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CARO, 2015

Companies (Auditors Report) Order, 2015

This reporting requirement shall be applicable from the financial year commencing on
or after 1st April, 2014.
Instead of reporting under 21 clauses, now reporting is to be made only in respect of 12

Companies not Covered by the Order

1. Banking Company
The Order would not also apply in case of non-banking finance company, which converts
into a banking company and as on the balance sheet date is a banking company.
2. Insurance Company
3. Not for Profit Company licensed to operate under section 8 of the Companies Act, 2013.
Section 8 applies to companies which have been formed or are about to be formed as
limited companies for promoting commerce, art, science, religion, charity or any other
useful object and which apply or intend to apply their profits, if any, or other income in
promoting their objects and prohibit the payment of any dividend to their members. Such
companies are usually in the form of clubs, chambers of commerce, research institutions,
4. One Person Company as defined in Sec. 2(62) of Companies Act, 2013.
5. Small Company as defined in Sec. 2(85) of Companies Act, 2013.
6. Private Limited Company with a paid-up capital and reserves not more than ` 50 lakh
and which does not have outstanding loan exceeding ` 25 lakhs from any bank or
financial institution and does not have a turnover exceeding ` 5 crores at any point of
time during the financial year.

1. Paid-up share capital would include both equity share capital as well as the preference
share capital.
2. Both capital as well as revenue reserves should be taken into consideration while
computing the limit of ` 50 lakhs prescribed for paid-up capital and reserves.
3. Revaluation reserve, if any should also be taken into consideration while determining the
figure or reserves for the limited purpose of determining the applicability of the order.
4. The debit balance of the profit and loss account, if any, should be reduced from the figure of
revenue reserves.
5. Loans from banks or financial institutions are normally in the form of term loans, demand
loans, working capital limits, cash credits, overdraft facilities, bills purchased or discounted.
6. It is clarified that since the words used by the order are any bank or financial institution,
the limit of exceeding ` 25 lakh applies in aggregate to all loans.
7. Interest accrued but not due shall not form part of loan outstanding. But interest accrued
and due shall form part of loan outstanding.
8. It defines the term turnover as the aggregate amount for which sales are affected by the
9. It may be noted that the sales effected would include sale of goods as well as services
rendered by the company. Following should be considered:
(a) Sales tax collected or excise duties collected should not be taken into account if they
are credited separately to sales tax account or excise duty account;
(b) Trade discounts should be deducted from the figure of turnover;
(c) Commission allowed to third parties should not be deducted from the figure of
turnover; and
(d) Sales returns should be deducted from the figure of turnover even if the returns are
from the sales made in the earlier years.
10. Reserve = Capital Reserve + Revaluation Reserve + (Revenue Reserve Debit Balance of
11. (Revenue Reserve Debit Balance of P/L) to be considered only if +ve.

Report on CARO [Section 143(11) of Companies Act, 2013]

The auditor has to report on all the matters specified in CARO.
1. Fixed Assets:
(a) Check records of Fixed Assets showing details like location quantity, original cost,
year of purchase, revaluation date, depreciation rate, sale, purchases, etc.
(b) At what period, physical verification is conducted, obtain MRL confirming all the
details about physical verification.

2. Inventory:
(a) Verification by management reasonable, verify physical verification sheets,
summary sheets & any other documents evidencing physical verification.
(b) Check stock taking procedures and cut off procedures adopted by management.
Whether it is continuous or periodic stock taking.
(c) Proper records of inventory w.r.t. location, quantity, valuation, etc., being kept by
management or not. Updation status of stock register, Material discrepancies and
manner of dealing with the same.

3. Granted Loan:
(a) Whether the loan granted is covered in the register maintained u/s 189 of the
Companies Act, 2013.
(b) Whether receipt of the principal amount and interest are regular.
(c) If overdue amount is more than ` 1 lakh, whether reasonable steps have been
taken by the company for recovery.

4. Internal control:
(a) Is there an adequate internal control procedure commensurate with the size of
the company and the nature of business.
(b) Check whether previous years weaknesses not corrected by management.

5. Deposits:
(a) Companies Act complied
(b) Order by CLB/ Court/ NCLT/ RBI complied

6. Cost Records:
Verify whether records and accounts prescribed u/s 148(1) have been maintained.

7. Statutory dues:
(a) Is the company regular in depositing undisputed statutory dues including
Provident Fund, Employees State Insurance, Income-Tax, Sales Tax, Service Tax,
Custom Duty, Excise, VAT etc with appropriate authorities and if not, the extent of
the arrears of outstanding statutory dues as at the last day of the financial year
concerned for a period of more than 6 months from the date they became payable,
shall be indicated by the auditor.
(b) In case dues of Income-Tax, Sales Tax, Service Tax, Custom Duty, Excise, VAT have
not been deposited on account of any dispute, then the amount involved and the
forum where dispute is pending shall be mentioned.
(c) Whether the amount required to be transferred to Investor Education and
Protection Fund has been transferred to such fund within time.

8. Losses:
Whether in case of a company which has been registered for a period not less than 5
years, its accumulated losses at the end of the financial year are not less than 50% of
its net worth and whether it has incurred cash losses in such financial year and in the
immediately preceding financial year.

9. Default in Repayment of Dues:

(a) Whether the company has defaulted in repayment of dues to the financial
institution or bank or debenture holders.
(b) If Yes, the period and amount of default to be reported.

10. Guarantee for Loans:

(a) Check MOA about power of company to guarantee.
(b) List of guarantees (Obtain MRL).
(c) Obtain MRL as to their reasonableness.


11. Term loans and purpose:
Compare the purpose with actual utilization of loans.

12. Fraud:
(a) Auditor should comply with SA-240.
(b) Nature and amount involved in the fraud.