V 2.0 (For May 2020) : Chapter 10 A CARO - Company (Auditor's Report) Order, 2016

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Chapter 10 A
CARO - Company (Auditor’s Report)
Order,2016
V 2.0 (For May 2020)
Version 2.0 ● Upto November 2019 Exam Questions.
● Also, the question in the book are in accordance with our videos.
May 2018
RTP May 2018
Question
Discuss the matters to be included in the auditor's report regarding statutory dues and repayment of loans or
borrowing from a financial institution, bank, Government or dues to debenture holders as per CARO, 2016.
Answer
Matters to be included in the auditor's report- statutory dues and repayment of loans or borrowing from a financial
institution, bank, Government or dues to debenture holders (CARO, 2016) –
Clause (vii)
1. whether the company is regular in depositing undisputed statutory dues including provident fund, employees'
state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, cess and other
statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues
as at the last day of the financial year concerned for a period of more than six months from the date they become
payable, shall be indicated;
2. where dues of income tax or sales tax or service tax or duty of customs or duty of excise or value added tax have
not been deposited on account of any dispute, then the amounts involved and the forum where dispute is
pending shall be mentioned. (A mere representation to the concerned Department shall not constitute a dispute).
Clause (viii) whether the company has defaulted in repayment of loans or borrowing from a financial institution, bank,
Government or dues to debenture holders? If yes, the period and the amount of default to be reported (in case of defaults
to banks, financial institutions, and Government, lender wise details to be provided).
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MTP 1 May 2018
Question
State the matters to be included in the auditor's report as per CARO, 2016 regarding-
i. Default in repayment of loans or borrowing from a financial institution, bank etc.
ii. Fraud by the company or on the Company by its officers or employees
Answer
Matters to be included in the Auditor's Report under CARO, 2016: The auditor's report on the accounts of a
company to which CARO applies shall include a statement on the following matters, namely-
i. whether the company has defaulted in repayment of loans or borrowing from a financial institution, bank,
Government or dues to debenture holders? If yes, the period and the amount of default to be reported (in case of
defaults to banks, financial institutions, and Government, lender wise details to be provided).
ii. whether any fraud by the company or any fraud on the Company by its officers or employees has been noticed or
reported during the year; If yes, the nature and the amount involved is to be indicated.

MTP 2 May 2018
Question
State the matters to be included in the auditor's report as per CARO, 2016, regarding:
i. in case the company has accepted deposits
ii. Nidhi company
Answer
Matters to be included in the Auditor's Report under CARO, 2016: The auditor's report on the accounts of a company to
which CARO applies shall include a statement on the following matters, namely-
i. in case the company has accepted deposits, whether the directives issued by the Reserve Bank of India and the
provisions of sections 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the rules framed
there under, where applicable, have been complied with? If not, the nature of such contraventions be stated; If an
order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India
or any court or any other tribunal, whether the same has been complied with or not?
ii. whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of 1:20 to meet out
the liability and whether the Nidhi Company is maintaining ten per cent unencumbered term deposits as
specified in the Nidhi Rules, 2014 to meet out the liability

May 2018 Exam Question

Question
i. Private Placement of Preferential Issues.
ii. Utilisation of IPO and further public offer.
Answer
i. The auditor is required to report as per clause xiv of paragraph 3 of CARO 2016, whether the company has
made any preferential allotment or private placement of shares or fully or partly convertible debentures during
the year under review and if so, as to whether the requirement of section 42 of the Companies Act, 2013 have
been complied with and the amount raised have been used for the purposes for which the funds were raised. If
not, provide the details in respect of the amount involved and nature of non-compliance;
ii. It is the duty of the auditor to report as per clause ix of paragraph 3 of CARO 2016, whether money raised by
way of initial public offer or further public offer (including debt instruments) and term loans were applied for
the purposes for which those are raised. If not, the details together with delays or default and subsequent
rectification, if any, as may be applicable, be reported.


