CARO 2015 – Applicability For CA Final May 2016 Exams

CARO 2015 – Applicability For CA Final May 2016 Exams. Companies (Auditors’ Report) Order, 2015 [CARO]. Here we are providing complete notes for CARO 2015. Companies (Auditor’s Report) Order, 2015 [CARO] issued by Ministry of Corporate Affairs on 10th April, 2015 is applicable for May 2016 Examination. CARO 2015 is applicable for CA Final Nov 2015 Exams so here we are providing complete details for CARO 2015. Check other details from below. Now you can scroll down below and check Complete Details regarding CARO 2015 – Applicability For CA Final May 2016 Exams.

CARO 2015 – Applicability For CA Final May 2016 Exams

Companies (Auditor’s Report) Order, 2015 [CARO] issued by Ministry of Corporate Affairs on 10th April, 2015 is applicable for May 2016 Examination

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In exercise of the powers conferred by section 143(11) of the Companies Act, 2013, the Central Government, after consultation with the Institute of Chartered Accountants of India, has issued the Companies (Auditor’s Report) Order, 2015, (CARO, 2015) dated 10th April, 2015.

1. What types of Companies are specifically exempted from application of CARO?

Applicability: CARO 2015 applies to all Companies including a Foreign Company as defined u/s 2(42).

Exceptions / Exemptions: CARO does not apply to the following classes of Companies –

  • (a) Banking Company as defined u/s 5(c) of the Banking Regulation Act, 1949,
  • (b) Insurance Company as defined Insurance Act, 1938.
  • (c) Company licensed to operate u/s 8 of the Companies Act, 2013 and
  • (d) One person Company as per Sec.2(62) and a Small Company as per Sec.2(85) of the Companies Act,
  • (e) Private Limited Companies subject to the following conditions –
    • Aggregate of Paid Up Capital and Reserves should not exceed ` 50 Lakhs.
    • Loan outstanding from any Bank or Financial Institution should not exceed ` 25 Lakhs.
    • Turnover should not exceed ` 5 Crores.

2. Bring out the differences between compliance with the requirements of Sec. 143 of the Companies Act and CARO.

CARO Requirements are supplemental to the existing provisions of Sec.143 regarding the Auditor’s Report. However, certain points of distinction between CARO and Sec.143 requirements are –

S. No Requirements of Sec 143 Requirements of CARO
1 The provisions of sub–sections (1), (2), (3) and (4) of Sec.143 are applicable to all Companies. 1. Certain classes of Companies are exempt from CARO. (Refer previous question).
2 Sec.143 (1) requires the Auditor to make certain specific enquiries during the course of his audit. The Auditor is, however, not required to report on any of the matters specified in the sub– clauses, unless he has any special comments to make on the said matters, i.e. if he is satisfied with the results of his enquiries, he has no further duty to report that he is so satisfied. 2. CARO requires a statement on each of the matters specified therein, even if the Auditor has no comments to make on any of the matter(s) contained therein.

3. Bring out the professional necessity for complying CARO. Is it mandatory?

  1. Additional Matters for reporting [Sec.143(11)]: The Central Government may order for the inclusion of a Statement on specified matters in the Auditor’s Report for specified class or description of Companies. Accordingly, CARO, 2015 is issued by the Central Government should be complied by the Statutory Auditor of the Company.
  1. Nature of CARO: CARO is not intended to limit the duties and responsibilities of Auditors, but only requires a Statement to be included in the Audit Report in respect of the matters specified therein. For example, examination of the system of internal control is one of the basic audit procedures employed by the Auditor. The fact that CARO requires a statement regarding the internal control applicable to purchases of Inventories, Fixed Assets and Sale of Goods and Services, only is no justification for the Auditor to conclude that an examination of internal control regarding the other areas of a Company’s business is not important or not required.
  • Government Companies: In case of Audit of Government Companies, CARO is supplemental to the Directions given by the C&AG of India. Therefore, in respect of such Companies, the matters specified in CARO will form part of the Auditor’s Report.

4. List the matters to be reported under CARO, 2015.

1. FIXED ASSETS [3(i)]:

(a) Adequacy of Records: Whether or not proper records have been maintained to show full particulars including quantitative details and details about situation of Fixed Assets.

(b) Verification:

  • Whether the Management of the Company has physically verified the Fixed Assets, at reasonable intervals, and
  • Whether material discrepancies observed, if any, on such verification have been suitably dealt with in the
    books of account.

2. INVENTORIES [3(ii)]:

(a) Verification: Whether Management has physically verified all the inventories at suitable intervals.

(b) Adequacy of procedures: Whether the procedures for physical verification of inventory are reasonable and
adequate, having regard to the size of the Company and the nature of its business.

