The Companies (Auditor’s Report) Order, 2020 (CARO 2020) would now be applicable for audits of financial years commencing on or after 1 April 2021 instead of 1 April 2020. The CARO 2020 has enhanced reporting requirements that aim to address the key concerns relating to the performance and operations of a company. For example, it requires specific reporting in relation to compliance requirements envisaged under the Companies Act, 2013 relating to related party transactions and non-cash transactions, if any entered into by a company. This is likely to demonstrate how companies are managing the vested interests without compromising on the corporate governance framework. Further, in order to assess and depict the liquidity position of a company, CARO 2020 requires an auditor to specifically comment on cash losses, if any incurred by it in a financial year and material uncertainty as to the company’s ability to meet its liabilities as and when they fall due. In this edition of Accounting and Auditing Update (AAU), we discuss these reporting requirements along with highlighting the related guidance provided by the Institute of Chartered Accountants of India (ICAI).
The varied levels of disclosures with respect to management interaction with analysts and institutional investors result in selective disclosure of information contributing to the information asymmetry and prejudicing the interests of relevant stakeholders. In this view, recently, the Securities and Exchange Board of India (SEBI) has deliberated on this topic and concluded that the current regulatory prescription under the SEBI (Listing Obligations and Disclosure Requirements) Regulations needs to be re-looked at along with further strengthening the disclosure regime. Accordingly, it has issued certain recommendations addressing the gaps of information asymmetry which thereby, would aid in promoting market parity and transparency. Our article on the topic summarises the recommendations made by SEBI regarding disclosures pertaining to analyst and investor meets and conference calls.
There have been various regulatory developments in India and internationally during the month. The norms relating to the enrolment of independent directors in the data bank have been revised and they ease the compliance requirements. Internationally, the International Accounting Standards Board (IASB) has issued a discussion paper which addresses the diversity in practice while accounting business combination under common control transaction in the financial statements prepared under the International Financial Reporting Standards (IFRS) framework. Our regulatory updates section provides an overview of these and other financial reporting updates in India and internationally.