The auditor’s report that accompanies company balance sheets this year
will pose a number of challenges for auditors of companies in India. The
Companies (Auditor’s Report) Order (CARO) 2016, is applicable to all
companies (except those specifically exempted such as banks, insurance
companies, small private companies) for the financial year ended March
2016.
The notification from the Ministry of Corporate Affairs about the new
order was put out on March 29. So, companies that announce their annual
results within the next 10-15 days and their auditors will have to burn
the midnight oil to comply with some of the additional requirements that
have come up in the new order.
Specific comment
Sandeep Shah, Partner, NA Shah Associates, Chartered Accountants, reacting to the changes, said the steps were generally positive, although they increased the onus on auditors. Some requirements may compel a tendency towards ‘over disclosure’ in order to play safe, he said.
Sandeep Shah, Partner, NA Shah Associates, Chartered Accountants, reacting to the changes, said the steps were generally positive, although they increased the onus on auditors. Some requirements may compel a tendency towards ‘over disclosure’ in order to play safe, he said.
Auditors now need to specifically comment on compliance with section 177
and section 188 of the Companies Act 2013 with respect to related party
transactions and also confirm whether disclosure in accordance with
accounting standards (AS) have been made or not. Now a dilemma could
arise about whether the related party definition should be taken as per
accounting standards or those given in the companies Act. Besides,
validating the arm’s length price continues to remain a challenge,
Sandeep said.
Non-cash dealings
Sandeep drew attention to the new requirement in CARO about whether companies have complied with Section 192. This section deals with whether the company has entered into a non-cash transactions with a director or persons connected to a director. Shah said that the term ‘persons connected to a Director’ was not defined and was too broad. This could result in placing too much of a burden on the auditor, he said.
Sandeep drew attention to the new requirement in CARO about whether companies have complied with Section 192. This section deals with whether the company has entered into a non-cash transactions with a director or persons connected to a director. Shah said that the term ‘persons connected to a Director’ was not defined and was too broad. This could result in placing too much of a burden on the auditor, he said.
He lauded the increase in threshold limits for applicability of CARO
2016 to private companies as a positive development. However, a private
company, which is a subsidiary, or holding company of a public company,
would now be covered under CARO, 2016 thereby expanding applicability
for such private companies, he added.
Standalone financials
CARO was earlier applicable to standalone as well as Consolidated Financial Statements, whereas now, reporting requirements are only to the extent of standalone financials, he said. Welcoming this step as a significant saving of time, he said that this would ensure only relevant matters are reported to the members of the company.
CARO was earlier applicable to standalone as well as Consolidated Financial Statements, whereas now, reporting requirements are only to the extent of standalone financials, he said. Welcoming this step as a significant saving of time, he said that this would ensure only relevant matters are reported to the members of the company.
Another new clause added on reporting on compliance with provisions of
Section 185 and 186 of Companies Act 2013 in respect of loans,
investments, guarantees and security will be challenging considering the
diverse views currently on the applicability of those sections
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