1. Companies (Auditor’s Report) Order, 2016

2. Background Companies Act 1956 Section 227 (4A) of the Companies Act 1956, required that the auditor’s report of certain class of companies should include a statement on certain prescribed matters. These reporting requirements were prescribed under the Companies (Auditor’s Report) order 2003 by the Ministry of Corporate Affairs. Companies Act 2013 Section 227(4A) ceased to be effective from 01 st April 2014 after notification of section 143(11) under Companies Act 2013. MCA issued Companies (Auditor’s Report) Order, 2015 (CARO 2015) prescribing certain reporting requirement for auditors of certain class of companies. CURRENT STATUS On 30 th March 2016, MCA has issued CARO 2016 and is effective for FY 2015-2016 and it is applicable ONLY for standalone financial statements and not for Consolidated financial statements. 2

3. Non Applicability of CARO 2016 to select companies Following companies are exempt from CARO 2016 –a banking company –an insurance company –a company licensed to operate under Section 8 of Companies Act –a one person company as defined under clause (62) of Section 2 of Companies Act and a small company as defined under clause (85) of Section 2 of the Companies Act. –a private company a.not being subsidiary or holding company of a public company b.not having networth of more than Rs.1 crore as on balance sheet date c.not having borrowings exceeding Rs.1 crore from bank or financial institution at any point during the financial year d.not having total revenue as disclosed in Schedule III exceeding Rs.10 crores during the financial year as per the financial statement. 3

4. Reporting Areas- Comparison 4 S.N o. CARO 2016CARO 2015CARO 2003 1Fixed assets 2Inventories 3Loans to related parties 4Compliance with Section 185/186 of Companies Act 2013 Not included 5Compliance with Deposit Rules 6Maintenance of cost records 7Statutory dues 8Default in repayment of dues to FI/bank/Debenture 9Utilization of IPO proceeds/ Application of term loans Utilization of IPO proceeds not included Utilization of IPO proceeds/ Application of term loans 10Reporting on Fraud

5. Reporting Areas 5 S.No. CARO 2016CARO 2015CARO 2003 11Compliance with 197 for managerial remuneration Not included 12Compliance with Nidhi RulesNot includedCompliance with Nidhi Rules 13Compliance with Sec 177/188 on related party transactions Not includedParticulars of Contracts or arrangements referred in Section 301 14Preferential allotment –Section 42 compliance Not includedPreferential allotment 15Non-cash transactions with directors Not included 16Whether company registered under RBI Act Not included 17RemovedInternal control system 18RemovedAccumulated losses and cash losses 19RemovedGuarantees for loan taken by others 20Removed Internal audit system

6. Reporting Areas 6 S.No. CARO 2016CARO 2015CARO 2003 21Removed Advance granted on security of shares/other securties 22Removed Short term funds used for long term 23Removed Securities and charge on debenture issue

7. Fixed Assets 7 Area Fixed Assets CARO 2016 clause 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 arc held in the name of the company. lf not, provide the details thereof (NEW CLAUSE) CARO 2015 clause Same as clause a and clause b given in CARO 2016. DOCUMENTATION a.Updated fixed asset register with all details (Quantity/location/cost, depreciation, accumulated depreciation/WDV/Asset ID etc.) tallied with general ledger b.Evidence of physical verification and adjustment of differences c.Get a list of freehold immovable properties with name of property, location, extent, Cost as per accounts. List separately any leased properties included under Fixed assets also. Immovable property shown as Investment property or as Inventory need not be included.. If as per IND AS lands are not included under fixed assets list them separately as well though the requirement may not apply to them.

8. Inventories 8 Area Inventories CARO 2016 clause whether physical verification of inventory has been conducted at reasonable intervals by the management and whether any material discrepancies were noticed and if so, whether they have been properly dealt with in the books of account CARO 2015 clause a. whether physical verification of inventory has been conducted at reasonable intervals by the management; b. are the procedures of physical verification of inventory followed by the management reasonable and adequate in relation to the size of the company and the nature of its business. If not, the inadequacies in such procedures should be Reported c. whether the company is maintaining proper records of inventory and whether any material discrepancies were noticed on physical verification and if so, whether the same have been properly dealt with in the books of account DOCUMENTATION a.Evidence of physical verification and to comment whether monthly/quarterly/annual physical verification is reasonable b.Adjustment of discrepancies in financial statement

9. Loans to related parties 9 Area Loans to related parties CARO 2016 clause whether the company has granted any loans, secured or unsecured to companies, firms, Limited Liability partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013. If so: a.whether the terms and conditions of the grant of such loans are not prejudicial to the company's interest (NEW CLAUSE) b.whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are Regular c.if the amount is overdue, state the total amount overdue for more than ninety days, and whether reasonable steps have been taken by the company for recovery of the principal and interest (NEW CLAUSE) CARO 2015 clause whether the company has granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act. If so: a.whether receipt of the principal amount and interest are also regular b.If overdue amount is more than rupees one lakh, whether reasonable steps have been taken by the company for recovery of the principal and interest (REMOVED) DOCUMENTATION Get a copy of 189 register and verify the same. Check if repayment of interest and principal is regular. If overdue for more than 90 days, state the amount and steps taken for recovering the same.

10. Loans, Investments and Guarantees 10 Area Loans, Investments and Guarantees CARO 2016 clause in respect of loans, investments, guarantees, and security whether provisions of section 185 and I86 of the Companies Act, 2Ol3 have been complied with. If not, provide the details thereof (NEW CLAUSE) CARO 2015 clause Not included DOCUMENTATION Check compliance with Section 185 and Section 186 of Companies Act 2013. Refer PKF Company law checklist. Qualify if there is non-compliance with above sections.

