The Companies Act, 2013 (2013 Act) requires auditors of specified class of companies to include a statement in their reports on specific matters as prescribed in the Companies (Auditors’ Report) Order (CARO). In 2020, the Ministry of Corporate Affairs (MCA) issued a revised CARO (CARO 2020) which is applicable to a wide range of companies. It has been revised to help curb corporate scams and intends to introduce transparency and accountability in the audited financial numbers.
CARO 2020 is applicable for audits of financial years commencing on or after 1 April 2021. It contains significant changes and several new reporting requirements vis-à-vis CARO 2016. Many of the requirements require exercise of judgement rather than application of a pure objective test. The Institute of Chartered Accountants of India (ICAI) has issued a guidance note on CARO 2020 (guidance note) which provides guidance on application of the CARO 2020. Further, to align the auditor’s reporting requirement with the disclosures provided by the companies, on 24 March 2021, the MCA has issued a slew of amendments to Schedule III to the 2013 Act. The amendments are effective from 1 April 2021.
The publication is designed to assist companies in understanding guidance surrounding topics covered in CARO 2020. It contains 10 chapters and various clauses of the CARO 2020 have been grouped under easy-to-understand topical headings. The publication discusses the reporting requirements as envisaged under the new auditor’s report - CARO 2020 and Schedule III, key guidance provided by ICAI in its guidance note and related implications for companies.