CARO 2016-2017

CARO 2016-2017

Under Section 143(11) of the Companies act, 2013 (2013 Act) this section requires that the Auditor’s report of specified class of companies should include a statement on the prescribed matters. These reporting requirements have been approved under the companies (Auditor’s Report) Order, 2015 (CARO 2015) issued by the Ministry of Corporate Affairs (MCA) 10th April 2015.

The MCA had setup a committee on 16 September 2015 to look at and recommend matters that should form part of the statement. This statement would be affixed with the auditor’s report under section 143(11) for the financial year FY 2015-16 and thereafter.

Applicability of CARO 2016

Every Report made by auditor under section 143 of the 2013 would include in it, CARO 2016 and CARO 2016 is applicable for Financial Year 2015-16, Financial Year 2016-17 and subsequent years. It would be valid to every company (except some companies) including a foreign company defined under section 2(42) of the 2013 Act. The CARO, 2016 would not be applicable to the auditor’s report on the consolidated financial statements.

Companies exempt under the CARO-2016.

Companies exempt under the CARO-2016

In these companies the auditor is exempt to comment on matters prescribed under the CARO 2016 with compared to CARO 2015.

Companies not covered under CARO 2016

1. Banking Companies as defined u/s 5(c) of the Banking Regulation Act, 1949
2. Insurance Company as defined under Insurance Act, 1938
3. Companies Incorporated with Charitable objects etc, i.e. companies licensed to function under section 8 of Act 2013
4. One company as defined u/s 2(62) of the 2013 Act
5. Small Company as defined u/s 2(85) of the 2013 Act
6. Private company which is not a holding or a subsidiary company of a public company:

• with a paid a paid up capital & reserves and surplus not more than INR 1 crore
• does not have sum of borrowings exceeding INR 1 crore from any bank or any financial institution at any point of time during the FY; and
• Does not have total revenue as defined under schedule III, to the 2013 Act (including revenue from discontinuing operations) exceeding INR 10 crore during the financial year (FY) as per the financial statements.

Companies not covered under CARO 2015

1. Banking Companies as defined u/s 5(c) of the Banking Regulation Act, 1949
2. Insurance Company as defined under Insurance Act, 1938
3. Companies Incorporated with intention or a Charitable objects etc, i.e. companies licensed to operate under section 8 of Act 2013
4. One company as defined u/s 2(62) of the 2013 Act
5. Small Company as defined under section 2(85) of the 2013 Act
6. Private company which is not a holding or a subsidiary company of a public company:

• with a paid up capital & reserves and surplus not more than 50 Lakhs
• does not have outstanding loan liability more than INR 25 Lakhs from any bank or any financial institution, and
• does not have a turnover more than INR 5crore at any point of time during the financial year

Matters to be included in CARO 2016

As compared to CARO 2015, the reporting requirements under CARO 2016 have been amplified. There are few new requirements which are as follows:

Fixed Assets

• Whether the title deeds of immovable properties are held in the name of company, if not,then provide details thereof.

Loans and Investments

• In respect of the loans, investments and guarantees, whether the provisions of Section 185 and 186 of the 2013 Act have been complied with. If not then provide details thereof.

Managerial Remuneration

• Whether managerial remuneration has been paid/provided in accordance with the requisite approvals mandated by the provisions under section 197 read with schedule of 2013 Act, if not state the amount and steps involved by the company for securing refund for the same.

Related Party Transactions

• Whether all transactions with the related parties are in compliance with section 188 and 177 of the 2013 Act where applicable and the details have been disclosed in the financial statements etc. as required by the accounting standards as well as 2013 Act.

Preferential Allotment/ Private Placement

• Whether the company has made any preferential allotment/private placement of the shares or fully or partly convertible debentures during the year under review and if so, as to whether the requirement under Section 42 of the 2013 Act have been complied with and the amount raised has been used for the purposes for which the funds were raised. If not then provide details thereof.

Non-Cash Transactions

• Whether the company has entered into any non-cash transactions with the directors or persons connected with him and if so, whether provisions under section 192 of the 2013 act have been complied with.

Requirements that have been carried forward with some modifications:- 

Inventory

• Whether the physical verification of inventory has been conducted at the reasonable intervals by the management and whether any material discrepancies were noticed and if so, how they will been dealt with in the books of accounts.

Deleted Requirement

• Are the procedures of the physical verification of inventory followed by the management reasonable and adequate in relation to size of company and nature of its business.
• Whether the company is maintaining right records of inventory.

Default in payment of dues

Whether the company has defaulted in repayment of any dues to a financial institution or bank or debenture-holder, if yes then the period and amount of default to be reported (in case of banks and financial institution, lender wise details to be provided) New Requirement  It relates to the lender wise-details of period and the amount of default.

Fraud Reporting

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, then the nature and the amount involved should be indicated. New Requirement It is limited to officers and employees of the company.

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