Changes via Company Auditor’s Report Order , 2020 CARO

CARO Reporting, 2020 being notified

MCA has notified particular issues being important & thereby should be reported as per particular norms with the financial statements for certain entities as a part of their audit reports for almost all companies except a few below.

Banking, Insurance, Charitable setups & small cos. or OPC has been kept out of this exercise. Also, some smaller setups with below norms are exempt from this as below –

  • Not a holding or subsidiary of a Public company
  • Paid-up Capital plus Reserves l< 1 Crore at the reporting date.
  • Borrowings less than or equal to Rs. 1 Crore at any time during the year
  • Revenue less than or equal to Rs. 10 Crores in the financial year

Key points of change suggest towards-

company laws
  • Whether the company is maintaining proper records showing full particulars of intangible assets
  • Reporting on revaluation of Property, Plant and Equipment’s by company
  • Reporting of proceedings under the *Benami Transactions* (Prohibition) Act, 1988. i.e. whether the company has appropriately disclosed the details in its financial statements
  • Reporting if the *stock statements filed with banks* are in line with books of accounts, if the company was sanctioned working capital limits in excess of five crore rupees or more from banks or financial institutions. To report any discrepancies of 10% or more in the aggregate for each class of inventory
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  • Report quarterly returns or statements filed by the company with such banks or financial institutions are in agreement with the books of account of the Company, if not, give details
  • Reporting of *investments* in or providing of any *guarantee or security* or granting any loans or advances.
  • Loans overdue for more than 90 days, *evergreening of loans, reporting on any *loan default*, etc.
  • Report on evergreening of loans – specify the aggregate amount of such dues renewed or extended or settled by fresh loans and the percentage of the aggregate to the total loans or advances in the nature of loans granted during the year
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  • Reporting of compliances with RBI directives* and the provisions the Companies Act with respect to deemed deposits.
  • Reporting with respect to transactions not recorded in the books of account but now surrendered or disclosed as income in the income tax proceedings.
  • Report on  balances outstanding at the balance sheet date with respect to such loans or advances and guarantees or security to subsidiaries, joint ventures, and associates
  • Reporting on treatment by the auditor of *whistle-blower complaints* received during the year by the company
  • Reporting on the internal audit system
  • Reporting on cash losses
  • Reporting on the resignation of the statutory auditors
  • Reporting on the uncertainty of company capable of meeting its liabilities
  • Reporting transfer of *unspent CSR* amount to Fund specified in Schedule VII
  • Investment, Guarantee & Security given has been covered now along with loans & Advances – in terms of benefits to the company
  • Clarification required for Non-Disclosure of Properties taken on Lease by the Lessee
  • Auditor has to specifically comment on coverage and procedure adopted as per audit approach Also Materiality has been  defined as 10% or more in each class of Inventory

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TCS on Foreign Tours & Travel:- Income Tax Amendment 1st April 2020

 TCS on Foreign Tours & Travel

As they say, the devil lies in the details, Budget 2020 has got a lot of catches to relate to. One of the important ones is that our FM Nirmala Sitharaman has seemed to have zeroed on folks traveling abroad on foreign tours & travel, their travel plan being booked by travel agents as part of small holiday packages. This is very common now in both Govt & Private Sector employees.

Union finance minister Nirmala Sitharaman has raised alarm bells for those who travel abroad on tour package booked by others, which is a common trend to oblige senior officials in government and private sectors in the country.

Come, April 1, 2020, every foreign traveler will have to pay 5% (PAN holder) and 10% (non-PAN holder) TCS (Tax Collection at Source) on the total amount of tour package. Once the TCS is charged, total income for individuals will automatically be grossed up as liability & thus a large entity will be encircled with the realms of Income-tax department, which often escapes the TAX FILED income as per IT RETURN.

Earlier provision to mention passport number in ITR is now given more teeth to levy a tax on a large number of people, who go abroad on leisure trips several times in a year.

More often than not, there is black money involved as trips are often financed by the business houses in return for undue favors from bureaucrats, govt officials and other business entities in society. Trips can be a form of bribe or enticement in return for the aforesaid work insight.

As it may look, that every foreign visitor whether he is an income taxpayer or not will now be part of the tax gambit. However, there is a relief for people whose annual income is under the threshold limit (under Rs 5 lakh) visits a foreign country. These folks can apply for a refund of TCS from the Dept. of Income-tax.

The move is seen very effective as it will restrain the massive use of unaccounted money into the system via Foreign Tours and large no. of individuals n entities will be added newly to the mainstream Tax System @ GOI.

Industry Impact-

On top of levy of taxes, Govt intends to bank on new-age technology like DATA Analytics, etc. to retrieve information about frequent flyers who often end up spending lavishly on Global tours and travel. 5% TCS is a huge sum on the foreign travel package bill which will increase the burden of this distinctive travel class. Travel Industry is also looking to change and adapt to the new business dynamics. With all this, this can turn to abound to challenging provision for government employees and their family members, doctors, etc. who visit abroad on sponsorship.

Key Changes –
  • Every foreign traveler has to pay 5% and 10% tax collection at sources (TCS) on the total amount of tour package
  • Stop the practice of Concentration of Tour operators with a view of group bookings as an operator  maligning the process with illicit funding via unorganised channels.

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MCA seeks suggestions/comments on proposed Audit curbs

A consultation paper to examine the existing provisions of law and make suitable amendments therein to enhance audit independence and accountability has been placed and need suggestions/comments.

  • Whether to reduce the number of audits per one audit firm/ auditor?
  • Whether to reduce or set the number of partners under one audit firm?
  • How can those Big-4’s burden be reduced? Which other audit firms are in a position to compete with them and reduce the workload of Big4?
  • Whether the auditors in listed companies to be appointed from a separate auditors ‘ panel to be repaired by NFRA?
  • Whether non-audit services can be included in the list u/s 144?
  • Whether the Joint Audit for bigger companies should be made compulsory?
  • What should be the threshold for the bigger companies?

 Economic Concentration of audit [Big 4] – Positive & Negative effects on the economy

Most of the large global corporations use the Big Four accounting companies to audit their financial statements.This audit industry concentration of listed companies is characterized by an oligopoly of “Big Four” audit firms and in large-company audits would result in inadequate levels of competition.

Finding a new auditor would be more complicated because

  • Less competition in many geographic markets where some of these companies do not have a significant presence.
  • The lack of sufficient auditing experience by the remaining companies, in particular industries.
  • Many other businesses are not independent because of the provision of non-audit services

The Companies Act, 2013  provides mandatory audit firm rotation and non-audit services In order to tackle this economic concentration of audit. The main purpose of this provision is to increase the number of audit firms capable of carrying out the most complex audits.

 Non-audit services not to be taken by auditors

It has been noted that some of the audit firms are observing self-regulation and are making decisions not to participate in non-attested work such as consultancy and transaction advisory services from listed companies that they are auditing. Such a move that comes in the midst of auditors who are facing heat in high-profile corporate scandals seems a welcome change. Deloitte announced recently that it will not underatake any non- audit services in public domain.i.e. listed entities with Banks & Insurance Companies in particular.

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