Companies (Auditor’s Report) Order, 2020 Applicability

 

Companies (Auditor’s Report) Order, 2020 Applicability

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.

 

CARO 2020 was initially applicable for audits of the financial year 2019-20 and onwards.

 

Subsequently, vide notification dated 24th March 2020; the applicability of the said Order has been postponed by one more financial year. Accordingly, CARO 2020 is applicable for audits of the financial year 2020-21 and onwards.

 

The order applies to all companies.

 

The Order also applies to foreign companies.

In the case of a foreign company, the Order would be applicable, wherever under any of the provisions of the Act; an audit of financial statements under Chapter X of the Act is required to be carried out for that foreign Company.

 

The Order is also applicable to the audits of the branch(es) of a Company.

Likewise, the Order is also applicable to the audits of the project office/liaison office established by a company outside India, to whom the Order applies.

 

 

Companies Not Covered by the Order

 

1)    A banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949.

 

2)   An insurance company as defined under the Insurance Act, 1938.

 

3)    A company licensed to operate under section 8 of the Act.

 

4)    a one person company as defined under clause (62) of section 2 of the Act and a small company as defined under clause (85) of section 2 of the Act; and

 

5)    a private limited company, provided

Ø  The Company is not a subsidiary or holding of a public company.

Ø  The Company does not have a paid-up capital and reserves and surplus exceeding one crore rupees as on the balance sheet date.

Ø  The Company does not have total borrowings exceeding one crore rupees from any bank or financial institution at any point of time during the financial year.

Ø  The Company does not have a total income as disclosed in Schedule III to the Act, exceeding ten crores rupees during the financial year as per the financial statements.

 

 

Decoding the Applicability of CARO 2020 to Private Limited Companies

 

1)    A private limited company, in order to be exempt from the applicability of the Order must satisfy all the conditions mentioned above collectively. Even if, one of the conditions is not satisfied, the Order would be applicable to the company.

2)    In case a company is covered under the definition of a small company, it will remain exempt from the applicability of the Order even if it falls under any of the criteria specified for a Private Company.

3)   A Private Limited Company is exempted from CARO Reporting if it is a subsidiary or holding company of another Private Limited Company. But, if a Private Limited Company is a subsidiary or holding of a limited Company then the CARO 2020 is applicable.

4)    While the amount of borrowings at any point of time during the financial year need to be considered, Total Income and Paid-up capital and Reserves as at the end of the Financial Year is required to be considered to check the applicability of the CARO 2020.

5)    The test of applicability should be done on annual basis for each financial year separately.

 

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CA Sanjay R Shetty