Benami Transactions – Focus on New Auditors Report (CARO 2020)

CARO or Companies (Auditor’s Report) Order, 2020, broadens the scope and also defines the way the report is issued or details as part of auditor’s report, including proceedings initiated or pending, if any, against the company under the Benami Transactions (Prohibition) Act

Auditor’s report must include the details on

  • Any Sanction to the company in respect of working capital limits higher than Rs5 crore,
  • Dues on account of goods and sales tax (GST) & losses incurred in Cash
  • Intentionally unreported transactions as per finalised Income tax assessments
  • Wilful Defaulter Declaration by any lender pertaining to this or any other company.

MCA Order mandates the company to disclose and report if the auditor has considered whistle-blower complaints received during the year.

In the event of the resignation of the statutory auditor of the company and reappointment of new Auditor, MCA order mandates that the present auditor should take into consideration the issues, objections or concerns raised by the outgoing erstwhile auditors.

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Major Changes in CARO 2020 Comapred to CARO 2016

As you would Know, MCA has notified Companies (Auditor’s Report) Order 2020 or CARO 2020, with effect from February 25th, 2020. Notice that it was 16 Clauses earlier and there are 21 Clauses now. It added 5 Additional Clauses.

Below are 10 major changes in CARO 2020

1) Fixed Asset Rejig

a. Before words Fixed Assets, Now it is replaced with land, plant, equipment and intangible assets (PPEIA).

b.When Title Deed is not in the company’s name (except in the case of Lease) then all these instances disclose with justification in the tabular format.

c.Any Revaluation to be recorded in PPEIA.

d.Any Benami proceedings started to be reported.

2) Inventory Physical Verification & Bank Limit Rejig

a. Coverage of inventory verification and the procedure to be disclosed.

b. Any dis.crepancy to be closed above 10 percent

c. Any Working Capital Limit beyond 5 Cr on Current Assets Collateral to be reported and returns filed with Bank in compliance with Records

3) Loans & Advances Rejig

a. Earlier payments settled by extension, renewal or new loans to be reported.

b. Any loans on a request basis to be reported separately.

4) Default in Loan Repayment Rejigs 

a. Specified Default Reporting table

b. Disclosure of Financial Institutions found willful defaulter.

c. Terms of loan used for the right purpose or not

d. Whether Short term loans are applied for long term purposes.

e. Funds received under the service obligation of Subsy, JV or Associate Companies

f. Funds received for the commitment of shares of Subsy, JV or Associate Companies

5) Fraud Reporting Rejig

a. ADT-4 Filed by the Auditor, if any, to be reported.

b. Any complaint made to the whistleblower during the audit

6) Managerial Remuneration Clause Deletion

a. Payment of management remuneration in accordance with Sch V has been withdrawn

7) Five New Clauses

a. 17 – Cash Losses – Cash losses need to be reported to the FY if any

b. 18 – Resignation of Auditor – Issues raised by him whether they were considered or not if any.

c. 19 –The willingness of the Company to meet its current liabilities in the auditor’s view on the basis of ratios results and aging.

d. 20 – CSR Compliance – Ongoing project whether the unused amount was transferred to the fund within 6 months / Special account

e. 21 – Companies in Consolidation –All negative comments of CARO, whether of any grant, JV or Associate company as consolidated, must be reported in Holding Company Clause 21 of CARO.

8) NBFC Companies Compliance Reporting Rejig

a.  Whether NBFC is having a valid Certificate from RBI

b. Whether it’s CIC, whether there is more than 1 CIC and compliance in the community.

9) Internal Audit Rejig

a. Whether the Internal Audit System exists as per the Company Size or not?

b.Whether any internal audit report was considered by the auditors

10) Income Tax Transactions not in Books

a. Whether any transactions offered for income tax purposes, but not recorded in Books.

Conclusion:-

Welcome Changes, these will improve the reporting especially after ILFS, DHFL Fiasco

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