CA FINAL AUDIT NOTES | C.A.R.O. 2016

Companies (Auditors’ Report) Order, 2016 [CARO]
 CARO – Applicability & Reporting Matters 


This post will cover CA Final Audit CARO 2016
1. What types of Companies are specifically exempted from application of CARO? 

1. Applicability: CARO 2016 applies to all Companies, including a Foreign Company as defined u/s 2(42). 

2. Exceptions / Exemptions: CARO does not apply to the following classes of Companies – 

(a) Banking Company as defined u/s 5(c) of the Banking Regulation Act, 1949, 
(b) Insurance Company as defined Insurance Act, 1938, 
(c) Company licensed to operate u/s 8, 
(d) One Person Company as per Sec.2(62) and a Small Company as per Sec.2(85), 
(e) Private Limited Companies which satisfy all the following conditions – 
• Should not be a Subsidiary or Holding Company of a Public Company, 
• Aggregate of Paid Up Capital and Reserves & Surplus ≤ ` 1 Crore, as on the Balance Sheet date, 
• Total Borrowings from any Bank or Financial Institution at any point of time during the Fin. Year ≤ ` 1 Crore, • Total Revenue (including Revenue from Discontinuing Operations) as disclosed in the Financial Statements as per Schedule III of the Companies Act, ≤ ` 10 Crores. [Note: Total Revenue includes “Other Income” also.] 

3. CFS: CARO 2016 reporting shall not apply to the Auditor’s Report on Consolidated Financial Statements. 

 2. Bring out the differences between compliance with the requirements of Sec. 143 of COA 2013 and CARO.

 3. Bring out the professional necessity for complying CARO. Is it mandatory?


  1. Additional Matters for reporting [Sec.143(11)]: The Central Government may order for the inclusion of a Statement on specified matters in the Auditor’s Report for specified class or description of Companies. Accordingly, CARO 2016 is issued by the Central Government, and should be complied by the Statutory Auditor of the Company.
  2. Nature of CARO: CARO is not intended to limit the duties and responsibilities of Auditors, but only requires a Statement to be included in the Audit Report in respect of the matters specified therein.
  3. Govt. Cos: For Govt. Companies, CARO is supplemental to the Directions given by the C&AG of India. So, in respect of Govt. Companies, the matters specified in CARO will also form part of the Auditor’s Report. 

 4. List the matters to be reported under CARO, 2016.

  1. FIXED ASSETS [3(i)]:
  2. INVENTORIES [3(ii)]:
  3. LOANS TO DIRECTORS AND INTERESTED PARTIES [3(iii)]:
  4. Compliance of Sec.185 & 186 [3(iv)]:
  5. DEPOSITS FROM PUBLIC [3(v)]:
  6. COST ACCOUNTING RECORDS [3(vi)]:
  7. STATUTORY DUES [3(vii)]:
  8. REPAYMENT OF DUES [3(viii)]:
  9. APPLICATION OF MONEYS RAISED [3(ix)]:
  10. FRAUD [3(x)]:
  11. MANAGERIAL REMUNERATION [3(xi)]:
  12. NIDHI COMPANY [3(xii)]:
  13. RELATED PARTY TRANSACTIONS [3(xiii)]:
  14. PREFERENTIAL ALLOTMENT, etc. [3(xiv)]:
  15. NON CASH TRANSACTIONS WITH SPECIFIED PERSONS [3(xv)]:
  16. REGISTRATION UNDER RBI ACT [3(xvi)]:


For more Details "Click Here" for entire .pdf notes

For Comparison between 2015 & 2016 CARO & further details "Click Here"



Reasons to be stated for unfavourable or qualified answers [Para 4]

(a) Where the answer to any of the above questions is unfavourable or qualified, the Auditor’s Report shall state the
reasons for such unfavourable or qualified answer, as the case may be.
(b) If the Auditor is unable to express any opinion in answer to any particular question, his Report shall indicate such fact, together with reasons why it is not possible for him to give an answer to such a question. 


Mnemonics to learn these Clauses' headings will be shared soon.

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