8 CARO, 2020

1 In which of the following companies, auditor is not required to report on matters specified under
CARO, 2020:
(a) private limited company, which is a subsidiary company of a public company having a paid-up capital
and reserves and surplus not more than rupees one crore as on the balance sheet date.
(b) private limited company, which is a holding company of a public company, which does not have total
borrowings exceeding rupees one crore from any bank or financial institution at any point of time during
the financial year.
(c) Both (a) and (b)
(d) None of the above
2 In which of the following companies, auditor is required to report on matters specified under CARO,
2020:
(a) Foreign company.
(b) Small Company.
(c) One Person company.
(d) None of the above.
3 A private limited company, in order to be covered under CARO, 2020, must satisfy which of the
following conditions:
(a) total borrowings exceeding rupees ten crores from any bank or financial institution at any point of time
during the financial year.
(b) total borrowings exceeding rupees one crore from any bank or financial institution as on the balance
sheet date.
(c) total borrowings exceeding rupees ten crores from any bank or financial institution as on balance sheet
date.
(d) total borrowings exceeding rupees one crore from any bank or financial institution at any point of time
during the financial year.
4 Astha Pvt. Ltd. which is a subsidiary company of Kiran Pvt. Ltd., has fully paid capital of ₹ 40 lakh.
During the year, the company had borrowed ₹ 55 lakh each from a bank and a financial institution
independently. It has the turnover of ₹ 175 lakhs.
(a) CARO is not applicable as Astha Pvt. Ltd. is a Small Company.
(b) CARO is applicable as total borrowings exceeds ₹ 1 Cr.
(c) CARO is not applicable as Astha Pvt. Ltd. is a subsidiary company of another Pvt. Ltd.
(d) CARO is applicable as turnover exceeds ₹ 1 Cr.
5 CARO, 2020 is applicable over a private limited company, having paid-up capital and reserves and
surplus is ₹ 1 crore or more as on the balance sheet date. For this purpose:
(a) Paid-up share capital would include equity share capital only.
(b) Amount of calls unpaid should be added to the figure of paid-up capital.

8.1
CARO, 2020 Chapter 8
(c) Amount originally paid-up on forfeited shares should be added to the figure of paid-up capital.
(d) Share application money received should be considered as part of the paid-up capital.
6 Para 3(i)(b) of CARO, 2020 requires auditor to report “Whether the property, plant and equipment
have been physically verified by the management at reasonable intervals”. What constitutes
“reasonable intervals” depends upon the circumstances of each case. The management may decide
about the periodicity of physical verification of fixed assets considering the relevant factors. While an
annual verification may be reasonable, it may be impracticable to carry out the same in some cases. In
such cases:
(a) the verification programme should be such that more than 50% of the assets are verified every year.
(b) the verification programme should be such that more than 50% of the assets are verified at least once in
every three years.
(c) the verification programme should be such that all assets are verified every year.
(d) the verification programme should be such that all assets are verified at least once in every three years.
7 Para 3(vi) of CARO, 2020 requires the auditor to report whether maintenance of cost records has been
specified by the C.G. u/s 148(1) of the Companies Act, 2013 and whether such accounts and records
have been so made and maintained. The word “made” applies in respect of ____________________ and the
word “maintained” applies in respect of _________________.
(a) Cost Statements; Cost Accounts
(b) Cost records relating to materials, labour, overheads, etc.; Cost Statements.
(c) Cost Statements; Cost records relating to materials, labour, overheads, etc.
(d) Cost records relating to materials, labour, overheads, etc; Cost Accounts.
8 Para 3(vi) of CARO, 2020 requires the auditor to report whether maintenance of cost records has been
specified by the C.G. u/s 148(1) of the Companies Act, 2013 and whether such accounts and records
have been so made and maintained. For this purpose, auditor should:
(a) a detailed examination of such records.
(b) conduct a general review of the cost records.
(c) rely only on written representation received from the management stating that cost records are being
made and maintained.
