Companies Auditor’s Report Order, 2020 and Revised Schedule III to the Companies Act, 2013

In past few years, there have been increasing reports of instances that have reduced the trust in investors, regulators, and auditors especially in the finance sector. These instances range from minor non-compliances to large-scale frauds that have led to the collapse of businesses. In order to assist these issues, in February 2020, the Ministry of Corporate Affairs (MCA) had notified the new CARO 2020 reporting regime, which is applicable from financial year 2021-2022.

It is not only an additional reporting compliance but also focuses on the key points where an investor could show his area of interest. For example, the company’s financial health and solvency like existence of material uncertainty to meet its liabilities, sanctioning of working capital limits in excess of 5 crores, reporting of fraud, reporting of underreported income, etc. The changes take into account the changing needs of the business and other stakeholders including bankers and lenders.

It has enhanced the overall quality of auditor’s report and soared the reporting requirements for auditors and put greater responsibility on companies, to share complete and accurate information with auditor and the users of financial statements.

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