The amendments apply to every audit report of companies under section 143 of the Companies Act, for the financial year 2019-20 and beyond.
In a bid to check corporate frauds and scams, the ministry of corporate affairs (MCA) has revised the Companies (Auditor’s Report) Order, or CARO, under which auditors are now required to report more extensively on many crucial aspects including frauds, loan defaults, whistle blower complaints and benami properties.
Under the amended Companies (Auditor’s Report) Order, auditors will have to comment on a total of 50 matters in their audit reports against the earlier 21. The amendments apply to every audit report of companies under section 143 of the Companies Act, for the financial year 2019-20 and beyond.
AMRG & Associates chief executive Gaurav Mohan said, “Accountability and responsibility on an auditor are on the rise in wake of heightening expectations from all stakeholders, including banks, tax authority, Sebi, MCA and NFRA. Newly inserted CARO report enhances the scope of matters to be contained in the auditor’s report of the company, to include details of proceedings under the Benami Act, 1988, sanction of working capital limit exceeding `5 crore, GST dues, cash losses, unrecorded transactions accepted in income tax assessments and declaration of company as wilful defaulter by any lender”.
These new reporting rules would push auditors to implement stricter audit procedures on the companies to ensure a higher level of corporate governance, he noted.
As per the new norms, the auditor’s report on accounts of a company shall include a statement on “whether the company is maintaining proper records showing full particulars, including quantitative details and situation of property, plant and equipment. Also, whether the company is maintaining proper records showing full particulars of intangible assets”.
Now auditors will also have to report on whether the property, plant and equipment have been physically verified by the management at reasonable intervals and if any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of account.
According to Sanjeev Singhal, a partner at SR Batliboi and Co, the issue of CARO 2020 is indeed a welcome step as auditors are gearing up to report on financial statements for the year ended March 31, 2020. With significant revisions to audit report last year including key audit matters for listed companies, the new additions to CARO will further enhance auditor’s report.
“In the wake of recent corporate frauds and scams, CARO 2020 significantly enhanced the reporting responsibilities of auditors. Though it is the responsibility of auditors to report on matters prescribed in CARO, the companies would get affected as they need to provide the underlying information. Reporting about whistleblower grievances coupled with disclosure relating to fraud committed/reported, evergreening of loans default in repayment of loans/borrowings, investments/guarantees/securities may act as early warning signals both for the management as well as the regulators,” he explained.
Additional reporting on consolidated financial statements in CARO for qualification/adverse comments by other auditors is another step to provide a holistic view to stakeholders at the consolidated level, Singhal added.