CARO 2020 applicability on Private Limited Companies – An analysis

 

">CARO 2020 applicability on Private Limited Companies – An analysis

The Central Government, in exercise of the powers conferred, under sub-section (11) of section 143 of the Companies Act, 2013, issued the Companies (Auditor’s Report) Order, 2020, vide Order number S.O. 849(E) dated 25th February, 2020.

The Order prescribes certain financial / non-financial aspects relating to Companies on which auditor of the Company is required to comment upon.

The Order is applicable to all Companies. However, the auditors banking Companies, Insurance Companies, Companies registered under section 8 of the Act, One Person Companies, Small Companies and Private Limited Companies are not required to include CARO 2020 in their Independent Auditor’s Report. While OPCs and Small Companies are exempted from the applicability of this Order, Private Limited companies are exempted only upon the conditions mentioned therein are duly satisfied.

This article explains the manner of determining the CARO Applicability on OPCs, Small Companies and Private Limited Companies.

Classes of Companies	Section	Meaning
One Person Companies	2(62)	Are those Companies which will have only one person as its member.
Small Companies	2(85)	Are those companies whose Paid-up capital is below Rs. 50 Lakhs and Turnover is below Rs. 2 Crores, as per the statement of profit and loss for the immediately preceding financial year and which is not a subsidiary or holding Company.
Private Limited Companies	2(68)	Are those Companies which restrict the right to transfer its shares and limits the number of members to 200.

 

CARO 2020, Applicability on Private Limited Companies

Analyzing the CARO 2020, Applicability

Particulars	Scenario 1	Scenario 2	Scenario 3	Scenario 4
Nature of Company	-	-	-	Subsidiary/holding of a Public Company
Paid-up Capital	49 Lakhs	51 Lakhs	51 Lakhs	10 Lakhs
Reserves & Surplus	1 Crore	49 Lakhs	49 Lakhs	0.5 Lakhs
Borrowings	10 Crores	90 Lakhs	2 Crores	NIL
Total Income	1.90 Crores	09 Crores	9 Crores	NIL
CARO 2020, Applicable	NO	NO	YES	YES
Reason	Note 1	Note 2	Note 3	Note 3

Note 1: CARO 2020, is not applicable in the case of Small Companies.

Note 2: CARO 2020, is not applicable as the Total Income, Borrowings and Networth is within the limit prescribed.

Note 3: Applicable as the limit of borrowings exceeded.

Note 4: Applicable as it is a subsidiary/holding Company of a Public Limited Company.

 

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CA Sanjay R Shetty