Companies (Auditor’s Report) Order, 2020 [CARO] will be applicable from Fy 2021-2022

MCA notified Companies (Auditor’s Report) Order, 2020 [CARO] 

Central Government, after consultation with the National Financial Reporting Authority constituted under section 132 of the Companies Act, 2013, hereby makes the following Order, namely: This Order may be called the Companies (Auditor’s Report) Order, 2020. (CARO 2020)

Commencement of the order: Order applies, for the financial years commencing on or after the 1st April, 2019**

**As a relief measure announce by the Ministry, Applicability of Companies (Auditor’s Report) Order, 2020shall be made applicable from the financial year 2020-2021 instead of from 2019-2020 notified earlier. This will significantly ease the burden on companies & their auditors for the year 2019-20 due to Covid-19 pandemic.

**MCA vide order S.O. 4588(E) dated 17th December 2020 further extended applicability of the CARO 2020. As per order CARO 2020 will be applicable from FY 2021-22

🎯Applicability of CARO 2020:

✅Companies to Which CARO 2020 Applies:

• All Companies: CARO 2020 is generally applicable to all companies registered under the Companies Act, 2013, unless specifically exempted. This includes:
  • • Public companies
    • Private companies (unless exempt, as noted below)
    • Foreign companies operating in India
• Auditors’ Responsibility: Auditors of these companies must report on 21 specific matters (clauses) in their audit reports, such as:
  • • Fixed assets (title, existence, maintenance)
    • Inventory (physical verification, valuation)
    • Loans and advances (sanction, repayment, security)
    • Internal controls over financial reporting
    • Compliance with statutory dues (e.g., GST, TDS)
    • Related party transactions
    • Defaults in repayment of loans
    • Fraud reporting, etc.

❎ Exemptions from CARO 2020

1. Banking Companies:
   • • Defined under Section 5(c) of the Banking Regulation Act, 1949 (Act 10 of 1949).
     • Example: Scheduled commercial banks, cooperative banks, etc.
2. Insurance Companies:
   • • Defined under the Insurance Act, 1938 (Act 4 of 1938).
     • Example: Life Insurance Corporation of India (LIC), private insurers like HDFC Life or ICICI Prudential.
3. Section 8 Companies:
   • • Companies licensed under Section 8 of the Companies Act, 2013, which are formed for charitable, educational, or other non-profit purposes (e.g., NGOs, trusts registered as companies).
4. One Person Companies (OPCs):
   • • Defined under Section 2(62) of the Companies Act, 2013.
     • These are companies with only one shareholder, typically small businesses or startups.
5. Small Companies:
   • • Defined under Section 2(85) of the Companies Act, 2013, as companies with:
       • Paid-up capital up to Rs. 4 crores
       • Turnover up to Rs. 40 crores
6. Private Limited Companies (with Specific Conditions):
   • Private companies that are not subsidiaries or holding companies of public companies, and meet all of the following:
     • • Paid-up capital and reserves and surplus not exceeding Rs. 1 crore as on the balance sheet date.
       • Total borrowings not exceeding Rs. 1 crore from any bank or financial institution at any point during the financial year.
       • Total revenue (as per Schedule III of the Companies Act, 2013, including revenue from discontinued operations) not exceeding Rs. 10 crores during the financial year as per financial statements.