CARO 2020 vs CARO 2016
The Companies Auditor’s Report Order (CARO) is an important compliance requirement under the Companies Act, 2013. It requires statutory auditors to report on specific areas of a company’s financial and operational performance to ensure transparency and accountability in the Company. The Ministry of Corporate Affairs (MCA) introduced CARO 2016 as an order applicable to audits of financial years beginning on or after 01.04. 2015. Later, with changes in business practices, corporate governance requirements, and rising corporate frauds, the MCA replaced it with CARO 2020, which came into effect for audits of financial years beginning on or after 01.04.2021.
This blog shall help you understand the meaning of both and the differences between the two versions.
What is CARO?
CARO stands for Companies Auditor’s Report Order. It is an order issued by the MCA under Section 143(11) of the Companies Act, 2013, which requires the auditors of certain classes of companies to include additional statements in their audit reports. CARO makes the auditor’s role stronger by ensuring they verify specific aspects of the company’s functioning such as loans, fixed assets, statutory dues, fraud, and internal financial control beyond just preparing the financial statements.
Applicability of CARO 2016 vs CARO 2020
CARO is not applicable to every company incorporated in India. Both versions exempt certain small and special-category companies, but with minor changes.
CARO 2016 Exemptions:
- One Person Companies (OPCs)
- Small Companies defined under Section 2(85) of the Companies Act, 2013
- Banking companies
- Insurance companies
- Companies engaged in charitable activities
Private companies with:
- Paid-up capital and reserves not exceeding ₹1 crore,
- Borrowings not exceeding ₹1 crore at any time during the financial year, and
- Revenue not exceeding ₹10 crore in the financial year.
CARO 2020 Exemptions:
CARO 2020 applies to all companies except the following:
- One Person Company
- Small Companies defined under Section 2(85) of the Companies Act, 2013
- Banking companies
- Insurance companies
- Companies engaged in charitable activities
Private companies are exempt if:
- Paid-up capital and reserves do not exceed ₹1 crore,
- Borrowings do not exceed ₹1 crore, and
- Not a holding or subsidiary of a Public Company
- Revenue does not exceed ₹10 crore.
Clause by Clause Differences between CARO 2016 vs CARO 2020
Clause | CARO 2016 | CARO 2020 |
Fixed Assets / PPE | Reporting on records, physical verification, discrepancies, and title deeds. | Expanded to cover tangible + intangible assets, revaluation by registered valuers, and benami property cases. |
Inventory | Physical verification and discrepancies are to be reported. | Includes reconciliation of quarterly returns/statements filed with banks/financial institutions for borrowings of less than ₹5 crores. |
Loans to parties | Focused on loans to parties under Section 189 of the Companies Act, 2013, for terms, recovery, and overdue loans under the Companies Act. | Covers loans, guarantees, securities, advances; includes loans repayable on demand, loans to promoters/related parties, renewals/extensions. |
Loans to directors (Sec. 185/186) | Compliance with Sections 185 & 186 of the Companies Act, 2013, to be reported. | Same compliance reporting continues, but integrated with broader loan/guarantee disclosures. |
Deposits | Compliance with Sections 73 to 76 of the Companies Act, 2013 on deposits. | Also requires reporting on orders by CLB/NCLT/RBI/Courts. |
Cost records | Whether prescribed cost records are maintained. | The same requirement continues. |
Statutory dues | Regular deposit of dues; arrears are less than 6 months; disputed dues disclosure. | Same, but explicitly covers GST in addition to other taxes. |
Repayment of loans / borrowings | Defaults in repayment of loans/borrowings to be reported. | Expanded: defaults, wilful defaulter tag, utilisation/diversion of term loans, loans raised on securities of group cos. |
Utilisation of funds | IPO/FPO proceeds to be used for stated purposes. | Covers private placement & preferential allotment as well. |
Fraud | Report fraud by the company or its employees. | Includes fraud on/by the company, whistle-blower complaints, and filing of ADT-4 with the government. |
Managerial remuneration | Compliance with remuneration limits is to be reported. | Clause omitted. |
Nidhi companies | Compliance with Nidhi Rules (net owned fund to deposits ratio, 10% term deposits). | Adds reporting on the default in deposit repayment/interest. |
Related Party transactions | Compliance with Sections 77 & 188 of the Companies Act, 2013, for disclosures in the Financial Statement. | Same requirement with a stronger disclosure focus. |
Private Placement / Preferential Allotment | Auditor to report compliance & utilisation of proceeds. | Integrated into clause on fund utilisation (see above). |
Non-Cash Transactions | Non-cash dealings with directors under Section 192 of the Companies Act, 2013, to be checked. | Same requirement continues. |
Registration under RBI Act | Whether the company is registered under the Section 45-IA of RBI Act, 1934. | The scope is broader as it only covers NBFCs, HFCs, CICs, and group CICs. |
Unrecorded Income | Not covered. | Requires reporting of income surrendered/disclosed to tax authorities but not in books. |
Internal Audit System | Not covered. | The auditor must check if an internal audit system exists and if reports are considered. |
Cash Losses | Not covered. | Report cash losses for the current & preceding financial year. |
Resignation of Auditors | Not covered. | If resignation occurred, whether the issues raised were considered. |
Material Uncertainty | Not covered. | Auditor to comment on the company’s ability to meet liabilities. |
CSR Compliance | Not covered. | Whether unspent CSR amounts are transferred to Schedule VII funds or a special account. |
Group Companies’ Auditor Remarks | Not covered. | Report qualifications/adverse remarks in other group and company.. |
Conclusion
CARO 2016 was an important step in improving audit reporting, but CARO 2020 strengthens the framework. With 21 clauses, it goes beyond financial statements to cover frauds, internal audit, CSR obligations, and even the future ability of companies to repay debts. This not only enhances corporate governance but also protects the interests of shareholders, creditors, and other stakeholders. For companies, CARO 2020 means more responsibility in maintaining transparent records and ensuring legal compliance. For auditors, it increases the scope of reporting and accountability. Overall, CARO 2020 marks a shift towards more robust, stakeholder-focused corporate reporting in India.