What is CARO 2020?
CARO 2020 is the Companies (Auditor’s Report) Order, 2020. It requires the auditor’s report under section 143 to include extra matters, for a company the order covers, for a financial year commencing on or after 1 April 2021. It replaced CARO 2016. It is not itself the statutory audit.
Which companies are covered?
The order applies to a company, including a foreign company, except these:
- a banking company
- an insurance company
- a section 8 company
- a one person company
- a small company
- a private company that meets the three limits below and is not a holding or subsidiary of a public company
A small company is outside CARO even when its paid-up capital is above the ₹1 crore private-company line. The current small-company test is on the small company page. Which audits a private company has, apart from CARO, is on the audits page.
When is a private company left out?
All three limits have to be met, and the company must not be a holding or subsidiary of a public company. Paid-up capital and reserves and surplus are not more than ₹1 crore on the balance-sheet date. Borrowings from any bank or financial institution do not exceed ₹1 crore at any time in the year. Total revenue, as disclosed in the financial statements, does not exceed ₹10 crore. Crossing any one of those lines brings the company into CARO, unless another exemption applies.
What does the auditor add?
The order lists 21 matters. They include records of property, plant and equipment and of intangible assets, physical verification, revaluation, and benami proceedings. They include inventory, and whether quarterly statements agree with the books where working-capital limits from banks or financial institutions exceed ₹5 crore in aggregate. Further matters cover loans, deposits accepted, statutory dues, fraud, and corporate social responsibility where that law applies. The checklist of the audit around this statement is on the statutory audit checklist.
What about a consolidated report?
On consolidated financial statements the order does not apply, except the clause that asks the auditor to report qualifications or adverse remarks in the CARO reports of the companies included in the consolidation, with the name of the company and the paragraph number. A company that is audited still files its own financial statements. That filing is on the financial statements page.
Frequently asked questions
Four questions cover the start year, a small company, an NBFC, and the statutory audit.
Does CARO 2020 apply from FY 2019-20?
No. The order was notified in February 2020 and then deferred. It applies to financial years commencing on or after 1 April 2021.
Is a small company inside CARO 2020?
No. A small company and a one person company are excluded. The current small-company limits are ₹4 crore of paid-up capital and ₹40 crore of turnover.
Does every NBFC file a CARO report?
No. CARO is a Companies Act order. An NBFC that is a company is covered only if none of the exemptions apply. It is not the Reserve Bank inspection.
Is CARO the statutory audit?
No. The statutory audit is the audit under section 143. CARO adds a further statement when the order applies. A company outside CARO is still audited.
Sources
The order is the Companies (Auditor’s Report) Order, 2020, as deferred to financial years commencing on or after 1 April 2021.