November 2018
MTP 1 November 2018

Question
i. Fixed Assets
ii. Statutory dues (REPEAT QUESTION)
Answer
Matters to be included in the Auditor's Report under CARO, 2016: The auditor's report on the accounts of a
company to which CARO applies shall include a statement on the following matters, namely-
i. Fixed Assets-
1. whether the company is maintaining proper records showing full particulars, including quantitative
details and situation of fixed assets;
2. whether these fixed assets have been physically verified by the management at reasonable intervals;
whether any material discrepancies were noticed on such verification and if so, whether the same have
been properly dealt with in the books of account;
3. whether the title deeds of immovable properties are held in the name of the company. If not, provide the
details thereof.
ii. Statutory Dues- As per clause (vii) of CARO, 2016, reporting requirements in respect of statutory dues are :
1. whether the company is regular in depositing undisputed statutory dues including provident fund,
employees' state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value
added tax, cess and other statutory dues to the appropriate authorities and if not, the extent of the
arrears of outstanding statutory dues as on the last day of the financial year concerned for a period of
more than six months from the date they become payable, shall be indicated;
2. where dues of income tax or sales tax or service tax or duty of customs or duty of excise or value added
tax have not been deposited on account of any dispute, then the amounts involved and the forum where
dispute is pending shall be mentioned. (A mere representation to the concerned Department shall not be
treated as a dispute).

MTP 2 November 2018

Question (REPEAT QUESTION)
Discuss the reporting requirements regarding Fixed Assets under CARO, 2016
Answer
Refer November 2018 MTP 1 Question 1 (i)
Reporting requirements regarding Fixed Assets under CARO, 2016 are :
a. Whether the company is maintaining proper records showing full particulars, including quantitative details and
situation of fixed assets;
b. Whether these fixed assets have been physically verified by the management at reasonable intervals; whether
any material discrepancies were noticed on such verification and if so, whether the same have been properly
dealt with in the books of account;
c. Whether the title deeds of immovable properties are held in the name of the company.

November 2018 Exam Question

"The company has raised funds by issuing fully convertible debentures. These funds were raised for the
expansion and diversification of the business. However, the company utilized these funds for repayment of long
term loans and advances." Advise the auditor regarding reporting requirements under CARO, 2016.
Answer
Refer May 2018 Exam
The auditor is required to report as per clause xiv of paragraph 3 of CARO 2016, whether the company has made
any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under
review and if so, as to whether the requirement of section 42 of the Companies Act, 2013 have been complied with and
the amount raised have been used for the purposes for which the funds were raised. If not, provide the details in respect
of the amount involved and nature of non-compliance.
In view of the above clause, the auditor would report that funds raised by the company for expansion and diversification
of business have not been used for the said purpose rather the company has utilised these funds for repayment of long
term loans and advances.


May 2019
RTP May 2019
Question
Multiple Choice Questions
(i) Eeyore Pvt. Ltd. is incorporated on 1st July, 2017. During the Financial Year ending on 31st March, 2018, the
company did not opt for any borrowing at any point of time and have a total revenue of ₹60 Lakh. At the year
end, it provides the following information regarding its paid-up capital and reserve & surplus -
Particulars Amount (in ₹)
PAID UP CAPITAL
Consideration received in cash for equity shares 40,00,000

(including unpaid calls of ₹5,00,000)
Share application money received pending allotment 25,00,000
Bonus shares allotted 7,00,000
SUB TOTAL 82,00,000
RESERVE & SURPLUS
Balance in Statement of Profit and Loss 15,00,000
Capital Reserves 10,00,000
SUB TOTAL 25,00,000
GRAND TOTAL 1,07,00,000
You are provided with the provisions regarding applicability of Companies (Auditor’s Report) Order, 2016,
(CARO, 2016) issued under section 143(11) of the Companies Act, 2013 to a private limited company that it
specifically exempts a private limited company having a paid up capital and reserves and surplus not more than
₹1 crore as on the Balance Sheet date and which does not have total borrowings exceeding ₹1 crore from any
bank at any point of time during the financial year and which does not have a total revenue as disclosed in
Schedule III to the Companies Act, 2013 exceeding ₹10 crore during the financial year. Considering the
information given above, which of the following shall be considered as a reason regarding applicability or
non-applicability of CARO, 2016?