(c) Adequacy of Records:

  • Whether the Company is maintaining proper records of inventory, and
  • Whether any material discrepancies were noticed on physical verification and if so, whether the same have
    been properly dealt with in the books of account


LOANS GIVEN: Has the Company granted any loans, secured or unsecured, to Companies, Firms or other parties covered in the Register maintained u/s 189 of the Act.

  • Repayment: Whether receipt of the Principal and the interest amount are regular.
  • Steps for recovery: If overdue amount is more than ` 1,00,000, whether reasonable steps have been taken by the Company for recovery of Principal and Interest.


(a) Adequacy: Is there an adequate Internal Control procedure commensurate with the size of the Company and the nature of its business, for the purchase of inventory and Fixed Assets and for the sale of its goods and services.

(b) Correction of Weakness: Whether there is a continuing failure to correct major weaknesses in Internal Control.

5. DEPOSITS FROM PUBLIC [3(v)]: If the Company has accepted Deposits from public, whether the following are complied with –

  • Directives issued by the Reserve Bank of India,
  • Provisions of Sec. 73 to 76 or any other relevant provision of the Companies Act, 2013 and its rules.
  • Orders, if any, passed by the Company Law Board / NCLT / RBI / any Court / Tribunal.
  • The nature of contraventions, if any, should be stated in the Report.

6. COST ACCOUNTING RECORDS [3(vi)]: If the Central Government had prescribed maintenance of Cost Records u/s 148(1), whether or not such accounts and records have been prepared and maintained properly.

7. STATUTORY DUES [3(vii)]:

(a) Is the Company regular in depositing Undisputed Statutory Dues including Provident Fund, Employees’ State Insurance, Income Tax, Wealth Tax, Service Tax, Sales Tax, Customs Duty, Excise Duty, Value Added Tax, Cess and any other Statutory dues with the appropriate authorities. If not paid regularly, the extent of the arrears of outstanding statutory dues as at the last day of the Financial Year concerned for a period of more than 6 months from the date they became payable, shall be indicated in the Report.

(b) If such non–payment of dues is on account of any dispute, then the amount involved and the forum where the dispute is pending should also be mentioned.

(c) Whether the amount required to be transferred to Investor Education and Protection Fund in accordance with the provision of Companies Act, 1956 has been transferred to such fund within time.

8. LOSS MAKING COMPANIES [3(viii]: In case of a Company which has been registered for a period not less than five years, the following should be reported :

  • Whether the Accumulated Losses at the end of the relevant Financial Year exceeded 50% of the Company’s Net Worth,
  • Whether the Company has incurred Cash Losses in the immediately preceding Financial Year.


(a) Has the Company paid the Principal and Interest dues to Financial Institutions, Banks or  Debentureholders without default,

(b) In case of default, the period and the amount of default shall be reported.

10. GUARANTEES GIVEN [3(x)]: Where the Company has given any guarantee for loans taken by others from Bank or Financial Institutions, whether or not the terms and conditions thereof are prejudicial to the interest of the Company.

11. END USE OF BORROWINGS [3(xi)] : Whether or not Term Loans are applied for the purpose for which such loans were obtained.

12. FRAUD [3(xii)]: Whether any Fraud on or by the Company has been noticed or reported during the year. Where any Fraud is noticed and reported, the nature and the amount involved should be indicated.

Reasons to be stated for unfavourable or qualified answers [Para 4]

1. Where the answer to any of the above questions is unfavourable or qualified, the Auditor’s Report shall state the
reasons for such unfavourable or qualified answer, as the case may be.
2. If the Auditor is unable to express any opinion in answer to any particular question, his Report shall indicate such
fact, together with reasons why it is not possible for him to give an answer to such a question.

5. Explain the applicability of CARO to Foreign Companies.

  • 1. CARO applies to all Companies except certain categories of Companies specifically exempted therein
  • 2. CARO also applies to Foreign Companies as defined u/s 2(42) of the Act. “Foreign Company” means any Company or body corporate incorporated outside India which –
    (a) Has a place of business in India whether by itself or through an agent, physically or through electronic mode, and
    (b) Conducts any business activity in India in any other manner.
  • 3. In respect of Foreign Companies, an established place of business in India would include a Liaison Office.

6. CA Vishwam is appointed as the Branch Auditor of VVK Ltd. Is he required to comply with the CARO when issuing his Branch Audit Report, or is CARO applicable only with respect to the Audit Report issued by the Principal Auditor?

1. Sec.143(8) specifies that a Branch Auditor has the same duties in respect of Audit as the Company’s Auditor.
2. The Report submitted by the Branch Auditor should contain a statement on all the matters specified in CARO, to enable the Company’s Auditor to consider the same. Hence, CARO is applicable for Branch Audits also.

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