Reporting of Loans, Investments, Guarantees, and Security under CARO

The Financial Reporting Review Board (FRRB) of the ICAI conducts reviews of financial statements and audit reports of various enterprises to determine whether the compliance with the Generally Accepted Accounting Principles (GAAP), auditors reporting obligations, disclosure requirements of applicable rules and regulations relevant to the reporting enterprise has been done or not.

While reviewing the Companies (Auditor’s Report) Order, 2016, the Board has noted non-compliance w.r.t. clause 3(iv) of CARO in reporting of loans, investments, guarantees and security provided by a company and extended its observations and views on the matter of reporting. It is recommended that the Auditors while reporting under CARO 2020 should consider the following points. Some of the observations along with the reporting done by the auditor on para 3(iv) of CARO 2016 have been discussed below:

Security Provided & Loans Granted

Relevant Extract from Annexure A of Independent Auditor’s Report (reporting under CARO, 2016) of Para 3(iv): According to the information and explanation given to us, the Company has not made any loan, investment, and guarantees to any person specified under section 185 and section 186 of the Companies Act, 2013. Therefore, the provisions of paragraph 3(iv) of the Order are not applicable to the Company

Principle: Para 3(iv) of Companies (Auditor’s Report) Order, 2016 stated that “In respect of loans, investments, guarantees, and security whether provisions of section 185 and 186 of the Companies Act, 2013 have been complied with. If not, provide the details thereof.”

Observation: Board noted from para (iv) of Annexure A to the Auditor’s Report wherein the auditor reported that the company has not made any loan, investment, and guarantees to any person specified under section 185 and section 186 of the Companies Act, 2013.

Board observed that although the auditor has reported about loans, investments and guarantees under said para, but the auditor has not reported on ‘security’, as required under clause 3 (iv) of CARO, 2016.

Accordingly, the view of the board is that the auditor has not appropriately reported on para 3(iv) of CARO, 2016.

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