11. Acceptance of Deposits 11 Area Acceptance of deposits CARO 2016 clause 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, 20 l3 and the rules framed thereunder, where applicable, have been complied with? If not, the nature of such contraventions be stated; lf an order has been passed by 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? CARO 2015 clause Same as above DOCUMENTATION a.Check for compliance with directives issued by RBI b.Check for compliance with Section 73-76 of Companies Act c.Check whether order has been passed by CLB/NCLT and examine steps taken by company to comply with the order.

12. Maintenance of cost records 12 Area Maintenance of cost records CARO 2016 clause whether maintenance of cost records has been specified by the Central Government under sub-section (1) of section l48 of the Companies Act, 2013 and whether such accounts and records have been so made and maintained. CARO 2015 clause Same as above DOCUMENTATION Verify whether proper cost accounts and records are made and maintained by the Company as prescribed

13. Statutory dues 13 Area Statutory dues CARO 2016 clause a.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 any 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 became payable, shall be indicated b.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. CARO 2015 clause Same as above. Following clause has been removed whether the amount required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made thereunder has been transferred to such fund within time DOCUMENTATION a.Obtain list of statutory dues company is required to deposit regularly. b.Check due date and actual remittance date for all statutory dues and conclude if there are delays in remittance. c.Check if there are any arrears as on balance sheet date and whether the arrears are outstanding for more than six months as on balance sheet date. d.Identify legal tax related disputes by review of internal audit reports, board minutes. Disclose legal tax disputes in the CARO report.

14. Defaults in repayment of Loan borrowed 14 Area Default in repayment of loan borrowed CARO 2016 clause whether the company has defaulted in repayment of loans or borrowing to 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). CARO 2015 clause Same as above. DOCUMENTATION a.All defaults as on balance sheet date has to be reported b.If application of re-schedulement of loan has been made/accepted or default has been made good during the accounting period, whether the fact has been stated. c.Where there is dispute between lender and borrower, ensure that we comment saying we are unable to determine whether there is default in repayment of dues to lender concerned d.Specifically, disclose lender wise details of period and amount of default to bank/FI or Government.

15. Application of funds received from IPO/loans 15 Area Application of funds received from IPO/Loans CARO 2016 clause whether moneys 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 CARO 2015 clause whether term loans were applied for the purpose for which the loans were obtained; DOCUMENTATION Check and take copies of the documents like Prospectus which state the purpose for which money is raised. Ensure the actual spending is in line for each such purpose. Check Board minutes /agenda where the reporting for such expenditure has been made and take excerpts. List exceptions and report.

16. Reporting on Frauds 16 Area Reporting on Frauds CARO 2016 clause 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 CARO 2015 clause 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 DOCUMENTATION Review internal audit reports enquire from the management about any frauds on or by the company that it has noticed or that have been reported to it. Examine the minutes of the book of the board meeting, audit committee etc., of the company in this regard.

17. Managerial Remuneration 17 Area Managerial Remuneration CARO 2016 clause whether managerial remuneration has been paid or provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Companies Act? If not, state the amount involved and steps taken by the company for securing refund of the same (NEW CLAUSE) CARO 2015 clause Not included DOCUMENTATION Check managerial remuneration account as well as related perks accounts Check with resolutions of Remuneration committee, Board and Members as applicable (and CG approval if any) Check Secretarial audit report. State steps taken by company to get refund of excess moneys paid which could be mails, letters and where there is dispute legal notice sent etc

18. Nidhi Companies 18 Area Nidhi Companies CARO 2016 clause 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. (NEW CLAUSE) CARO 2015 clause Not included DOCUMENTATION IN case of Nidhi company check out the above matters and report; In other companies state ‘this clause is not applicable as it is not a Nidhi co.

19. Related party transactions 19 Area Related party Transactions CARO 2016 clause whether all transactions with the related parties are in compliance with section 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in the Financial Statements etc.. as required by the applicable accounting standards (NEW CLAUSE) CARO 2015 clause Not included DOCUMENTATION Ensure transactions have been below the limits if any specified by AC/Board Where there are deviations report Cross refer disclosures of RPT as per Accounting standards in FS Do a reco. between AS and what is disclosed in Board report.

20. Preferential allotment 20 Area Preferential Allotment CARO 2016 clause 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: (NEW CLAUSE) CARO 2015 clause Not included DOCUMENTATION Applicable only if there has been a preferential allotment or private placement of shares of PCD or FCD. If so, check compliance with S 42 and document the same here. Check purpose of issue and see if complied with. List all exceptions and report

21. Non-cash transactions with Directors 21 Area Non-cash transactions CARO 2016 clause whether the company has entered into any non-cash transactions with directors or persons connected with him and if so, whether the provisions of section 192 of Companies Act, 2013 have been complied with (NEW CLAUSE) CARO 2015 clause Not included DOCUMENTATION Check whether there are acquisitions of assets by Company from a director /connected persons or Acquisitions of assets by director/connected persons from company and consideration is non cash (like issue of shares etc) Check Board minutes, AC minutes etc Check if Members’ resolution has been passed as required by Section and take a copy. If not complied with report

22. Registration under RBI Act 22 Area Registration under RBI Act CARO 2016 clause whether the company is required to be registered under section 45 IA of the Reserve Bank of India Act, 1934 and if so, whether the registration has been obtained (NEW CLAUSE) CARO 2015 clause Not included DOCUMENTATION Mainly Applicable for NBFC. If registered get a copy of Registration certificate. In some cases whether registration is required is itself a contentious matter and if so request Company to obtain a legal opinion

23. Thank You!