The Ministry of Corporate Affairs (MCA) is expected to take a major step to revamp the auditor’s report that accompanies company balance-sheets, placing more onus on statutory auditors to fulfill their professional responsibilities. The move is expected in February.

Besides overhauling the Companies Auditors Report Order (CARO), the government is also likely to make changes to the secretarial audit reporting that is mandated under the company law, sources said.

The entire effort will be to provide early-warning signals to policy-makers and regulators of impending disasters in corporates, they said.

Indications are that the MCA may even ask statutory auditors to digitally file the new CARO instead of waiting for the auditor report to form part of the annual report.

The aim is to tighten the working of auditors and also push managements to conform to more elaborate disclosures on their state of affairs.

Draft recommendations

Already, an MCA-appointed Group, which was tasked to look into the current CARO and suggest changes, has submitted the draft recommendations to the Corporate Affairs Ministry. The National Financial Reporting Authority — the regulator of the audit profession — is likely to meet this month-end to deliberate on the changes needed to the existing CARO, the sources said.

Once the NFRA firms up its views and conveys them to the MCA, the new CARO is expected to get notified in February, they added.

The audit profession, which had an exceptionally challenging year in 2019, is hoping that unlike in 2016, when CARO was last revised, the Government will give it enough time to conform to the new norms.

In 2019, the audit fraternity came in for severe criticism for its role in the blowout of IL&FS, collapse of Dewan Housing & Finance Ltd, and the crisis at PMC Bank. Several large divergences were also observed in the audited accounts of YES Bank, SBI and other banks. Year 2019 also saw a spate of resignations by both statutory and internal auditors.

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