a. Reporting under CARO, 2016 shall be applicable as the company is having a paid up capital and reserves
and surplus of ₹1.07 crore i.e. more than ₹1 crore as on the Balance Sheet date.
b. Reporting under CARO, 2016 shall be applicable as the company is having a paid up capital and reserves
c. Reporting under CARO, 2016 shall not be applicable as the company is having a paid up capital and
reserves and surplus of ₹0.92 crore i.e. not more than ₹1 crore as on the Balance Sheet date.
d. Reporting under CARO, 2016 shall not be applicable as the company is having a paid up capital and
Answer
(c)

MTP 1 May 2019
Question(REPEAT QUESTION)
i. Default in repayment of loans or borrowing from a financial institution, bank etc.
ii. Fraud by the company or on the Company by its officers or employees.
Answer
Refer MTP 1 May 2018

MTP 2 May 2019
Questions
i. Private Placement of Preferential Issues. (REPEAT QUESTION)
ii. Utilisation of IPO and further public offer

Answer
i. Refer May 2018 Exam Question 1
The auditor is required to report as per clause xiv of paragraph 3 of CARO 2016, whether the company has
made any preferential allotment or private placement of shares or fully or partly convertible debentures during
the year under review and if so, as to whether the requirement of section 42 of the Companies Act, 2013 have
been complied with and the amount raised have been used for the purposes for which the funds were raised. If
not, provide the details in respect of the amount involved and nature of non-compliance;
ii. It is the duty of the auditor to report as per clause ix of paragraph 3 of CARO 2016, whether money raised by
way of initial public offer or further public offer (including debt instruments) and term loans were applied for
the purposes for which those are raised. If not, the details together with delays or default and subsequent
rectification, if any, as may be applicable, be reported

May 2019 Exam Question
Question
Explain the reporting requirements that the auditor should ensure under CARO 2016 related to fixed asset.
Answer
Reporting for Fixed Assets- Clause (i) of Para 3 of CARO ,2016, requires the auditor to include a statement in the
auditor’s report on the following matters, namely-
(i) whether the company is maintaining proper records showing full particulars, including quantitative details and
situation of fixed assets;
(ii) whether these fixed assets have been physically verified by the management at reasonable intervals; whether any
material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in
the books of account;
(iii) whether the title deeds of immovable properties are held in the name of the company. If not, provide the details
thereof;

Sample Questions - MCQ

Multiple Choice Questions
(i) Eeyore Pvt. Ltd. is incorporated on 1st July, 2017. During the Financial Year ending on 31st March, 2018, the
company did not opt for any borrowing at any point of time and have a total revenue of ₹60 Lakh. At the year
end, it provides the following information regarding its paid-up capital and reserve & surplus -
Particulars Amount (in ₹)
PAID UP CAPITAL
Consideration received in cash for equity shares 40,00,000

(including unpaid calls of ₹5,00,000)
Bonus shares allotted 7,00,000
SUB TOTAL 82,00,000
RESERVE & SURPLUS
Balance in Statement of Profit and Loss 15,00,000
Capital Reserves 10,00,000
SUB TOTAL 25,00,000
GRAND TOTAL 1,07,00,000
You are provided with the provisions regarding applicability of Companies (Auditor’s Report) Order, 2016,
(CARO, 2016) issued under section 143(11) of the Companies Act, 2013 to a private limited company that it
specifically exempts a private limited company having a paid up capital and reserves and surplus not more than
₹1 crore as on the Balance Sheet date and which does not have total borrowings exceeding ₹1 crore from any
bank at any point of time during the financial year and which does not have a total revenue as disclosed in
Schedule III to the Companies Act, 2013 exceeding ₹10 crore during the financial year. Considering the
information given above, which of the following shall be considered as a reason regarding applicability or
non-applicability of CARO, 2016?
a. Reporting under CARO, 2016 shall be applicable as the company is having a paid up capital and reserves
b. Reporting under CARO, 2016 shall be applicable as the company is having a paid up capital and reserves

