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CARO & XBRL

Quick Referencer

CS Lalit

Rajput

CS Tanuj

Saxena

CARO - Company Auditor's Report OrderXBRL - eXtensible Business Reporting Language

Requirements Laws / Rules Regulations Transparency

Under the Companies Act, 2013

https://wa.me/918802581290

https://www.linkedin.com/in/cslalitrajput/

https://wa.me/918853774256

https://www.linkedin.com/in/tanuj-chandra-saxenaa-338767a5/

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by: CS Lalit Rajput & CS Tanuj Saxena 1

Quick Referencer CARO & XBRL

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❑ CARO In India

The Ministry of Corporate Affairs (MCA) issued

Company Auditor’s Report Order (CARO), 2016

on 29th March 2016 in supersession of the

Companies (Auditor’s Report) Order, 2015, and is

applicable for reporting on financial statements

of companies whose financial year commences on

or after 1st April 2015.

CARO 2015 was issued by MCA in supersession of CARO 2003 which

was issued earlier in pursuance with the provision of Section 227 (4A)

of Companies Act 1956. The auditors of all other class or classes of

companies are required to report on the matters specified in this

order. This order applies to foreign companies also.

❑ CARO, 2020:

❖ Companies Auditor Report Order (CARO) Rules, 2020:

MINISTRY OF CORPORATE AFFAIRS vide

notification dated 25th February 2020, has

published Companies (Auditor’s Report) Order,

2020 in exercise of the powers conferred by:

Section 143(11) of the Companies Act, 2013 (18 of 2013) and

in supersession of the Companies (Auditor's Report) Order,

2016, published in the Gazette of India, Extraordinary, Part II,

Section 3, Sub-section (ii), vide number S.O. 1228 (E), dated the

29th March, 2016, except as respects things done or omitted to

be done before such supersession,

consultation with the National Financial Reporting Authority

constituted under section 132 of the Companies Act, 2013

❑ Applicability:

It shall come into force on the date of its publication in the Official

Gazette. Further, the government has deferred implementation of the

strict disclosure requirements for auditor reports of companies by one

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year, a move that comes amid the disruptions caused by the

coronavirus pandemic.

❑ Extension Granted: Applicable for FY 2021-22

Ministry of Corporate Affairs (MCA) has

issued the Companies (Auditor’s Report)

Second Amendment Order, 2020 {CARP,

2020} vide Gazette Id CG-DL-E-

19122020-223784 published in NIOG

on 19th December, 2020. In the

Companies (Auditor’s Report) Order,

2020, in paragraph 2, for the figures,

letters and word “1st April, 2020”, the

figures, letters and word “1st April,

2021” shall be substituted.

“The MCA has extended the applicability date of Companies (Auditor’s Report)

Order, 2020 (CARO) for 1 more year, i.e., for the FYs commencing on or after

the 1st April 2021 (earlier 1st April 2020). Accordingly, CARO, 2020 will be

applicable from FY 2021-22 and onwards.”

❑ Companies covered under this Rule:

It shall apply to every company including a foreign company as defined

in clause (42) of section 2 of the Companies Act, 2013 (18 of 2013)

[hereinafter referred to as the Companies Act], except–

i) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);

ii) an insurance company as defined under the Insurance Act,1938

(4 of 1938);

iii) a company licensed to operate under section 8 of the Companies Act;

iv) a One Person Company as defined in clause (62) of section 2 of the Companies Act and a small company as defined in clause

(85) of section 2 of the Companies Act; and

v) a private limited company, not being a subsidiary or holding company of a public company, having a paid up capital and

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reserves and surplus not more than one crore rupees as on the balance sheet date and which does not have total borrowings exceeding one crore rupees from any bank or financial

institution at any point of time during the financial year and which does not have a total revenue as disclosed in Scheduled III to the Companies Act (including revenue from discontinuing operations) exceeding ten crore rupees during the financial year as per the financial statements.

CARO 2020 would necessitate enhanced due diligence and

disclosures on the part of auditors of eligible companies and has been

designed to bring in greater transparency in the financial state of

affairs of such companies.

❖ The salient features of the CARO, 2020 are as under:

1) The CARO, 2020 includes certain

additional clauses, as compared to

CARO, 2016, and the existing clauses

of CARO, 2016 have been re-drafted to

elicit detailed comments from the

auditors.

2) A specific format has been provided for

reporting the details of such

immovable properties whose title deeds

are not held in the name of the

company but are disclosed in the

financial statements.

3) Disclosure of details of proceedings against the company for

holding Benami Property and whether the company has disclosed

the details in its financial statements.

4) Discrepancies of 10% or more in the aggregate of each class of

inventory noticed during physical verification of inventory would

have to be reported.

