The Ministry of Corporate Affairs (MCA) has notified the companies order, 2020. The government has put in place a stringent framework where auditors will have to provide detailed disclosures about loan defaults, amount of cash losses and immovable properties. Amit Tandon, managing director of IiAS and Sudhir Soni, national director and partner-assurance services at SR Batliboi & Co spoke to CNBC-TV18 about the order.

Soni said: “The Companies Auditor's Report Order (CARO) has always been in existence. What this order has done is significantly enhanced the scope of reporting. It is in response to many of the corporate events that have taken place recently and if I pick up the topics, it is the diversion of funds non-performing assets and corporate frauds, so it is trying to address some of these topics with more disclosure around that. So the number of report requirements goes up from about 28 to 50 topics.

“If I were to flesh it out as to what are the major topics that they are trying to address, the largest attention is on financing and investing activities of a company from both perspectives both as a borrower and as a lender. Some of the other topics they are paying attention to is fraud. There is a lot of attention to fraud and enhancing the kind of responsibilities that auditors have to look into topics around that and also compliance.

He added: “I don’t think this order is directed around audit quality. This order tried to bridge some of what we call the expectation gaps between what auditors are expected to do or what society wants from auditors and what the standards require the auditors to do. So it’s trying to bridge the expectation gap.”

Tandon said that some of the changes that the order brings about are welcome and bring greater clarity.

“It works well for banks when you are asking for quarterly statements need to be certified by auditor before they are submitted to the banks particularly for smaller companies who have historically been known to maintain two sets of accounts. They need to look at it closely at inventory auditors are supposed to look at where there are instances. So some of these are easy things to do, some of these are fairly difficult things to do,” said Tandon.

He added: “One of the big changes as a consequence of this is that while a lot of it is aimed at the bankers, for the equity holders some of this information is out there. You get a far better picture with regard to the liquidity which is there for the companies. Having said so, all of these are welcome steps,” he further added.