(d) any of the above.
9 Para 3(xi) of CARO, 2020 requires the auditor to report on various fraud noticed or reported during
the year. Which of the following frauds are covered in Para 3(x)?
(a) Fraud by the company.
(b) Fraud on the company.
(c) Both (a) and (b) above.
(d) None of the above.
10 When reporting under CARO, 2020, auditor is required to state in case of Nidhi Companies, whether
the Nidhi company has complied with:
(a) Net Owned funds to total debts in the ratio of 1:20.
(b) Net Owned funds to deposits in the ratio of 1:20.
(c) Net Owned funds to total debts in the ratio of 1:10.
(d) Net Owned funds to deposits in the ratio of 1:10.

8.2
Chapter 8 CARO, 2020
11 When reporting under CARO, 2020, auditor is required to state in case of Nidhi Companies, whether
the Nidhi company has complied with Net Owned Funds to Deposits liability in the ratio of 1:20. For
this purpose, the deposit liability consists of:
(a) Fixed Deposits and Recurring Deposits received from its members.
(b) Fixed Deposits and Saving Deposits received from its members.
(c) Recurring Deposits and Saving Deposits received from its members
(d) Fixed Deposits, Recurring Deposits and Saving Deposits received from its members.
12 As per Para 3(xv) of CARO, 2020, auditor is required to report as to compliance of Section 192 of
Companies Act, 2013, if:
(a) Company has entered into cash transactions with the directors or persons connected with him.
(b) Company has entered into non-cash transactions with the employees of the company or persons
connected with them.
(c) Company has entered into non-cash transactions with the directors or persons connected with him.
(d) Company has entered into cash transactions with the employees of the company or persons connected
with them.
13 Auditor’s report under CARO, 2020 in terms of Para 3(xvi) shall incorporate:
(a) Registration number of company under Companies Act, 2013
(b) Registration number of company allotted by RBI.
(c) Both of the above
(d) None of the above.
14 As per Clause (i)(a) of Paragraph 3 of the CARO, 2020, the auditor is required to report on:
(a) whether the title deeds of immovable properties are held in the name of the company. If not, provide the
details thereof.
(b) whether physical verification of inventory has been conducted at reasonable intervals by the
management; and whether any material discrepancies were noticed on physical verification and if so,
whether the same have been properly dealt with in the books of account.
(c) whether any fraud by the company or any fraud on the Company by its officers or employees has been
noticed or reported during the year; If yes, the nature and the amount involved is to be indicated.
(d) whether the company is maintaining proper records showing full particulars, including quantitative
details and situation of property, plant and Equipment.
15 Which of the following dues are required to be reported under Clause (vii) of Paragraph 3 of CARO,
2020?
(a) amount payable to creditors for purchase of goods.
(b) annual performance bonus payable to employees.
(c) State Government taxes
(d) none of the above
16 If a company is not regular in deposit of statutory dues to the appropriate authorities, auditor need to
report on arrears of outstanding dues as at the last day of the financial year concerned for a period of:
(a) more than 90 days from the date they became payable.
(b) more than 6 months from the date they became payable.
(c) more than 90 days from the reporting date.
(d) more than 6 months from the reporting date.

8.3
CARO, 2020 Chapter 8
17 A company has not deposited the employees provident fund with the authorities due to existence of
some dispute. Dispute is pending in Court of Law. Non-payment of employees provident fund due to
dispute is required to be reported by the auditor:
(a) under Clause (vii)(a) of Para 3 of CARO, 2020.
(b) under Clause (vii)(b) of Para 3 of CARO, 2020.
(c) under Clause (viii) of Para 3 of CARO, 2020.
(d) none of the above.
18 A company has defaulted in repayment of loans or borrowings to a NBFC. Auditor is required to report
the period and amount of the default:
(a) under Clause (vii)(a) of Para 3 of CARO, 2020.
(b) under Clause (vii)(b) of Para 3 of CARO, 2020.