5) The auditor is to provide specific details as to whether during any

point of time of the year, the Company has been sanctioned

working capital limits in excess of Rs. 5 crores, in aggregate, from

banks or financial institutions on the basis of security of current

assets and whether the quarterly returns/statements filed by the

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Company with such banks or financial institutions are in

agreement with the books of account of the Company.

6) In clause 3(iii) of CARO, 2020, the auditor is to report in detail on

the investments made by the company in, any guarantee or

security provided or any loans or advances in the nature of loans

granted, secured or unsecured, to companies, firms, Limited

Liability Partnerships or any other parties during the year, that

they are not prejudicial to the interests of the company.

7) A specific format has been prescribed to report the period and the

amount of default by the company in repayment of loans or other

borrowings or in the payment of interest thereon to any lender.

8) The auditor is required to render his opinion on the basis of the

financial ratios, ageing and expected dates of realization of financial

assets and payment of financial liabilities, other information

accompanying the financial statements, the auditor’s knowledge of

the Board of Directors and management plans, that no material

uncertainty exists as on the date of the Audit Report that company

is capable of meeting its liabilities existing at the date of balance

sheet as and when they fall due within a period of one year from

the balance sheet date.

9) The amount of cash losses incurred in the financial year and in the

immediately preceding financial year have to be reported.

10) The auditor has to take into consideration the issues, objections or

concerns raised by the outgoing auditors before forming his

opinion.

11) The auditor is required to report about the company if it is a

declared wilful defaulter by any bank/ financial institution/ other

lender.

12) The auditor would have to report as to whether term loans were

applied for the purpose for which the loans were obtained; if not,

the amount of loan so diverted and the purpose for which it is used

would have to be reported.

13) The auditor is required to report as whether any fraud by the

company or any fraud on the Company has been noticed or

reported during the year; If yes, the nature and the amount

involved is to be indicated.

14) The auditor is to consider whistle-blower complaints received

during the year by the Company in his audit.

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15) The auditor is to report if the company has conducted any Non-

Banking Financial or Housing Finance activities without a valid

Certificate of Registration (CoR) from the Reserve Bank of India as

per the RBI Act.

16) The auditor is now required to indicate the details of the subsidiary

companies and the sub-clauses’ number containing

qualifications/adverse remarks by the respective auditors in the

CARO reports of the companies included in the consolidated

financial statements.

Now, the Companies (Auditor’s Report) Order, 2020 would come into

effect from financial years commencing on or after April 1, 2021,

according to a notification issued by the Ministry of Corporate Affairs

(MCA). It is implementing the Company’s Law.

❖ CSR related disclosure:

Disclosure has to be made on the unspent

CSR fund associated with an identified

ongoing project and its transfer to special

account under Section 135(6). While CARO

2020 is already notified, the amendments

brought about by the Companies

(Amendment) Act, 2019 are yet to be notified.

This is a clear attempt to strengthen the

compliance regime for CSR.

❑ Reporting & Disclosures Requirements under

CARO 2020 –

✓ Details of Tangible and Intangible assets

✓ Details of inventory and working capital

✓ Details of investments, any guarantee or

security or advances or loans given

✓ Compliance in respect of a loan to

directors

✓ Compliance in respect of deposits

accepted…..and more.

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If the auditor’s response is negative or unfavourable to any of the

foregoing requirements in the event then the auditor’s report must

disclose the basis for such an unfavourable or qualified response.

Similarly, in the event that the auditor is unable to express an opinion

on a specific matter, the report must indicate this fact together with

the reasons why it is not possible for the auditor to express an opinion

on the matter.

❑ DELETED CLAUSE:

In CAR0 2016, reporting on whether managerial remuneration has

been paid or provided in accordance with the requisite approvals

mandated by the provisions of section 197 read with Schedule V to the

Companies Act.

The clause is omitted from CARO 2020 as the same is already covered

under main audit Report.

To remove duplication, reporting on compliance of provisions related

to managerial remuneration has been removed as the same is already

covered under main Audit Report.

❑ New Clauses added:

The CARO 2020 (should be called as CARO 2022 now) has deleted

once clause and added new seven clauses as compared to CARO 2016.

These new clauses deal with following:

✓ Transaction Not recorded in Books;

✓ Ability of Company to meet its Liabilities;

✓ CSR Transfer of Unspent Amount to Fund

✓ Statutory Auditor Resignation

✓ CFS : reference to negative remarks in

Subsidiary CARO

✓ Internal Audit System (CARO 2003)

✓ Cash Loss (CARO 2003)

There is no change in the applicability of CARO 2020 as compared to

the CARO 2016. CARO 2020 shall be applicable to all those companies

on which CARO, 2016 was applicable. CARO 2020 is not applicable on

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the consolidated financial statements like CARO 2016 except new

clause (xxi). As per the new clause (xxi), any qualification or adverse

remark mentioned by the respective auditors in CARO, indicate the

details of the companies and the paragraph numbers of the CARO

report containing the qualifications or adverse remarks.

