ICAI Issues Guidance Note On Companies (Auditor’s Report) Order, 2020

ICAI’s Guidance Note on the Companies (Auditor’s Report) Order, 2020

The Ministry of Corporate Affairs (MCA) issued the Companies (Auditor’s Report) Order, 2020 (CARO 2020) in February 2020. CARO 2020 contains many new reporting requirements for auditors such as revaluation of property, plant and equipment (including right of use assets) or intangible assets, benami property, working capital limits on basis of security of current assets, granting loans or advances in the nature of loans which are either repayable on demand or without specifying any terms or period of repayment, undisclosed income, company declared as wilful defaulter, material uncertainty in meeting liabilities, CSR activities. The Auditing and Assurance Standards Board (AASB) of the ICAI has issued the “Guidance Note on the Companies (Auditor’s Report) Order, 2020” (Guidance Note on CARO 2020) in July 2020 to provide detailed guidance on various clauses of CARO 2020 and reporting requirements for auditors.

To ensure that the management of companies provide various disclosures which pertain to clauses of CARO 2020 especially the aforesaid new reporting requirements, the MCA has brought out corresponding amendments in Schedule III (Division I, Division II and Division III) to the Companies Act, 2013 vide its notification dated 24th March 2021 for preparation of the financial statements. In addition to the said amendments, various other disclosure requirements have also been added in Schedule III to the Companies Act, 2013.

The members may note that in light of the said amendments, a comprehensive revision of the Guidance Note on CARO 2020 is being initiated by AASB. In the interregnum, the members should read CARO 2020 in conjunction with the corresponding amendments made in Schedule III to the Companies Act, 2013 for presentation and disclosure requirements stated therein and perform the audit procedures accordingly.

Annexure to this Announcement summarises interplay of some of the clauses in CARO 2020 and consequential amendments to Schedule III to the Companies Act, 2013.

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