CARO 2003 vs CARO 2015

Central government by exercising the powers conferred by sub-section 11 of section 143 of Companies Act 2013 published in the gazette, the Companies (Auditor’s Report) Order, 2015. There have been some major changes in the order and only new and relevant things are highlighted here. Highlights of a comparison between new and Companies (Auditor’s Report) Order, 2003 and Companies (Auditor’s Report) Order, 2015 are as under:
1.   CARO 2015 as CARO 2003 shall not be applicable on Insurance, Banking and companies having charitable activities. It will also not be applicable on One Person Company and Small Company, both the concepts were introduced in the Companies Act 2013.
However there have been some changes in the criteria for applicability of the order on private limited companies, i.e. the maximum amount of loans from any banking or financial institution that can remain outstanding for non-application of CARO has been increased from Rs 10 lakhs to Rs 25 lakhs.Also the words ‘public deposits’ have been removed for the CARO to be applicable on private companies. This is a logical amendment as private companies cannot raise deposits from public as per the provisions of Companies Act 1956 as well as Companies Act 2013.2.   There was requirement in erstwhile order to report whether any substantial part of fixed assets have been disposed off during the year and if it has affected the going concern assumption or not. However such requirement has been dispensed with in the new order.
3.   Auditors had to report whether companies have either granted or taken loans, secured or unsecured from companies whose names have been entered into register maintained u/s 301 of the erstwhile act. In the new order auditor has to report only on the loans granted by the company during the period under audit. Also the requirement to comment upon whether the rate of interest and other terms and conditions of loans are prejudicial to the interests of the company has been dispensed with.
4.   There was requirement to comment whether a separate register has been maintained regarding the transactions entered into with parties whose names have been entered into u/s 301 and such transactions are reasonable in regard to prevailing market prices. Such requirement has been dispensed with in the new order.

Comments: 

Although the order has been made compact and the number of clauses have been reduced to 12 from 21, several important clauses have been absolutely left out. Matters such as whether short term funds have not been used for long term purposes, reporting on disposal of substantial portion of fixed assets and the effect of same on going concern assumption and whether the company has made any preferential allotment of shares to parties covered u/s 301 were highly relevant.

Section 138 and rules made thereunder requires companies to get their accounts audited internally. There should be a clause which will require the auditor to report whether the same condition has been complied or not. There are a number of provisions whose non-compliance will result in serious offences as per the new act and there has been no addition in the matters to be reported regarding the same in the new order.