Under this stricter framework, auditors are required to provide

detailed disclosures about loan defaults, amount of cash losses and

immovable properties as well as other aspects about companies in

their annual reports. CARO 2020 also requires the incoming auditor in

place of resigned auditor to evaluate the issues, objections or concerns

raised by the outgoing auditors.

CARO 2020 follows the same format of provisions like its

predecessors, with additions to the list of reporting items and

modifying disclosure expectations in a few cases increase the auditor's

responsibility and scope of work with respect to auditor's report.

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❑ XBRL - eXtensible Business Reporting

Language

XBRL is a language for e-

communication of financial and business

data for business reporting. It is a

standardized communication language in

electronic form to express report or file a

financial statement by Companies.

The XBRL wave started in India in late 2007 when the Institute of

Chartered Accounts of India, the premier accounting and statutory

body, realised the critical role of Digital Business Reporting in the

arena of regulatory reporting and the optimum advantage that it

enjoyed in levelling the playing field.

However, XBRL is only a method of presentation or reporting. It does

not attempt to make any changes in the content to be reported.

eXtensible Business Reporting Language (XBRL) is a freely available

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global framework of accounting standards used for exchanging

business information. XBRL is based on XML coding and is a

standardized way of transmitting financial records around the world.

❑ Applicability of XBRL filing

Class of Companies those are required to file their financial

statements and other documents as mentioned under section 137 of

the Companies Act, 2013 with the Registrar of Companies (ROC) in

MCA e-form AOC-4 XBRL:

▪ All companies listed in the stock exchange in India and their Indian

subsidiaries. ▪ All companies with a turnover of Rs. 100 crores or more ▪ All companies with a paid up capital of Rs. 5 crores or more

▪ All the companies which are required to prepare their financial

statements in accordance with the Companies (Indian Accounting

Standards) rules, 2015.

Exemption applicable to:

Exemption have been granted to the following class of Companies from

filing of financial statements under these rules:

▪ Non-banking financial companies (NBFC),

▪ Housing finance companies and

▪ Companies engaged in the business of Banking and Insurance sector

Note: Companies which have filed their financial statements in XBRL mode

under section 137 of the Companies Act, 2013 shall continue to file their

financial statements and other documents in XBRL mode only, though they

may cease to fall under the class of companies specified above.

❑ Benefits of XBRL Filing:

✓ Reduces the Manual Data entry ✓ Cost and Time Efficient, ✓ Meeting IFRS requirement

✓ Qualitative Information and Decision making ✓ Allows the easy transmission of data between businesses ✓ Improved accuracy and reliability to all those involved in supplying

or using financial data. ✓ Improved way of reporting & Time saving process

✓ Automated data collection

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❑ How does XBRL (eXtensible Business Reporting

Language) work?

XBRL makes the data readable, with the help of two documents:

❖ Taxonomy and

❖ Instance document

Taxonomy defines the elements and their relationships based on the

regulatory requirements. Using the taxonomy prescribed by the

regulators, companies need to map their reports, and generate a valid

XBRL instance document.

The process of mapping means matching the concepts as reported by

the company to the corresponding element in the taxonomy. In

addition to assigning XBRL tag from taxonomy, information like unit

of measurement, period of data, and scale of reporting etc. needs to be

included in the instance document.

1. XBRL Taxonomy:

In Simplest of words possible, taxonomy can be defined as dictionary

of accounting elements. This taxonomy is an ideal set of elements

available with the ministry against which the data of the filer has to be

tagged. Tagging mechanism will be a process in which the data on

physical financial documents will be converted as per available

taxonomy. For the purpose of this tagging, XBRL softwares’ are

available in the market. Details can also be obtained from XBRL portal

of MCA.

(Note: Taxonomy as released by MCA as of today is compliant with Indian

Accounting Standards and Existing Schedule VI to Companies Act, 1956. As

and when IND – AS and Revised Schedule VI comes applicable, the same will

be revised and hosted on MCA Portal)

2. Instance Document:

Once the tagging process is complete, the document that will be

generated will be a machine readable XBRL document; this document

is called as Instance Document.

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❑ Documents required for XBRL for MCA – (Suggested)

The following Documents need to be filed in XBRL Format:

❖ Balance Sheet

❖ Profit and Loss Statement

❖ Cash Flow Statement (Direct or Indirect)

❖ Significant Accounting Policies

❖ Statement of Change in Equity

❖ Independent Audit Report with annexures thereto

❖ Director or Board Report with annexures thereto

❖ Schedules & Notes to Balance Sheet and P & L Statement

❑ Mapping Process for E-Filing of Balance Sheets in

XBRL:-

Step 1: Map or tag the company’s financial statements to the published

taxonomy. This can be done by following methods.

