CARO vs. MAOCARO I. MAOCARO CLAUSES DELETED : (a) (b) (c) (d) (e) (f) II.

Revaluation of fixed assets. [Clause A(ii)] By products and scrap. [Clause A(xiv)] Damaged goods. [Clause A(xii)] Personal expenses. [Clause A(xix)] Receipt, issue and consumption of materials and allocation of manpower (Service companies) [Clauses B(ii) and (iii)] System of authorisation and internal control relating to Service companies. [Clause B(iv)]

NEW CLAUSES ADDED IN CARO : (a) Whether the company has defaulted in repayment of dues to a financial institution or bank or debenture holders? If so the period and amount of default to be reported. [Clause (xi)] Four sub-clauses have been added to the clause relating to chit funds. [Clause (xiii)] Whether the company has given any guarantee for loans taken by others from bank or financial institutions, the terms and conditions whereof are prejudicial to the interest of the company. [Clause (xv)] Commentary : The auditor is required to comment on whether the terms and conditions of any guarantee given by the company on behalf of any third party to a bank or a financial institution are prejudicial to the interest of the company. A strict reading would suggest that this clause will apply only in respect of guarantees relating to loans given by banks and financial institutions and not other parties. (d) (e) Whether term loans are applied for the purpose for which the loans were obtained. [Clause (xvi)] Whether the funds raised on short-term basis have been used for long term investment and vice versa; if yes, the nature and amount is to be indicated. [Clause (xvii)] Whether the company has made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act and if so whether the price at which shares have been issued is prejudicial to the interest of the company. [Clause (xviii)]
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(b) (c)

(f)

(g) (h) (i)

Whether securities have been created in respect of debentures issued. [Clause (xix)] Whether the management has disclosed on the end use of money raised by public issues and the same has been verified. [Clause (xx)] Whether any fraud on or by the company has been noticed or reported during the year; if yes, the nature and the amount involved is to be indicated. [Clause (xxi)] III. MAOCARO CLAUSES MODIFIED :

(a)

In the clause relating to fixed assets, sub-clause (c) has been added : if a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern. In the clause relating to stock, the word inventory has replaced specific reference to stock of stores, raw materials, finished goods in MAOCARO. Further, the reporting requirement regarding the valuation being fair and proper in accordance with the normally accepted accounting practice and consistent with the method followed in earlier year has been deleted. Commentary : The reference to inventory would require the auditor to report on work-in-progress also. This was hitherto not being reported upon. This clause covers only inventories covered by AS-2. The reporting requirement relating to valuation has been dropped, presumably, since the auditor is already reporting on compliance with AS-2 (valuation of inventory) and AS-1 (fundamental assumption of consistency).

(b)

(c)

The clauses of MAOCARO relating to loans granted to the parties listed in Section 301 register [clause A(viii) of MAOCARO], loans taken from such parties [clause A(vii) of MAOCARO] and loans and advances in the nature given by the company (clause A(ix) of MAOCARO] appear to have been combined in clause (iii) of CARO. Reference to companies under the same management as defined in Section 370(1B) has been deleted in CARO. Has the company either granted or taken any loans, secured or unsecured, to/from companies, firm or other parties listed in the register maintained under section 301 of the Act. If so, give the number of parties and the amount of involved in the transactions. [Clause (iii) (a) of CARO]
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Whether the rate and other terms and conditions of loans given or taken by the company, secured or unsecured, are prima facie prejudicial to the interest of the company. [Clause (iii) (b) of CARO] Whether payment of the principal amount and interest are also regular. [Clause (iii) (c) of CARO]. If overdue amount is more than one lakh, whether appropriate steps have been taken by the company for recovery/payment of the principal and interest: [Clause (iii) (d) of CARO] Commentary : This clause applies only to loans granted to or taken from parties listed in Section 301 Register. (d) In the clause relating to internal controls relating to purchases and sales, the auditor is now required to report whether there is a continuing failure to correct major weaknesses in internal control. [Clause (iv) of CARO] Clause A(xi) of MAOCARO relating to purchases/sale from/to companies in which the directors are interested has been changed as follows : (a) (b) Whether transactions that need to be entered into a register in pursuance of section 301 of the Act have been so entered; Whether each of these transactions have (sic) been made at prices which are reasonable having regard to the prevailing market prices at the relevant time; (This information is required only in case of transactions exceeding the value of five lakh rupees in respect of each party and in any one financial year.) [Clause (v) of CARO] (f) In clause A(xiii) of MAOCARO relating to acceptance of fixed deposits from the public, in addition to Section 58A, Section 58AA has also been referred in clause (vi) of CARO. Further, if order has been passed by Company Law Board whether the same has been complied with or not? is to be reported upon by the auditor. Whereas clause A(xv) of MAOCARO relating to internal audit was applicable only if the company had a paid-up capital exceeding Rs.25 lakhs at the beginning of the year or average turnover exceeding Rs.2 crores in the preceding three years, clause (vii) of CARO would cover : (1) all listed companies;
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(e)

(g)

(2) all companies having a paid-up capital and reserves exceeding Rs.50 lakhs at the commencement of the financial year concerned; (3) all companies having an average annual turnover exceeding five crore rupees for a period of three consecutive financial years immediately preceding the financial year concerned. (h) Clauses (xvii) and (xviii) of MAOCARO relating to payment of PF/ESI and undisputed income-tax, wealth tax, sales tax, excise duty, custom duty respectively have been merged in clause (ix) of CARO and the scope of reporting has been widened considerably by including all undisputed statutory dues and the definition given is an inclusive one and apart from specific reference to certain dues in the clause, there is a reference to any other statutory dues. Hence all statutory dues, central, state and local would need to be reported upon. In clause (ix) of CARO sub-clause (b) covers specified disputed dues also. In case of sales tax/income tax/custom tax/wealth tax/excise duty/cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending may please be mentioned. (A mere representation to the Department shall not constitute the dispute.) Clause A(xx) of MAOCARO relating to sick industrial undertakings has been replaced by clause (x) of CARO which makes no reference to SICA and, therefore, applies to all companies to which CARO applies instead of only industrial companies as hitherto under MAOCARO. The auditor is required to report whether in case of a company which has been registered for a period (of) not less than five years, its accumulated losses at the end of the financial year are not less than fifty percent of its net worth and whether it has incurred cash losses in such financial year and in the financial year immediately preceding such financial year also.

(i)

IV.

APPLICABILITY : (a) (b) The exemption granted to banks, insurance companies and Section 25 companies given in MAOCARO continues in CARO. Whereas, MAOCARO applied to all Manufacturing, Trading and Service companies, CARO would not apply to PRIVATE companies (1) with paid-up capital and reserves (note : not free reserves) (of) not more than fifty lakh rupees (2) which have not accepted any public deposit (3) which do not have loan outstanding (of) ten lakh rupees or more from any bank or financial institution (4) which do not have turnover exceeding five crore rupees.
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24 January, 2004