The MCA has issued the Companies (Auditor’s Report) Order, 2016 (CARO 2016), on 29th March 2016. This order has been issued in supersession of the Companies (Auditor’s Report) Order, 2015, and is applicable for reporting on financial statements of companies whose financial year commences on or after 1st April 2015. CARO 2015 was issued by MCA in supersession of CARO 2003 which was issued earlier in pursuance with the provision of Section 227 (4A) of Companies Act 1956.
Now, the MCA has relaxed the applicability of CARO 2016 to private companies by increasing applicability thresholds. CARO 2016 will not apply to the auditor’s report on consolidated financial statements. The total number of clauses in the new CARO is 16. CARO 2016 has enhanced the auditor’s reporting requirements in certain areas, such as related party transaction and managerial remuneration. The provisions of the CARO 2016 are furnished below:
CARO 2016 is applicable from FY 2015-16 and the matters specified therein shall be included in each report made by the auditor under Section 143 of the Companies Act, 2013 on the account of every company to which CARO 2016 applies.
Section 143 (11) of the Act stipulates that the Central Government may order for the inclusion of statement on specified matter in the auditor’s report for specified class or description of companies. Accordingly, CARO 2016 is issued in pursuance of Section 143 (11) of Companies Act 2013 for inclusion of the matters specified therein in auditors’ report. Hence, CARO 2016 should be complied by the statutory auditor of every company on which it applies.
CARO 2016 applicable to every company including a foreign company as defined in clause (42) of Section 2 of the Companies Act 2013.
The following classes of companies are outside the purview of the CARO 2016.
(a) Banking company as defined under Section 5 (c) of the Banking Regulation Act, 1949.
(b) Insurance company as defined under the Insurance Act 1938.
(c) Company licensed to operate under Section 8 of the Companies Act 2013 (companies registered with charitable object).
(d) A one person company (OPC) as defined under clause (62) of Section 2 of Companies Act 2013 (OPC means a company which has only one person as a member).
(e) A small company under Section 2 (85) of the Companies Act, 2013
- (1) As per sec 2(85) of Companies Act 2013 small company means a company, other than a public company:
- a) Paid up share capital of which does not exceed Rs 50 lacs or such higher amount as may be prescribed which shall not be more than Rs 5 crore, and
- b) Turnover of which as per its last profit and loss account does not exceed Rs 2 crore or such higher amount as may be prescribed which shall not be more than Rs 20 crore.
- (2) The following company shall not qualify as a small company:
- a) A holding company or a subsidiary company.
- b) A company registered under Section 8 of the Act. c) A company or body corporate governed by any special act.
(f) The auditor of following type of Private Companies are not required to comment on the matter prescribed under CARO 2016:
- (1) A private company which is not holding or subsidiary company of a public company, and
- (2) A private company having a paid up capital and reserve and surplus not more than Rs 1 crore as on the balance sheet date, and
- (3) A private company which does not have total borrowing exceeding Rs 1 crore from any bank and financial institution at any point of time during the financial year, and (4) A private company which does not have total revenue exceeding Rs 10 crore during the financial year.
Note: Such revenue means revenue as disclosed in scheduled III to the Companies Act, 2013 and includes revenue from discontinuing operation.