▪ Certain ERP systems may have inbuilt feature to tag the financials to

the published taxonomy of MCA XBRL Software’s.

▪ Detailed list of software vendors for XBRL E-Filing can be obtained

from http://www.mca.gov.in/XBRL .

▪ It must be noted that MCA does not recommend/associate itself with

these vendors. It has been hosted just for public Convenience.

▪ This is by far the most important and technical step of the process

and nearly constitutes 70–80% of the XBRL E-Filing process. The

Correctness of this mapping must be reviewed. Errors that creep in

must be removed by professional judgement.

Step 2: Create an Instance Document based on the Mapping done above

Separate Instance document must be created for:

▪ Standalone Balance sheet

▪ Standalone Profit and Loss Account

▪ Consolidated Balance sheet

▪ Consolidated Profit and Loss Account

Step 3: Validate the created instance document

The Validation tool of MCA will be shortly available on the MCA portal. This

tool is to be downloaded.

http://www.mca.gov.in/XBRL

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❑ ROC Filing Due Dates – XBRL mode

Type of MCA E-form Purpose of E-form Due date of Filing

Form AOC-4 (XBRL) Filing of Annual Accounts in XBRL

mode

Within 30 days from the

conclusion of the AGM

Form AOC-4 (XBRL)

for IND AS based

Financial Statement

Filing of Annual Accounts based on

Indian Accounting Standard in XBRL

mode


conclusion of the AGM

Form CRA-4 Filing of Cost Audit Report Within 30 days from the

receipt of Cost Audit Report

Form AOC-4 (NBFC)

IND and Form AOC-4

CFS (NBFC) IND

Filing of Annual Accounts based on

Indian Accounting Standard for

Non-Banking financial institutions

NBFC


conclusion of the

AGM

❑ Filing of Financial Statements in various cases:

Case 1: In case AGM adjourned

Within 30 days of the adjourned AGM with fees /

additional fees as prescribed.

Case 2: If financial statements are un-adopted

Within 30 days of the AGM conclusion

Case 3: If AGM is not held Within 30 days from the date when the AGM should

have been held with fees / additional fees as prescribed.

❑ Adoption of XBRL:

The four major regulators involved in the adoption of XBRL are the

following entities:

1. Ministry of Corporate Affairs (MCA) – the business register for

companies in India

2. Reserve Bank of India (RBI) - The apex financial regulator

3. Securities and Exchange Board of India (SEBI) – regulates listed

companies

4. Insurance Regulatory and Development Authority (IRDA) – the

insurance regulator

https://blog.saginfotech.com/aoc-4-form-mca

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❑ Steps for filing with the Registrar:

The process for creation and filing of Financial Statements in

XBRL mode is as under:

i) Step 1: Creation of XBRL instance document

ii) Step 2: Download XBRL validation tool from the MCA portal iii) Step 3: Use the tool to validate the instance document iv) Step 4: Perform pre-scrutiny of the validated instance document

through the tool v) Step 5: Attach instance document to the Form AOC-4 XBRL

vi) Step 6: Submitting the Form AOC-4 XBRL on the MCA portal

The use of XBRL is quite varied and wide. XBRL enables producers

and consumers of financial data to switch resources away from costly

manual processes, typically involving time-consuming comparison,

assembly and re-entry of data. XBRL is the future of financial

reporting and it offers several advantages to all kinds of financial data

users. There are many professional consulting firms engaged in the

preparation and filings of financial statements in XBRL mode.

❑ Disclaimer:

The content of this article is intended to provide a general guide to the subject matter. Every

effort has been made to keep the information cited in this article error-free. Suggestions and

feedback to improve the task are welcome. The article and opinions therein are based on our

understanding of the law and provisions prevailing as on date. The contents of this article are for

information purposes only and does not constitute an advice or a legal opinion and are personal

views of the author. The opinion may vary according to one’s interpretation of the law. It should

not be relied upon as the sole basis for any decision which may affect you or your business. The

authors can be approached at [email protected] and / [email protected]

Quick

Referencer - ROC / MCA

===========

✓ CARO

✓ XBRL

Prepared & Compiled By:

CS Tanuj Saxena Practicing Company Secretary (PCS) M. No.: +918853774256 & +919140389470 E-mail: [email protected] LinkedIn: linkedin.com/in/tanuj-chandra-saxenaa-338767a5

Proprietor at Tanuj Saxena & Associates

CS Lalit Rajput Company Secretary (CS) Cell: +91 8802581290 & +91 9625483520 Email: [email protected] LinkedIn: https://www.linkedin.com/in/cslalitrajput/

mailto:[email protected]



https://www.linkedin.com/in/cslalitrajput/