A summary of a few clauses in CARO, 2020 and consequential amendment in Schedule III, issued by ICAI 

In February 2020, MCA notified the new CARO 2020, thereby, replacing the erstwhile CARO 2016. The new CARO 2020 has introduced a number of new or modified reporting requirements to be fulfilled by the auditors such as revaluation of property, plant, and equipment (including the 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.

Further, the Ministry of Corporate Affairs (MCA) has amended Schedule III of the Companies Act 2013 on 24th March 2021 with an objective to increase transparency, provide additional disclosures to users of financial statements, and assist the management of companies to provide various disclosures pertaining to new clauses of CARO 2020.

In order to fulfill the requirements and expectations, as sought via such amendments, it is suggested to read CARO 2020 in conjunction with the corresponding amendments made in Schedule III to the Companies Act, 2013 for presentation and disclosure requirements stated therein and perform the audit procedures accordingly.

Keeping in view the above requirement on part of the auditor, Guidance Note on the Companies (Auditor’s Report) Order, 2020 had already been issued by ICAI providing detailed guidance on various clauses of CARO 2020 and various issues and intricacies involved therein. However, pursuant to the amendment in Schedule III, a comprehensive revision of the Guidance Note on CARO 2020 is being initiated by ICAI.

Whereas, a summary related to some of the clauses in CARO 2020 and consequential amendments to Schedule III to the Companies Act, 2013 has been provided by way of Annexure.

ANNEXURE

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
1	Whether the title deeds of all the immovable properties (other than properties where the company is the lessee and the lease agreements are duly executed in favour of the lessee) disclosed in the financial statements are held in the name of the company. If not, provide prescribed details [Clause 3(i)(c)]	Disclosure of details of title deeds of immovable properties (excluding leased properties) not held in the name of the company in the prescribed format.Disclose the company’s share – if jointly held
2	Whether the company has revalued its property, plant and equipment (PPE) (including the right of use assets) or intangible assets or both during the year, If so, whether the revaluation is based on the valuation by a registered valuer; specify the amount of change, if the change is 10% or more in the aggregate of the net carrying value of each class of PPE or intangible assets [Clause 3(i)(d)]	Disclosure           regarding revaluation of PPE/ intangible assets: Amount of change due to revaluation (if a change is 10% or more in the aggregate of the net carrying value of each class of PPE/ intangible assets)Whether revaluation is based on a valuation by a registered           valuer defined under the Companies Act, 2013

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
3	Whether any proceedings have been initiated/ pending against the company for holding any Benami property under the Benami Transactions (Prohibition) Act, 1988 and rules made thereunder, If so, whether the company has appropriately disclosed the details in its financial statements. [Clause 3(i)(e)]	Disclosure prescribed for proceeding           initiated/ pending for holding any Benami property e.g.: Details of such property and the amount thereof entails of beneficiaries property is in the books, then reference to the item in balance sheet property is not in the books, then the fact with reasons details of proceedings nature of proceedings, the status of same and Company’s view
4	Whether during any point time of the year, the company has been sanctioned working capital limits in excess of five crore rupees, in aggregate, from banks or financial institutions on the basis of security of current assets; whether the quarterly returns or statements filed by the company with such banks or financial institutions are in	In case of borrowings from banks or financial institutions on the basis of security of current assets, disclose whether quarterly returns/ statements of current assets filed with banks or financial institutions agree with books of accounts, If not, adequately disclose	CARO          2020 prescribes reporting relating to sanctioned working capital limits in excess of five crore rupees, in aggregate. However, disclosure requirements

