Reporting under CARO | Significant Observations of FRRB of ICAI

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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(xi), (xiii) & (xiv) of CARO in reporting of Approval of Managerial Remuneration, Related Party Transactions, and Private placement of Preferential Issues 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. Certain observations along with the reporting done by the auditors on para 3(xi), (xiii) & (xiv) of CARO 2016 has been discussed in the story:

1. Matter contained in the Auditor’s Report: In our opinion and according to the information and explanation given to us, the related party transactions are in compliance with section 177 and 188.

2. Relevant Provision: 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.

3. FRRB Observation: The auditor has stated that transactions with related parties are in compliance with the section 177 and 188 of the Companies Act, 2013, however, he has not reported as to whether these transactions with the related parties were disclosed in the financial statement in compliance with the applicable accounting standards.

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