(c) under Clause (ix) of Para 3 of CARO, 2020.
(d) no reporting required, as default of dues of NBFC are not covered in CARO, 2020.
19 Under Clause (x) of Paragraph 3 of CARO, 2020, auditor is required to report the application of money
raised through __________________ for the purposes for which those are raised.
(a) Initial Public Offer or Further Public Offer (excluding debt instruments).
(b) Initial Public Offer or Further Public Offer (including debt instruments).
(c) Initial Public Offer or Further Public Offer (excluding debt instruments) and term loans.
(d) Initial Public Offer or Further Public Offer (including debt instruments) and term loans.
20 While reporting under Clause (xi) of Para 3 of CARO, 2020, with respect to fraud, auditor is required to
report on:
(a) fraud noticed and reported during the year.
(b) fraud suspected during the year.
(c) both (a) and (b) above.
(d) none of the above.
21 For the purposes of reporting under Clause 3(xii) of CARO, 2020, the term net owned fund means:
(a) aggregate of paid up equity share capital and preference share capital as reduced by accumulated losses
and intangible assets appearing in the last audited balance sheet.
(b) aggregate of paid up equity share capital, preference share capital and free reserves as reduced by
accumulated losses and intangible assets appearing in the last audited balance sheet.
(c) aggregate of called up capital and free reserves as reduced by accumulated losses and intangible assets
appearing in the last audited balance sheet.
(d) aggregate of paid up equity share capital and free reserves as reduced by accumulated losses and
intangible assets appearing in the last audited balance sheet.
22 As per Clause (xiii) of Paragraph 3 of the CARO, 2020, the auditor is required to report on:
(a) Whether all transactions with the related parties are in compliance with Sections 177 and 188 of
Companies Act, 2013 where applicable .
(b) Whether the company has made any preferential allotment or private placement of shares or fully or
partly convertible debentures during the year under review.
(c) Whether the company has entered into any non-cash transactions with directors or persons connected
with him and if so, whether provisions of Section 192 of Companies Act, 2013 have been complied with.
(d) None of the above.

8.4
Chapter 8 CARO, 2020
23 As per Clause (xiv) of Paragraph 3 of the CARO, 2020, the auditor is required to report on:
(a) Whether all transactions with the related parties are in compliance with Sections 177 and 188 of
Companies Act, 2013 where applicable
(b) Whether the company has an internal audit system commensurate with the size and nature of its
business.
(c) Whether the company has made any preferential allotment or private placement of shares or fully or
partly convertible debentures during the year under review and if so, as to whether the requirement of
Sec. 42 of the Companies Act, 2013 have been complied.
(d) Whether the company has entered into any non-cash transactions with directors or persons connected
with him and if so, whether provisions of Section 192 of Companies Act, 2013 have been complied with.
24 Which clause of CARO, 2020 requires the auditor to report whether the company is required to be
registered under section 45-IA of the Reserve Bank of India Act, 1934. If so, whether the registration
has been obtained.
(a) Under Clause (xi) of paragraph 3 of the CARO, 2020.
(b) Under Clause (xvi) of paragraph 3 of the CARO, 2020.
(c) Under Clause (xv) of paragraph 3 of the CARO, 2020.
(d) Under Clause (xiv) of paragraph 3 of the CARO, 2020.
25 While carrying out audit of ABC Ltd, auditor observed that a term loan was obtained by the company
from a bank for ₹75 lakhs for acquiring R&D equipment, out of which ₹12 lakhs were used to buy a car
for use of the concerned director, who was overlooking the R&D activities. Auditor is required to
report the matter:
(a) Under Clause (vii) of paragraph 3 of the CARO, 2020.
(b) Under Clause (viii) of paragraph 3 of the CARO, 2020.
(c) Under Clause (ix) of paragraph 3 of the CARO, 2020.
(d) No reporting required under the requirements of CARO, 2020.