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
	agreement with the books of account of the Company, if not, give details; [Clause 3(ii)(b)]	summary of reconciliation and reasons of material discrepancies	under Schedule III to the Companies Act, 2013 are not limited to working capital   but   cover all       borrowings. Further,            no monetary threshold           has been             prescribed under Schedule III to the Companies Act,    2013    while making this disclosure.
5	Whether the company has granted any loans or advances in the nature of loans either repayable on demand or without specifying any terms or period of repayment, if so, specify the aggregate amount, percentage thereof to the total loans granted, the aggregate amount of loans granted to Promoters, related parties as defined in section 2(76) of the Companies Act, 2013 [Clause 3(iii)(f)]	Disclosure to be provided in a prescribed format where loans/ advances in the nature of loans are granted to promoters, directors, key managerial personnel and related parties, either severally or jointly with any other person, that is: Repayable on demand or without specifying any terms or repayment period	CARO              2020 additionally requires a percentage of loans granted. Further, in Schedule III to the Companies   Act, 2013, loans and advances given to promoters, directors, KMP and other related parties are considered, whereas in CARO 2020, if loans and advances are given to other than related parties,

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
			these are also to be included.             So, reporting requirements in CARO      2020     are wider as compared to Schedule III to the Companies   Act, 2013.
6	Whether any transactions not recorded in the books of account have been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961, if so, whether the previously unrecorded income has been properly recorded in the books of account during the year [Clause 3(viii)]	Details of transaction not recorded in the books of accounts that have been surrendered/ disclosed as income during the year in the tax assessments (e.g. search), unless there is immunity for disclosure under the schemeDisclose whether the previously unrecorded income and related assets have been properly recorded in the books of account during the year
7	Whether   the   company   is   a declared wilful defaulter by any	Disclose the following   if   the company   is declared

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
	bank or financial institution or other lenders [Clause 3(ix)(b)]	wilful defaulter by any bank/ financial institution / other lenders: Date of declaration as wilful defaulterDetails of defaults (amount and nature of defaults)
8	Whether term loans were applied for the purpose for which the loans were obtained; if not, the amount of loan so diverted and the purpose for which it is used may be reported [Clause 3(ix)(c)]	Where borrowings from banks and financial institutions are not used for the specific purpose for which it was taken at the balance sheet date – the company to disclose details of where they have been used	CARO          2020 prescribes reporting on term loans from any party.     However, disclosures under Schedule III to the Companies      Act, 2013     are not limited to term loans but cover all borrowings. Further, disclosures under Schedule III to the Companies      Act, 2013   have been prescribed only for borrowings from banks and financial institutions.

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
9	On the basis of the financial ratios, ageing and expected dates of realisation of financial assets and payment of financial liabilities, other information accompanying the financial statements, the auditor’s knowledge of the Board of Directors and management plans, whether the auditor is of the opinion that no material uncertainty exists as on the date of the audit report that company is capable of meeting its liabilities existing at the date of balance sheet as and when they fall due within a period of one year from the balance sheet date [Clause 3(xix)]	Disclosure of certain ratios including current ratio, debt-equity ratio, debt service coverage ratio, capital to risk-weighted assets ratio Explain items included in numerator and denominatorExplain any change in the ratio by more than 25% as compared to previous year	CARO          2020 requires           the auditor              to comment          on material uncertainty        in payment           of liabilities on basis of      the    financial ratios   and   other prescribed matters. However, Schedule III to the Companies      Act, 2013        requires disclosure          of certain ratios.
10	Whether, in respect of other than ongoing projects, the company has transferred unspent amount to a Fund specified in Schedule VII to the Companies Act, 2013 within a period of six months	Details of CSR activities including amount required to be spent, amount of expenditure incurred, shortfall, total of previous years shortfall, reason for shortfall, nature of CSR	CARO          2020 requires   reporting of   unspent   CSR amount. However, disclosures prescribed    under Schedule III to the

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
	of the expiry of the financial year in compliance with second proviso to section 135(5) of the Companies Act, 2013 [Clause 3(xx)(a)] Whether any amount remaining unspent under section 135(5) of the Companies Act, 2013, pursuant to any ongoing project, has been transferred to special account in compliance with the provision of section 135(6) of the Companies Act, 2013 [Clause 3(xx)(b)]	activities, details of related party             transactions, movements in provision made with respect to liability incurred by entering into a contractual obligation	Companies      Act, 2013 are wider as compared          to reporting requirements under         CARO 2020.