A Detailed Guide to CARO 2016 & Its Applicability

In implementation of the regulations granted by sub-section (11) of section 143 of the Companies Act, 2013 (18 of 2013) and in persuasion of the Companies Auditor’s Report Order, 2015, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O. 990 (E), dated the 10th April, 2015, Ministry of Corporate Affairs (MCA) has notified the final Companies Auditor’s report Order, 2016 or CARO 2016 29th march 2016. Vide order no S.O 1228(E), CARO 2016 contains some new requirement and guidelines for the Indian companies as well as foreign companies under certain criteria and acts.

CARO 2016 Applicability

Every Report made by a company’s auditor under section 143 of 2013 is mandatory to embrace CARO 2016. 2016 CARO applicability is applied for Financial Year 2015-16, 2016-17 and the following years. The new guideline of CARO Applicability is compelling to every company excluding some particular companies including a foreign company that is classified under section 2(42) of the 2013 Act. The CARO 2016 would not be valid to the report of auditors on merged monetary statements and sheets.

 

Companies Not Liable To CARO-2016

The auditors of the below-mentioned companies are not liable to comment on topics approved under the CARO 2016 in comparison to CARO 2015. Companies that exempted from the guidelines and rules of CARO 2016 include:

1.      Banking Companies which are classified under section 5(c) of the Banking Regulation Act, 1949

2.      Insurance Companies which are catalogued under the Insurance Act, 1938

3.      Section 8 Companies or Companies related to the charitable objects and are licensed to function under section 8 of Act 2013

4.      One Person Company (OPC) as prescribed under section 2(62) of the 2013 Act

5.      Small Company classified by Section 2(85) of the 2013 Act

6.      A Private Limited Company which is not an investment or a secondary agency of a public company:

ü  Whose amount of received share amount should not contribute to the paid-up capital

ü  The paid-up capital should be lessened by the total amount of unpaid calls and should be higher than the total amount initially paid on forfeited company shares

ü  The total amount of assets & surplus disclosed in the previous financial statements should not be equal to or less than Rs. 1 crore

ü  As far as the total borrowings including the fund-based credit and the non-fund based credit taken from financial organisations or banks should not be equal to or less than Rs. 1 crore

Conclusion

The requests of the Order are derivative to the Section 143 of the Companies Act, 2013. Final notifications for CARO Applicability was followed by the Draft CARO 2016, issued by MCA on 9th February 2016; asking for comments/ suggestions thereon. CaroApplicability has effects on FY 2015-16. Under this revised Order, company auditors need to present reports related to the fiscal year starting on or after 1st April 2015 or FY 2015-16 onwards. The new CARO 2016 instructs compulsory reporting by the Statutory Auditors on some particular issues highlighted in the order.