c. Reporting under CARO, 2016 shall not be applicable as the company is having a paid up capital and
d. Reporting under CARO, 2016 shall not be applicable as the company is having a paid up capital and
Answer
Refer RTP May 2019 Question 1
(c)


November 2019
RTP November 2019
No question was asked from RTP.

MTP 1 November 2019

Question
Discuss which class of companies are specifically exempt from the applicability of CARO 2016.
Answer
CARO 2016 specifically exempts the following class of companies:
● A banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949; An insurance
company as defined under the Insurance Act,1938;
● A company licensed to operate under section 8 of the Companies Act;
● A One Person Company as defined under clause (62) of section 2 of the Companies Act;
● A small company as defined under clause (85) of section 2 of the Companies Act; and
● A private limited company, not being a subsidiary or holding company of a public company, having a paid up
capital and reserves and surplus not more than rupees one crore as on the balance sheet date and which does
not have total borrowings exceeding rupees one crore 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 Schedule III to the Companies
Act, 2013 (including revenue from discontinuing operations) exceeding rupees ten crores during the financial
year asper the financial statements.

Exam Questions November 2019

Question
Examine with reasons whether the following statements are correct or incorrect.
(a) Provision of CARO, 2016 is not applicable to ABC Pvt. Ltd., a subsidiary of XYZ Ltd. (a public company)
having fully paid Capital & Reserves & Surplus of Rs. 50 Lakhs, secured loan from Bank of Rs.90 Lakhs &
Turnover of Rs.5 crore, For the Financial Year 2018-19.
Question
M Ltd . has given certain loans to related parties and also has accepted certain deposits. As an auditor, how to
include the above items in paragraph 3 of CARO, 2016?

V 2.0 (For May 2020) : Chapter 10 A CARO - Company (Auditor's Report) Order, 2016

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These notes are incomplete without our videos. Study from these notes at your own risk.

RTP May 2018

MTP 1 May 2018

​MTP 2 May 2018

May 2018 Exam Question

MTP 1 November 2018

MTP 2 November 2018

November 2018 Exam Question

Question ​(REPEAT QUESTION)

RTP May 2019

Particulars Amount (in ₹)

Consideration received in cash for equity shares 40,00,000

Share application money received pending allotment 25,00,000

Bonus shares allotted 7,00,000

Share application money received pending allotment 10,00,000

SUB TOTAL 82,00,000

RESERVE & SURPLUS

Balance in Statement of Profit and Loss 15,00,000

Capital Reserves 10,00,000

SUB TOTAL 25,00,000

GRAND TOTAL 1,07,00,000

MTP 1 May 2019

MTP 2 May 2019

May 2019 Exam Question

Sample Questions - MCQ

Question ​(REPEAT QUESTION)

Particulars Amount (in ₹)

Consideration received in cash for equity shares 40,00,000

Share application money received pending allotment 25,00,000

Bonus shares allotted 7,00,000

Share application money received pending allotment 10,00,000

SUB TOTAL 82,00,000

RESERVE & SURPLUS

Balance in Statement of Profit and Loss 15,00,000

Capital Reserves 10,00,000

SUB TOTAL 25,00,000

GRAND TOTAL 1,07,00,000

RTP November 2019

No question was asked from RTP.

MTP 1 November 2019

Exam Questions November 2019

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MTP 2 May 2018

Question (REPEAT QUESTION)

Question (REPEAT QUESTION)