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CARO 2015 - Parameters and requirements

Posted @ November 12, 2015, 11:04 am under (CARO 2015)

CARO 2015 - Company Auditor's Report Order


We had seen the companies on which CARO 2015 was applicable in the previous article - CARO 2015 - Applicability

Now we shall see the requirements to be reported under it which are discussed under the following 12 clauses given under Paragraph 3 of CARO 2015. The auditor needs to verify the same and include in the report made by him -


  1. Fixed Assets -Clause 3(i)

             The most important clause, and at the same time being most difficult to track and verify. It covers various activities like Physical Verification of assets, tagging and Bar-coding, reconcilation with FAR (Fixed Assetts Register) and finding variances and reporting them. Eventually writing off the assets and purging the FAR. Further details about the verification exercise can be found under Fixed Assets Verification & Audit

The major statutory requirements under this clause are -

- Proper records maintained

- Physical Verification at reasonable intervals

- Method of dealing with Material discrepancy (i.e. Variance between FAR and Physical Verification)


       2. Inventory - Clause 3(ii)

Inventory includes - Stock, Work in progress, Finished goods and raw materials. This clause requires perodic verification of inventory. Like Fixed Assets verification, Inventory verification too requires operational exercises of mammoth proportions. Site visits by team, cut-off dates, preferrably same at all the locations would be some of the key areas of such verifications.

Requirements under this clause are -

- Physical Verification of Inventory at reasonable intervals

- Ascertaining value and material discrepancies and recording the same in books of accounts

- Adequacy of records and procedures


  3. Loans and Advances - Clause 3(iii)

Loans given by the company, both unsecured and secured. Verification details under this clause are -

- Regular recovery of Principal and interest

- Steps taken for recovery, in case of pending recievables or defaults

  4. Internal Control System- Clause 3(iv)

Internal controls can be best described as the checks employed by Management and TCWG (those charged with governance) for keeping the purchases, sales and recording of cash and security of assets. It is basically the process followed by the company to keep checks for any nefarious activity. Main elements of this clause are-

- Adequacy of Internal Control Systems with respect to size and nature of business

- Correcting a weak system

  5. Deposits - Clause 3(v)

If the company has accepted deposits from public, is it complying with following -

- Directives of RBI 

- Orders passed by Company Law Board or any other tribunal

  6. Cost Accounting Records - Clause 3(vi)

Only if the central Government has ordered a cost audit u/s 148 of Company Act, 2013, compliance of the same

  7. Statutory Dues - Clause 3(vii)

These are the various dues the company is bound to pay like deposits in Provident Fund, Gratuity fund, payment of taxes, etc. The parameters are -

- Statutory dues, due for more than 6 months, only in undisputed cases

- Any pending dispute for tax or duty

- Any amount due to be transferred to Investor Education and Protection Fund


  8. Cash and accumulated Losses - Clause 3(viii)

If the company is registered for more than 5 years, ensure that

- Accumulated Losses not more than 50% of its net worth

-  Whether any Cash Loss suffered in present and previous FY


  9. Repayment of dues - Clause 3(ix)

Has the company defaulted in any payments towards Financial Institutes or debenture holders. If yes, then mention the period of default and amount

  10. Gurantee for Loans - Clause 3(x)

Whether any gurantee given for some other company, and are the terms and conditions prejudicial to companys interests

  11. Usage of Term Loan - Clause 3(xi)

Are the proceeds from loan used for the purpose for which it was applied for


  12. Reporting of Fraud - Clause 3(xii)

Is any fraud noticed or detected by the company. If yes then the nature of it.


These above 12 clause make the CARO and auditor is required to verify the same and give his opinion in auditors report.

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