1. CARO, 2016. Companies (Auditor’s Report) Order, 2016.
Presentation by :
CA R. C. THAKKAR Vadodara.

2. CARO,2016 – An Overview:
Companies (Auditor’s Report) Order,2016 issued by the Central Govt. in exercise of powers u/s 143(11) vide Order No. SO 1228(E) dated in supersession of CARO,2015.
Every Report made by the Auditor under Sec.143 of 2013 for the financial year commencing on or after to include a Statement on CARO,2016.
Auditor’s Report to contain statement on certain matters specified in Para 3 and 4 of the Order.

3. CARO,2016 – An Overview: Applicability of CARO,2016.
Companies Not Covered under CARO,2016 vs. CARO,2015.
New Reporting Requirements - CARO,2016
CARO,2015 Reporting Requirements – which have been Modified in CARO,2016.
CARO,2015 Reporting Requirements – which have been discontinued.

4. Applicability of CARO,2016:
It would be applicable to every company, including a foreign company as defined u/s 2(42) of Co.Act,2013 (Except the Companies which have been specifically excluded from applicability).
CARO,2016 is not applicable to Auditor’s Report on the Consolidated Financial Statements.
CARO,2016 will be applicable even in case of Branch Audit.

5. CARO,2016 Not Applicable to Following Types of Companies:
A Banking Company as defined u/s 5(c) of Banking Regulation Act,1949.
Insurance Company as defined under Insurance Act,1938.
Companies incorporated with charitable objects and licensed to operate u/s 8 of Co.Act,2013.
One Person Company (OPC) as defined u/s 2(62) of Co.Act,2013.
Small Company as defined u/s 2(85) of Co. Act,2013.

6. Not Applicable to Following:
Private Company (not being a subsidiary or holding co. of a public company) –
With Paid up Capital and Reserves & Surplus not more than Rs.1.00 Cr (earlier Rs.50 Lakhs)
Does not have total borrowings exceeding Rs.1.00 Cr.(earlier 25 Lakhs) from any Bank/Financial Institution* at any point of time during the FY.
Does not have total revenue* as defined in Sch.III (including revenue from discontinuing operations) exceeding Rs.10 Cr. During the FY as per the Fin. Statements (earlier Turnover exceeding Rs.5 Cr).

7. Useful Definitions : Small Company (Section 2(85):
A Company, other than a Public Company, Paid up Share Capital of which does not exceed Rs lakh or such higher amount as may be prescribed which shall not be more than Rs.5.00 Crore.
Turnover of which as per last profit and loss account does not exceed Rs.2 Cr. Or such higher amount as may be prescribed which shall not be more than Rs.20 Crore.

8. Matters to be included in CARO,2016:
Reporting Requirements have increased in CARO,2016.
We shall discuss the CARO,2016 vs. CARO,2015 in the following manner:
New Reporting Requirements
Requirements of CARO,2015 continued as it is.
Requirements of CARO,2015 continued with certain modifications, and;
Requirements of CARO,2015 – which have been discontinued.

9. New Reporting Requirements :
Fixed Assets - Whether Title Deeds of the immovable properties held in the name of Co.
Compliance of Sec.185 and 186 in respect of Loans, Investments, Guarantees and Securities.
Managerial Remuneration as per Sec.197.
Compliance Requirement by Nidhi Companies.
Related Party Transactions as per Sec.177 & 188.
Registration under Sec.45 IA of the RBI Act,1934.
Preferential Allotment/ Private Placement of Shares/CD in compliance of Sec.42.
Non-Cash Transactions with Directors/other persons in compliance of Sec.192.

