MCA Deferred the Applicability of CARO 2020 by One Year

Recently, the Ministry of Corporate Affairs has used its powers conferred under section 143 (11) of the Companies Act 2013 and issued an Order dated 17.12.2020, concerning the Amendments made by it in the Applicability of CARO 2020. The term CARO stands for the Companies (Auditors’ Report) Order 2020.

Further, such an order will now be known as Companies (Auditors’ Report) Second Order 2020 and will come into force from the date of its publication.

In this blog, we will discuss the concept and the changes made in the Applicability of CARO 2020.

Concept of CARO 2020

In India, the Ministry of Corporate Affairs (MCA) has implemented CARO 2020 by way of a Notification, issued on 25.02.2020. It is a new format in which a company can furnish its Audit Reports made in case of Statutory Audit under the provisions of the Companies Act 2013.

Further, the said order includes the Additional Reporting Requirements as well, which were made in consultation with the National Financial Reporting Authority.

The main aim behind the implementation behind CARO 2020^[1] was to enhance and improve the overall quality of the reports submitted by the Company Auditors.

Concept of National Financial Reporting Authority

The National Financial Reporting Authority or NFRA is an Independent Regulatory Body that regulates and administers the Auditing and Accounting profession in India.

Applicability of CARO 2020

CARO 2020 was made applicable to every type of company, including a Foreign Company. Also, the same is applicable to all the type of Statutory Audits.

However, the entities on which there was no applicability of CARO 2020 are as follows:

1. A Banking Company as defined under section 5 (c) of the Banking Regulations Act;
2. An Insurance Company as defined under the Insurance Act;
3. A Section 8 Company as defined under section 8 of the Companies Act 2013;
4. A One Person Company as defined under section 2 (62) of the Companies Act 2013;
5. A Small Company as defined under section 2 (88) of the Companies Act 2013;
6. Any Private Limited Company, which is not a Subsidiary or Holding Company of any Public Company, which has the following listed:
7. The Total of Paid up Share Capital and Reserves is not more than Rs 1 crore;
8. The Total Borrowings must not be more than Rs 1 crore;
9. The Total Revenue must not exceed Rs 10 crores;

Amendment Made to the Applicability of CARO 2020

Earlier, the date decided for the applicability of CARO 2020 in India was on or after 01.04.2020. However, as per the order dated 17.12.2020, MCA has deferred the same till 01.04.2021.

Conclusion

In a nutshell, the main reason behind the amendment made to the Applicability of CARO 2020 was to provide relief the companies amid COVID 19 pandemic. Further, this was the second time when MCA has deferred the applicability of CARO 2020, because the very first date of applicability was 01.04.2020, but the same was postponed till 01.04.2021, due to COVID epidemic.               

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Copy of the Official Order