Govt revises rules for enhanced disclosures in auditor reports of companies

Auditors will soon be required to provide details about companies' defaults on borrowings in a prescribed format as well as ensure disclosure of various other information in their reports, with the government putting in place a stricter framework.

The corporate affairs ministry has notified the Companies (Auditor's Report) Order, 2020 (CARO, 2020). It would be applicable for audit of financial statements of eligible companies for the financial years commencing on or after April 1, 2019.

"CARO 2020 would necessitate enhanced due diligence and disclosures on the part of auditors of eligible companies and has been designed to bring in greater transparency in the financial state of affairs of such companies," the ministry said in a release on Wednesday.

Among other requirements, a specific format has been prescribed for auditors to report the period and the amount of default by the company in repayment of loans or other borrowings or in the payment of interest thereon to any lender.

The ministry noted that the latest CARO is expected to significantly improve the overall quality of reporting by auditors on the financial statements of the companies.

This would "lead to greater transparency and faith in the financial affairs of the companies. This is automatically expected to greater inflow of investment by and in Indian companies," it added.