10. Modified Reporting Requirements :
Physical Verification of Inventory – No reporting on procedures of physical verification and records maintained.
Granting of Loans to Certain Parties – Reporting of overdue amount of more than 90 days instead of monetary limit of Rs.1.00 lakh.
Default in Repayment of Dues – Lender wise details of amount and period of default.
Application of money raised through IPO/ Follow-on Offer of shares/debt instruments and Term Loans
Fraud Reporting – restricted to Officers/Employees

11. Deleted Reporting Requirements :
Internal Control System – Is there an adequate internal control system commensurate with the size of Co. and nature of business….
Deposit of Statutory Dues – Whether amount required to be transferred to Investor Education and Protection Fund has been transferred?
In case of Company which is registered for a period not less than 5 years, the Accumulated Losses are not less than 50% of its Net Worth and whether incurred Cash Losses during the F.Y.?
Whether Co. has given Guarantee for loans taken by others from Banks/FI at terms which are prejudicial to Co.?

12. Overall Summary - CARO,2015 vs. CARO,2016:
There were (xii) clauses in CARO,2015.
Clause No.(i), (ii), (iii) have been modified.
Clause No.(iv) has been deleted and New Clause (iv) has been inserted.
Clause (v) and (vi) are continued with minor modifications.
Clause (vii), (ix), (xi) and (xii) have been modified and renumbered as (vii), (viii),(ix) and (x).
Clause (viii) and (x) have been omitted.
New Clauses (xi) to (xvi) have been added.

13. (i)
Fixed Assets
New
Whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets;
Whether these fixed assets have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of account;
Whether title deeds of immovable properties are held in the name of the company? If not, provide the details thereof;

14. (ii)
Inventory M
Whether physical verification of inventory has been conducted at reasonable intervals by the management;
Are the procedures of physical verification of inventory followed by the management reasonable and adequate in relation to the size of the company and the nature of its business. If not, the inadequacies in such procedures should be reported;
Whether the company is maintaining proper records of inventory and whether any material discrepancies were noticed on physical verification and if so, whether the same have been properly dealt with in the books of account;

15. (iii)
Loans Granted M
Whether the company has granted any loans, secured or unsecured to companies, firms, LLPs or other parties covered in the register maintained under section 189 of the Co.Act,2013. If so,
Whether the terms and conditions of grant of such loans, are not prejudicial to the company’s interest;
Whether the schedule of repayment of principal and repayment of interest has been stipulated and whether the repayment or receipts are regular.

16. (iii)
Loans Granted M
a) Whether receipt of the principal amount and interest are also regular;
b) If overdue amount is more than rupees one lakh, whether reasonable steps have been taken by the company for recovery of the principal and interest;
c) If the amount is overdue, state the total amount overdue for more than 90 days, and whether reasonable steps have been taken by the company for recovery of the principal and interest;

17. Internal Control System
(iv)
Internal Control System O
Is there an adequate internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services.
Whether there is a continuing failure to correct major weaknesses in internal control system ?

18. (iv) Loans, Investments etc. New
In respect of loans, investments, guarantees, and security whether provisions of Section 185 and 186 of the Companies Act,2013 have been complied with?
If not, provide the details thereof.

19. Acceptance of Deposits (S. 73 to 76)v.
Acceptance of Deposits (S. 73 to 76) M
In case the company has accepted deposits from the public, whether the directives issued by the Reserve Bank of India under the provisions of sections 73 TO 76 or any other provisions of the Act and the rules framed there under, where applicable, have been complied with? If not, the nature of contraventions should be stated;
If an order has been passed by CLB or NCLT or RBI or any court or any other Tribunal whether the same has been complied with or not?

20. vi.
Cost Records M
Where maintenance of cost records has been prescribed by the Central Government under sub-section (1) of section 148 of the Co. Act,2013 and,  
Whether such accounts and records have been so made and maintained;

21. vii.
Statutory Dues M
(a) Whether the company is regular in depositing undisputed statutory dues including Provident Fund, Employees’ State Insurance, Income-tax, Sales-tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Value Added Tax, cess and any other statutory dues with the appropriate authorities and – if not, the extent of the arrears of outstanding statutory dues as on the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated.

22. vii.
Statutory Dues M
(b) Where dues of income tax or sales tax or wealth tax or service tax or duty of custom or duty of excise or value added tax have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned.
(A mere representation to the concerned Department shall not be treated as a dispute).
(c) Whether amount required to be transferred to Investor Edu. & Protection Fund….. Omitted.

