MCA notifies Companies (Auditor’s Report) Order, 2020

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MCA Notifies Companies ( Auditor's Report ) Order, 2020

The Ministry of Corporate Affairs has issued an order named Companies order, 2020. The Companies Order, 2020 will e applicable to all the companies including a foreign companies and it will be enforced when it will be published in the Official Gazette in India.

 MCA in place of existing The Companies order 2016, has notified CARO 2020 after consultation with the National Financial Reporting Authority constituted under section 132 of the Companies Act, 2013.

The CARO, 2020 is applicable for audit of financial statements of eligible companies for the financial years commencing on or after the 1st April 2019.
The criteria of eligibility of companies on which the CARO, 2020 shall be applicable has not been changed and hence it shall be applicable to all those companies on which CARO, 2016 was applicable.
CARO 2020 would necessitate enhanced due diligence and disclosures on the part of auditors of eligible companies and has been designed to bring in greater transparency in the financial state of affairs of such companies.

The salient features of the CARO, 2020 are as under:

  • The CARO, 2020 includes certain additional clauses, as compared to CARO, 2016, and the existing clauses of CARO, 2016 have been re-drafted to elicit detailed comments from the auditors.
  •  A specific format has been provided for reporting the details of such immovable properties whose title deeds are not held in the name of the company but are disclosed in the financial statements.
  • Disclosure of details of proceedings against the company for holding Benami Property and whether the company has disclosed the details in its financial statements.
  • Discrepancies of 10% or more in the aggregate of each class of inventory noticed during physical verification of inventory would have to be reported.
  • The Auditor is to provide specific details as to whether during any point of time of the year, the Company has been sanctioned working capital limits in excess of Rs. 5 crores, in aggregate, from banks or financial institutions on the basis of security of current assets and whether the quarterly returns/statements filed by the Company with such banks or financial institutions are in agreement with the books of account of the Company.
  • The auditor is to report in detail on the investments made by the company. Any loans or advances in the nature of loans granted, secured or unsecured, to companies, firms, Limited Liability Partnerships or any other parties during the year, that they are not prejudicial to the interests of the company.
  • The amount of cash losses incurred in the financial year and in the immediately preceding financial year have to be reported.
  • The auditor has to take into consideration the issues, objections or concerns raised by the outgoing auditors before forming his opinion.
  • The auditor is required to report about the company if it is a declared wilful defaulter by any bank/ financial institution/another lender.
  • Revaluation of the property, plant, and equipment and if there is more than 10% of the change in the property, plant, and equipment.

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