company to staying compliant with various regulations effectively and efficiently.


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