23. Accumulated Losses and Cash Losses
viii.
Accumulated Losses and Cash Losses O
whether in case of a company which has been registered for a period not less than five years, its accumulated losses at the end of the financial year are not less than fifty per cent of its net worth and whether it has incurred cash losses in such financial year and in the immediately preceding financial year;
Omitted….

24. Default in Repayment of Dues
viii.
Default in Repayment of Dues M
(ix)Whether the company has defaulted in repayment of dues to a financial institution, bank, Government or debenture holders? If yes, the period and amount of default to be reported; (In case of defaults to banks, financial institutions and Government, lender wise details to be provided)

25. x.
Guarantee Given for
Loans taken by Others O
Whether the company has given any guarantee for loans taken by others from bank or financial institutions, the terms and conditions whereof are prejudicial to the interest of the company;
- Omitted..

26. Utilization of Moneys Raised
ix.
Utilization of Moneys Raised M
xi. Whether term loans were applied for the purpose for which the loans were obtained;
ix. Whether moneys raised by way of initial public offer (including debt instruments) and term loans were applied for the purposes for which those are raised. If not, the details together with delays or default and subsequent rectification, if any, as may be applicable, be reported.

27. Fraud on or by the Companyx.
Fraud on or by the Company M
xii. Whether any fraud on or by the company has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated.
x. Whether any fraud by the company or any fraud on the company by its officers or employees has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated.

28. Managerial Remuneration
xi.
Managerial Remuneration
New
Whether managerial remuneration has been paid or provided in accordance with the requisite approvals mandated by the provisions of Sec.197 read with Schedule V to the Companies Act?
If not, state the amount involved and steps taken by the company for securing refund of the same.
- New Clause… No Such Clause in CARO,2015.

29. xii
Nidhi Company
New
Whether the Nidhi Company has complied with the Net-owned Funds to Deposits in the ratio of 1:20 to meet out the liability and,
whether the Nidhi Company is maintaining 10 per cent unencumbered term deposits as specified in the Nidhi Rules,2014 to meet out the liability.
- New Clause………. No Such Clause in CARO,2015.

30. Transactions with Related Parties
xiii
Transactions with Related Parties
New
Whether the transactions with related parties are in compliance with Sec.177 and 188 of the Co.Act,2013 where applicable and the details have been disclosed in the financial statements etc. as required by the applicable accounting standards.
- New Clause… No Such Clause in CARO,2015.

31. Preferential Allotment or Private Placement of Shares/CD
xiv.
Preferential Allotment or
Private Placement of Shares/CD
New
Whether the company has made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review and if so, as to whether the requirement of Sec.42 of the Co.Act,2013 have been complied with and the amount raised have been used for the purposes for which the funds were raised.
If not, provide the details in respect of the amount involved and the nature of non-compliance;
- New Clause… No Such Clause in CARO,2015.

32. Non-Cash Transactions
xv.
Non-Cash Transactions
New
Whether the company has entered into any non-cash transactions with Directors or persons connected with him and if so, whether the provisions of Section 192 of the Companies Act, 2013 have been complied with?
- New Clause… No Such Clause in CARO,2015.

33. Registration u/s 45 IA of RBI Act
xvi.
Registration u/s 45 IA of RBI Act
New
Whether the company is required to be registered under section 45-IA of the Reserve Bank of India Act,1934 and if so, whether the registration has been obtained?
- New Clause… No Such Clause in CARO,2015.

34. Reasons to be stated for Unfavourable or Qualified Answers
Where, in the auditor’s report, the answer to any of the questions referred to in CARO,2016 is unfavourable or qualified, the auditor’s report shall also state the reasons for such unfavourable or qualified answer, as the case may be.
  Where the auditor is unable to express any opinion in answer to a particular question, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such question.

35. THANKS
CA R. C. THAKKAR Vadodara.