Video summary

CA Inter Audit | Ch - 8 | CARO 2020 | Revision Sessions by CA Rishabhh Jainn Sir #cainter

Main summary

Key takeaways

Educational

Main ideas / concepts covered

  • Covers “CARO 2020” (Company Auditors Report Order, 2020) in the context of CA Intermediate audit revision
  • Emphasizes how CARO connects to audit reporting duties under the Companies Act, especially Section 143(11)
  • Explains when CARO 2020 applies (applicability conditions and exceptions)
  • Focuses on the structure of CARO reporting:
    • The audit report commonly has a section heading such as “Reporting on other legal and regulatory requirements”
    • CARO matters may be presented via annexure / annexed format
  • Clarifies CARO for Standalone Financial Statements (SFS) vs Consolidated Financial Statements (CFS):
    • CARO 2020 is generally for SFS
    • CFS coverage is through a specific clause: Clause 21
  • Provides a clause-wise revision approach, mainly covering Clauses 1 to 21 (with deeper focus on selected clauses)

Methodology / clause-by-clause instruction style content

A) “Duty of auditor” link (Section 143(11))

  • Section 143(11) requires the auditor to include certain matters, as applicable, in connection with the Companies Act audit report where CARO is applicable.
  • Exam takeaway: when asked about the “duty of auditor”, link the answer to Section 143(11) and the inclusion of CARO-related matters.
  • Uses guidance note vs statement wording to stress that CARO-related items are mandatory, not optional.

B) Applicability of CARO 2020 (who CARO applies to)

  • CARO 2020 applicability is described as covering “every company including a foreign company” with specific exceptions.
  • Explicit exceptions mentioned:
    • Banking company (not applicable)
    • Insurance company (not applicable)
    • Section 8 company (not applicable)
    • One Person Company (not applicable)
    • Small company (not applicable)

Private Limited company threshold conditions (logic emphasized)

CARO applies to a Private Limited only if all listed conditions are met (as taught—four conditions):

  1. Not a subsidiary/holding relation of a public entity
  2. Paid-up share capital and reserves do not exceed ₹1 crore
  3. Total borrowings do not exceed ₹1 crore “at any point of time”
  4. Total revenue (Schedule III concept) does not exceed ₹10 crore

Key logic emphasized:

  • Use current-year financials (since the CARO report is tied to the audit cycle)
  • Revenue may include:
    • other income
    • revenues from discontinued operations (as explained)

C) SFS vs CFS (Consolidated vs Standalone) — key exam logic

  • Baseline principle: CARO 2020 is mainly relevant to SFS
  • CARO does not apply to CFS audit report in the same general manner as SFS
  • Clause 21 is specifically for Consolidated Financial Statements (CFS)

Clause partition logic used in teaching

  • Clauses 1 to 20: apply to standalone financial statements
  • Clause 21: applies to consolidated financial statements (CFS)

Clause-wise revision: what to focus on (core content)

Clause 1 — PPE / Property, Plant and Equipment (PP)

What the auditor checks / company responsibilities (as taught):

  • Proper records maintained for PPE, including quantity and condition/status
  • Physical verification at reasonable intervals
    • Common benchmark mentioned: once every 2–3 years
    • Note made that practice may be moving toward more frequent checks (even annually)
  • If differences found:
    • check whether adjustments are made
  • Title deeds of immovable properties
    • Should be in the name of the company
    • If deeds are held by a bank/financial institution due to charge/mortgage:
      • original deeds may be with the bank; auditor checks using certified copies / confirmations
    • If not held in company’s name:
      • ensure proper disclosure is made
  • Revaluation
    • must be by a registered valuer
    • if revaluation leads to ≥ 10% change (threshold explained), disclosures are required
  • Benami property
    • check whether disclosures regarding benami / related proceedings exist and are reported properly

Teaching approach:

  • Read carefully the sub-requirements tied to:
    • title deed disclosures
    • benami and related disclosure lines

Clause 2 — Inventory

  • Auditor checks whether management performs physical verification of inventory at reasonable intervals
  • If discrepancies arise:
    • determine whether discrepancies are material
    • taught threshold: 10% or more (linked to schedule/disclosure logic)
  • If material discrepancies exist:
    • auditor reports accordingly under the CARO structure (speaker links to Schedule 3)

Also referenced:

  • SA 501 (used conceptually as support for inventory audit)

Clause 3 — Loans and Advances given

Major focus: “loans and advances given during the year”

