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Explained: Companies (Auditor’s Report) Order 2020

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The Ministry of Corporate Affairs (MCA) had issued the 2020 version of Companies (Auditor’s Report) Order, 2020 (CARO 2020) on 25th February 2020. It was initially applicable for statutory audits of financial statements for periods beginning on or after April 1, 2019.

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What is the Companies (Auditor’s Report) Order 2020

A notification issued on 24th March 2020 mentioned that CARO 2020 would be applicable for statutory audits of financial statements. This would contain a pre-identified list of areas and events that the auditor has to report on. Unlike CARO 2016, which required reporting on all fixed assets, the new CARO 2020 requirements focus on property, plants, equipment and intangible assets. It has also included the reporting of proceedings under the Benami Transactions (Prohibition) Act, 1988.

Earlier, CARO 2016 consisted 16 clauses while the new CARO 2020 has 2 clauses. The reason for the same is due to the establishment of National Financial Reporting Auditory (NFRA) on 1st October 2018, which aims to make Indian accounting standard compatible with IFRS and also aims to increase the disclosures. It is pertinent to observe that the new CARO guidelines (2020) contain terminology from INAS, and the auditor of CARO also has to check an increased amount of accounts and information relating to proprietary (proprietary means the activities of the company).

The Order was initially applicable for audits of the financial year 2019-20, however, its applicability remain delayed for an year. Currently, it is applicable for audits of financial year 2020-21 onwards. The CARO 2020 guidelines contain a Guidance Note that elucidate certain matters on which the auditors of the company (except auditors of those categories of companies which are specifically exempted under the Order) have to make a statement in their audit reports. The purpose of this Guidance Note is to enable the auditors to comply with the reporting requirements of the Order. It should, however, be noted that the guidance contained in this Guidance Note is not intended to be exhaustive and the auditors should exercise their professional judgement and experience on various matters on which they are required to report under the Order.

Matters to be included in the Auditor’s report 

  • Information on the company’s maintenance of proper records showing full particulars including quantitative details and location of the Property, Plant and Equipment (PPE).
  • Company maintaining proper records have to show full particulars of intangible assets that the auditor has to submit in the report.
  • Where the company has revalued its assets (PPE) or intangible assets on the basis of the valuation report from a registered valuer. If the amount of change is 10% or more then disclosure is essential.
  • Whether any proceedings have been initiated or are pending against the company for holding any benami property, and if so, whether the company has appropriately disclosed the detail in its financial statements.
  • If the company has obtained any kind of working capital limits in excess of Rs. 5 crore, then it is important to check whether the company filed quarterly the auditor’s stock with the statement of the banks or not.
  • With the change in clause (iii) related to loans and investment, the company has to be mindful of the same if it gives loans/provides guarantee/security and investment, particularly when the company is not in a lending business.
  • Mention of transactions that not recorded in the books of accounts that have been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961. If there exists such transactions, then information has to be provided if there has been previously unrecorded income in the books of account during that year.
  • As per clause (xvii), there has to be a mention of whether the company has suffered cash losses in the previous financial year, if so, this has to be disclosed.
  • If a new auditor has been appointed to fill the shoes of the resigned auditor, then the new auditor has to report given the the cause, issue, objection or concern raised by the outgoing auditors.
  • The Auditors must also report on compliance with RBI directives and the provisions of the Companies Act, 2013, with respect to the deemed deposits.
  • Clause (xix) provides that an auditor on the basis of ratio analysis and other information about the company and information about the Board of Directors and management plans, is of the opinion that no material uncertainly exist as the date on the audit balance sheet that the company will be able to pay all the liabilities/loans from the upcoming period i.e. 1 year, is called a going concern. This going concern exists for one year.


Despite, the CARO 2020 guidelines covering new areas, it is silent on certain matters such as damages of assets and major changes in fair value, which could have a significant impact on financial statements. On the brighter side, CARO 2020 guidelines make the audit report short, and would also give an opportunity to the company to report honestly and freely to the auditor of which the reporting would be done without restrictions. is now on Telegram. Follow us for regular legal updates and judgments from the court. Follow us on Google News, InstagramLinkedInFacebook & Twitter. You can also subscribe to our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.

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