CARO 2020 - Clause by clause analysis

Auditors must maintain proper records for property, plant and equipment and intangible assets, including full particulars, quantitative details, location, electronic records, and right of use assets under Ind AS 116.

Management must physically verify property, plant and equipment, including right of use assets, at a reasonable interval; auditors assess methods, documentation, and treatment of material discrepancies.

Audit clause 3(1)(c) verifies that title deeds of immovable properties are held in the company's name and reports deviations, including lessee properties and disputed titles.

Evaluate revaluation of property, plant and equipment or intangible assets (including right of use assets) under Ind AS 16/AS 10 and 3(1)(d), with class-wise 10% changes and valuer-auditor checks.

Explain how auditors assess disclosures for benami transaction notices under the Benami Transactions Prohibitions Act 1988, including proceedings, contingent liabilities, and subsequent events.

Auditors assess management's physical inventory verification for reasonable intervals, coverage and procedures, and whether discrepancies of 10% or more per class are properly recorded under AS 2/Ind AS 2.

Audit clause 3(ii)(b) requires auditors to verify that working capital loans above five crore have quarterly returns filed with banks that agree with books of accounts and current asset security.

Covers disclosure of loans, guarantees, and securities under clause 33, detailing the aggregate during the year and year-end balances with separate reporting by subsidiaries, joint ventures, associates, and others.

Assess whether loans, investments, and guarantees with terms are not prejudicial to the company's interests, by evaluating interest rates, repayment, security, covenants, and compliance with sections 16, 46, and 26.

Analyzes loan repayment schedules, including principal and interest, and evaluates regularity of payments in loans and advances, with audit focus on loan agreements and repayment records.

Analyze how to identify overdue loans and apply recovery steps after 90 days, including assessing schedule of repayment, scope, and appropriate notices for principal and interest.

Examine clause 3(iii)(e) on evergreening of loans, including renewal, extension, or fresh loans to settle overdue amounts, and report the aggregate overdue, renewals, and percentage of aggregate to total loans.

Explain how auditors verify and disclose aggregate loans to promoters and related parties, including loans repayable on demand or without specified terms, under caro 2020.

Auditors assess compliance with the Companies Act on loans, investments, guarantees, and securities, reviewing sections 185 and 186 (and related 35 and 36) and reporting any non-compliance with penalties.

Verify deposits and deemed deposits under RBI directives and section 73, 2006; audit clause 3(5) mandates this and outlines penalties up to ₹10.

Assess auditors' responsibility under clause 36 to verify cost record maintenance under section 148(1), including whether accounts and records are made and maintained, and note cost audit applicability.

Analyze payment of statutory dues under CARO 2020, comparing undisputed regular payments with disputed amounts. Guides auditors on reporting, listing dues, handling penalties and interest, and distinguishing provisions from contingencies.

Clause 38 on surrender of undisclosed income under the Income Tax Act defines undisclosed income and outlines how auditors assess surrender and proper recording.

Audit clause requires reporting defaults in loan or interest repayment, with lender, amount due, and delay. Lender-wise reporting is for banks, financial institutions, government; others may be aggregated.

Explore the clause requirement for wilful defaulters under caro 2020, including RBI guidelines, wide lender scope, audit procedures, reporting details, and reliance on public credit information bureaus.

Clause 39 c requires term loans to be used for their sanctioned purpose and auditors must report diversions, reflecting RBI's caution on fund deployment.

Explore how Clause 398 governs the use of short-term funds for long-term purposes, highlighting liquidity risks, cash-flow analysis, and auditor reporting indicators like a current ratio below one.

Analyze funds taken from entities or persons to meet obligations of subsidiaries, associates, or joint ventures, including loans on pledge of securities and related auditor reporting.

Assess how IPO and FPO funds must be used for the stated purpose, with auditors reporting unutilized or delayed amounts and the monitoring agency's role.

Assess how private placement and preferential allotment comply with section 42 and 62, review the offer document and fund use, and confirm audit reporting.

Learn how auditors assess fraud, distinguishing fraud by the company from fraud on the company, and report within the period while recognizing management's primary responsibility.

Learn how auditors report fraud with form 84, inform the board within two days, file within 15 days after management replies, including cost accountant or company secretary inputs.

Analyze how auditors assess whistle blower complaints received during the year, establish vigil mechanisms for listed companies or those that accept deposits, and report on the handling procedures and protections.

Auditors verify that a needy company complies with the 20x net own fund to deposits ratio, maintain 10% unencumbered deposits, and report any defaults.

Assess related party transactions for CARO 2020 with focus on sections 177 and 188, board and shareholder approvals, audit committee oversight, arm's length, and proper disclosures.

Explores clause 314 on the internal audit system and internal audit report, emphasizing integrity, governance, internal control, and the auditor's role across the size and nature of the business.

Enforce restrictions on non-cash transactions with directors or connected persons under clause 3(xv) and section 192. Require prior general meeting approval and audit verification.

Examine the modification of clause 3(xvi) on RBI registration for core investment companies and their group entities.

Auditors determine cash loss by adjusting profit after tax for non-cash items such as impairment and fair value changes to reveal cash flows in current and immediately preceding financial year.

Incoming auditor must assess resignation reasons, address objections, and plan procedures, citing form 83, form A for listed companies, and Icai code of ethics.

Explore clause 319's focus on a company's capacity to meet current liabilities within one year, using ratio analysis, asset realization, and management representations, with subsequent events and going concern implications.

An in-depth clause-by-clause analysis of new section 3(xx) on corporate social responsibility, focusing on the transfer of unspent amounts.

Explore the new clause 3(xxi) for the auditor of consolidated financial statements under CARO 2020, with a clause-by-clause analysis to strengthen audit reporting.

CARO 2020 expands to 21 clauses from 16, increasing auditors' responsibilities with new and modified provisions on intangible assets, loan practices, fraud reporting, CSR, and consolidated financial statements.