  • Auditor reports:
    • total amount of loans/advances given during the year
    • outstanding balance as at 31 March
  • Coverage includes:
    • loans/advances to related parties and non-related parties
  • Checks include:
    • terms/conditions are not prejudicial to the company’s interest
    • whether there is a repayment schedule
    • whether repayments are made regularly
  • If overdue:
    • include days outstanding (example taught: more than 90 days)
    • total overdue amount and nature
    • management’s reasonable steps for recovery
    • if renewals/extensions/new loans are used to settle old dues:
      • report amounts and reasons

Special/risk situations discussed:

  • Loans to promoter group / directors / their relatives (treated as related-party risk)
  • Loans on demand without specified repayment terms (flagged as dangerous / reportable)
  • Money utilized for subsidiaries/JVs/associates (utilization-based emphasis)

Clause 5 — Public deposits (as described later)

  • If public deposits are accepted:
    • company must comply with Sections 73 to 76
  • Auditor checks:
    • whether acceptance and compliance are done as required
    • whether filings/requirements under those sections were met

Clause 7 — Statutory Dues

Core teaching points:

  • Statutory dues to government departments:
    • taxes, duties, PF, etc.
  • Dispute vs non-dispute:
    • No dispute: company should make regular payments
    • Dispute: disclosures/table are required
  • Time-based threshold taught:
    • outstanding for more than six months from due date to financial year end → needs reporting under Clause 7
  • Disclosures:
    • if dispute exists, prepare a table including:
      • statute name
      • amount
      • period
      • forum/authority where dispute is pending

Clause 8 — Tax assessment / surrender / disclosure (as referenced)

  • If tax assessment concluded that unrecorded income was surrendered/added:
    • auditor checks whether the surrendered/unrecorded income appears in books
    • if not, it becomes a reporting issue

Clause 9 — Borrowings and repayment (and related risks)

Borrowings (liability side):

  • Auditor reports details of default in repayment:
    • principal and/or interest
    • lender-wise details
    • due dates and outstanding amounts
    • duration of default and reasons
  • Also covers reporting when:
    • company has declared “wilful default” by bank/financial institution (highlighted as a negative creditworthiness indicator requiring reporting/disclosure)

Purpose utilization checks:

  • Whether funds borrowed for a short-term purpose are not used for long-term purposes

Group/utilization mismatch examples discussed:

  • Money used in subsidiaries/JVs/associates (borrower vs utilization mismatch)
  • Security pledged arrangements

Clause 17 & Clause 18 — Auditors’ resignation / related compliance idea

  • Focuses on reporting context around:
    • auditor resignation during the year
    • reasons/concerns considered and acceptance conditions
    • “NOC” notion referenced
  • Positioned as a “sometimes MCQ” type clause in the session

Clause 20 — CSR (Corporate Social Responsibility)

  • If Section 135 applies:
    • rules for unspent CSR amounts
    • transfers within six months from financial year expiry (for non-ongoing projects)
  • For ongoing projects:
    • unspent amounts allocated to ongoing projects must be transferred to a separate bank account within 30 days
    • funds used within a specified time horizon (speaker mentions within three years)
  • Auditor checks whether commitments/transfers/use follow the statutory schedule

Clause 21 — CFS-specific requirement (Consolidated Financial Statements)

What Clause 21 addresses:

  • When CARO 2020 is examined for CFS, Clause 21 requires the CFS auditor to address SFS qualifications/adverse remarks of subsidiaries.

Reporting method taught:

  • Create a mapping/table for each subsidiary, e.g.:
    • subsidiary name
    • which clause(s) (e.g., clause 5) indicate a problem
    • whether the subsidiary’s auditor has reported:
      • qualifications or adverse remarks
    • include the paragraph number where such remarks appear
  • Emphasis: this helps CFS users understand subsidiary-specific compliance issues

Speakers / sources featured (as mentioned in the subtitles)

  • CA Rishabhh Jainn Sir (instructor/speaker)
  • Companies Act, 2013 (especially Section 143(11) and other referenced provisions)
  • CARO 2020
  • SA 501 (referenced for inventory auditing concept)
  • Central Government (referenced for applicability/requirements under 143(11))
  • RBI / NCLT / relevant regulators (mentioned generally in deposit/procedure context; not fully sourced by speaker)
  • Chartered Accountants Act, 1949 (referenced in auditor resignation context)

Original video