Bid to tighten disclosure on loan defaults
Corporate affairs ministry has notified the Companies (Auditor’s Report) Order, 2020 (CARO 2020)
- Published 27.02.20, 1:22 AM
- Updated 27.02.20, 1:22 AM
- a min read
Auditors will have to provide detailed disclosures about loan defaults, the amount of cash losses and immovable properties as well as other matters about companies in their annual reports for this financial year, with the government putting in place a stringent framework.
Amid instances of corporate misdoings wherein the role of auditors has come under the regulatory scanner, the corporate affairs ministry has come out with the revised framework that seeks to bring in “greater transparency and faith in the financial affairs of the companies”.
The corporate affairs ministry has notified the Companies (Auditor’s Report) Order, 2020 (CARO 2020).
It would be applicable for the audit of financial statements of eligible companies for the financial years commencing on or after April 1, 2019.
“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 ministry said in a release on Wednesday.
Sanjeev Singhal, partner at SR Batliboi and Co LLP, said auditors are now required to comment on 50 matters in CARO (including sub-clauses) as against 21 matters in CARO 2016. SR Batliboi is a member firm of EY Global.
A specific format has been prescribed for auditors to report the period and the amount of default by the company in the repayment of loans or other borrowings or in the payment of interest thereon to any lender.
The ministry said auditors would have to provide details about a company’s investments and whether any guarantee or security has been extended to other entities during a financial year. This is to ensure that such actions are not “prejudicial to the interests of the company”.
“The amount of cash losses incurred in the financial year and in the immediately preceding financial year have to be reported,” the release said.