26 While carrying out audit of ABC Ltd, auditor observed that the company has taken a term loan from a
nationalized bank in 2016 for ₹200 lakhs repayable in five equal instalments of ₹40 lakhs from
31.03.2017 onwards. It had repaid the loans due in 2017 & 2018, but defaulted in 2012, 2020 & 2021.
Auditor is required to report the matter:
(a) Under Clause (vii) of paragraph 3 of the CARO, 2020.
(b) Under Clause (viii) of paragraph 3 of the CARO, 2020.
(c) Under Clause (ix) of paragraph 3 of the CARO, 2020.
(d) Both (b) and (c).
27 Big and Small Ltd. received a show cause notice from central excise department intending to levy a
demand of ₹25 lakhs in December 2020. The company replied to the above notice in January 2021
contending that it is not liable for the levy. No further action was initiated by the central excise
department upto the finalization of the audit for the year ended on 31 March, 2021. Auditor is
required to report the matter:
(a) Under Clause (vi) of paragraph 3 of the CARO, 2020.
(b) Under Clause (vii) of paragraph 3 of the CARO, 2020.
(c) Under Clause (viii) of paragraph 3 of the CARO, 2020.
(d) No reporting required under the requirements of CARO, 2020.

8.5
CARO, 2020 Chapter 8
28 Reporting under CARO, 2020 will be required in case of which companies:
(a) X Pvt. Ltd. which is a subsidiary of ABC Ltd. a listed company.
(b) X Pvt. Ltd. which is a One-person company, having paid up capital of ₹105 Lacs.
(c) X Pvt. Ltd. which is a Small Company, having outstanding borrowings from banks in excess of ₹1 Cr.
(d) All of the above.
29 In which of the following companies, auditor is required to report on matters specified under CARO,
2020:
(a) Private limited company, which is a holding company of a public company having a paid-up capital and
reserves and surplus not more than rupees one crore as on the balance sheet date.
(b) Private limited company, which is a subsidiary company of a public company, which does not have total
borrowings exceeding rupees one crore from any bank or financial institution at any point of time during
the financial year.
(c) Both (a) and (b)
(d) None of the above
30 Under Clause (ix)(c) of Paragraph 3 of CARO, 2020, auditor is required to report whether the term
loans were applied for the purposes for which the loans were raised. Term loans for this purpose
includes:
(a) Term loans obtained from banks and financial institutions
(b) Term loans obtained from entities/person other than banks and financial institutions.
(c) Term loans obtained from Scheduled banks only.
(d) Term loans obtained from banks and financial institutions as well as from entities/person other than
banks and financial institutions.
31 Para 3(xi) of CARO, 2020, requires the auditor to report the nature and amount of fraud in relation to:
(a) any fraud by the company and any fraud on the Company by its officers/employees suspected and
reported during the year.
(b) any fraud by the company and any fraud on the Company by its officers/employees noticed or reported
during the year.
(c) any fraud on the company and any fraud by the Company suspected and reported during the year.
(d) any fraud on the company and any fraud by the Company noticed or reported during the year.
32 The Property, Plant and Equipment of Amir Ltd. included ₹25.75 crores of earth removing machines of
outdated technology which had been retired from active use and had been kept for disposal after
knock down. These assets appeared at residual value and had been last inspected ten years back.
Auditor is required to report the matter:
(a) Under Clause (i) of paragraph 3 of the CARO, 2020.
(b) Under Clause (ii) of paragraph 3 of the CARO, 2020.
(c) Under Clauses (i) and (ii) of paragraph 3 of the CARO, 2020.
(d) No reporting required under the requirements of CARO, 2020.
33 While carrying out audit of ABC Ltd, auditor observed that the company had obtained a Term Loan of
₹300 lakhs from a bank for the construction of a factory. Since there was a delay in the construction
activities, the said funds were temporarily invested in short term deposits. Auditor is required to
report the matter:

8.6
Chapter 8 CARO, 2020
(a) Under Clause (vii) of paragraph 3 of the CARO, 2020.
