Guidance Note on the Companies (Auditor’s Report) Order, 2016

Introduction

1. The Central Government, in exercise of the powers conferred, under sub-section (11) of section 143 of the Companies Act, 2013 (hereinafter referred to as “the Act”), issued the Companies (Auditor’s Report) Order, 2016, (CARO, 2016/ “the Order”) vide Order No. S.O. 1228(E) dated 29th March, 2016. CARO, 2016 contains certain matters on which the auditors of companies (except of those categories of companies which are specifically exempted under the Order) have to make a statement in their audit report. The text of the CARO, 2016 is given in Appendix I to this Guidance Note.

2. This Order is in supersession of the earlier Order issued in 2015, viz., the Companies (Auditor’s Report) Order, 2015 (CARO 2015). Appendix II to this Guidance Note contains a clause-by-clause comparison of the reporting requirements of the Order and the erstwhile CARO 2015.

3. The purpose of this Guidance Note is to enable the members to comply with the reporting requirements of the Order. It should, however, be noted that the clarifications and explanations contained in this Guidance Note are not intended to be exhaustive and the auditors should exercise their professional judgment and experience on various matters on which they are required to report under the Order.

General Provisions Regarding Auditor’s Report

4. The requirements of the Order are supplemental to the existing provisions of section 143 of the Act regarding the auditor’s report. In this regard the following points may be noted

(i) the provisions of sub-sections (1), (2) & (3) of section 143 are applicable to all companies while the Order exempts certain categories of companies from its application; and

(ii) the provisions of sub-section (1) require the auditor to make certain specific enquiries during the course of his audit. The auditor is, however, not required to report on any of the matters specified in the sub-section unless he has any special comments to make on the said matters. In other words, if he is satisfied with the results of his enquiries, he has no further duty to report that he is so satisfied. The Order, on the other hand, requires a statement on each of the matters specified therein, as applicable to the company.

5. Another question that arises is about the status of the Order vis a vis the directions given by the Comptroller and Auditor General of India under section 143(5) of the Act. In this regard, it may be noted that the Order is supplemental to the directions given by the Comptroller and Auditor General of India under section 143(5) in respect of government companies. These directions continue to be in force. Therefore, in respect of government companies, the matters specified in the Order will form part of the auditor’s report submitted to the members and the replies to the aforesaid questionnaire issued by the Comptroller and Auditor General of India will be governed by the requirements of section 143(5) of the Act

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