To align its guidelines with the latest provisions, ICAI has issued this Revised/Updated Guidance Note on CARO 2020 (July 2022 Edition) for Members’ guidance on the revised disclosure requirements of Schedule III to the Companies Act, 2013, pertaining to various clauses of CARO 2020.
Earlier, the ICAI’s Guidance Note on CARO 2020 was published in June 2020. However, due to MCA’s subsequent notification of Schedule III amendments and new reporting requirements, the same became out of date.
It may be noted that after notifying CARO 2020 on 25/02/2020, MCA has made certain amendments in Schedule III (Division I, Division II and Division III) to the Companies Act, 2013 vide Notification dt. 24/03/2021 for preparation of the financial statements, to ensure that companies management make requisite disclosures for the new reporting requirements of CARO 2020. In addition, various other disclosure requirements have also been added in Schedule III to the Companies Act, 2013.
In light of above amendments in the CA 2013, ICAI has carried out comprehensive revisions in it’s Guidance Note on CARO 2020 (Updated 2022 edition).
MCA had notified CARO 2020 on 25/02/2020, applicable w.e.f. FY 2019-20 and onwards, which however was deferred twice for one year each time, vide Notifications dt. 24/03/2020 and 17/12/2020, i.e. applicability thereof was finally deferred from FY 2019-20 to 2020-21 to 2021-22 and onwards.
CARO 2020 was introduced to make several amendments over CARO 2016 and to stipulate several new reporting requirements.
ICAI’s Advisory/ Update on Guidance Note on CARO 2020 of MCA
ICAI previously advised Members to read CARO 2020 in conjunction with the corresponding amendments made in Schedule III to the Companies Act, 2013, for the presentation and disclosure requirements stated therein, and to perform the audit procedures accordingly, until the revised edition of CARO 2020 Guidance Note is released.
The ICAI has summarised the interplay of some of the clauses in CARO 2020 and consequential amendments to Schedule III to the Companies Act, 2013, along with its commentary, for the benefit and guidance of the Members in the following publication:
ICAI Announcement dt. 02/04/2022: Guidance Note on CARO 2020 of MCA (Update)
ICAI’s Guidance Note on CARO 2020 of MCA
ICAI has released Guidance Note on CARO 2020 to provide detailed guidance on reporting requirements for auditors, in view of MCA notification dt. 25/02/2020 on the Companies (Auditor’s Report) Order (CARO) 2020, superseding CARO 2016.
CARO 2020 was initially applicable for statutory audits of financial statements for periods beginning on or after 01/04/2019, which was deferred to 01/04/2020, i.e. by one year, vide MCA Notification dt. 24/03/2020. Therefore, this Guidance Note (on CARO 2020) will supersede the earlier Guidance Note (on CARO 2016) for audits of financial statements for the periods beginning on or after 01/04/2020.
CARO 2020 contains several changes including many additional reporting requirements vis-à-vis CARO 2016, to further enhance overall quality of reporting by the auditors. 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. These changes necessitated the revision of the Guidance Note on CARO 2016 earlier issued by ICAI.
The purpose of this Guidance Note is to enable the members to comply with the reporting requirements of CARO 2020. It should, however, be noted that the clarifications and explanations contained in this Guidance Note are not intended to be exhaustive and the auditors should exercise their professional judgment and experience on various matters on which they are required to report under CARO 2020.