(b) Under Clause (viii) of paragraph 3 of the CARO, 2020.
(c) Under Clause (ix) of paragraph 3 of the CARO, 2020.
(d) No reporting required under the requirements of CARO, 2020.
34 Company auditor is required to report “Whether the Nidhi Company has complied with the Net Owned
Fund to Deposits in the ratio of 1:20 to meet out the liability and whether the Nidhi Company is
maintaining 10% unencumbered term deposits as specified in the Nidhi Rules, 2014 to meet out the
liability”. This reporting requirement is prescribed by:
(a) Sec. 143(1) of Companies Act, 2013
(b) Para 3 of NBFC Auditor’s Report (Reserve Bank) Directions, 2020
(c) Para 3(xii) of Companies (Auditor’s Report) Order, 2020
(d) Para 3(xvi) of Companies (Auditor’s Report) Order, 2020
35 H Ltd. granted unsecured loan of ₹1 crore @ 15% p.a. to two of its subsidiaries during the Financial
Year 2020-21. Before the year end both the companies repaid the loan. The management of H Ltd. is of
the opinion that since no balance is outstanding as on 31 March 2021, these loans are not required to
be reported in CARO 2020. Auditor is required to report the matter:
(a) Under Clause (iii) of paragraph 3 of the CARO, 2020.
(b) Under Clause (iv) of paragraph 3 of the CARO, 2020.
(c) Under Clause (vi) of paragraph 3 of the CARO, 2020.
(d) No reporting required under the requirements of CARO, 2020.
36 During the course of audit of ABC Ltd. it is noticed that out of ₹12 Lacs of provident fund contribution
accounted in the books, only ₹2 Lacs has been remitted to the authorities during the year. On enquiry
the Chief Accountant informed that due to financial problems they have not remitted but will remit
the same as and when the position improves. Auditor is required to report the matter:
(a) Under Clause (vi) of paragraph 3 of the CARO, 2020.
(b) Under Clause (vii) of paragraph 3 of the CARO, 2020.
(c) Under Clause (viii) of paragraph 3 of the CARO, 2020.
(d) No reporting required under the requirements of CARO, 2020.
37 C Limited has defaulted in repayments of dues to a financial institution during the financial year 2020-
21 and the same remained outstanding as at March 31, 2021. However, the Company settled the total
outstanding dues including interest in April, 2021 subsequent to the year end and before completion
of the audit. Auditor is required to report the matter:
(a) Under Clause (vii) of paragraph 3 of the CARO, 2020.
(b) Under Clause (viii) of paragraph 3 of the CARO, 2020.
(c) Under Clause (ix) of paragraph 3 of the CARO, 2020.
(d) Both (b) and (c).
38 During the financial year ended on 31/03/2021, LM Private Limited had borrowed from a
Nationalized Bank, a term loan of Rs. 120 lakhs consisting of Rs. 100 lakhs for purchase of a machinery
for the new plant and Rs. 20 lakhs for erection expenses. As on the date of 31 March, 2021, the total of
capital and free reserves of the Company was Rs. 50 lakhs and turnover for the year 2020-21 was Rs.
750 lakhs. The Bank paid Rs. 100 lakhs to the vendor of the Company for the supply of machinery on
31/12/2020. The machinery had reached the yard of the Company. On 28/02/2021, the Company had
drawn the balance of loan viz. Rs. 20 lakhs to the credit of its current account maintained with the

8.7
CARO, 2020 Chapter 8
Bank and utilized the full amount for renovating its administrative office building. The machinery had
been kept as capital stock under construction. Auditor is required to report the matter:
(a) Under Clause (vii) of paragraph 3 of the CARO, 2020.
(b) Under Clause (viii) of paragraph 3 of the CARO, 2020.
(c) Under Clause (ix) of paragraph 3 of the CARO, 2020.
(d) No reporting required under the requirements of CARO, 2020.
39 One of your team members has recently qualified as a chartered accountant and joined your team to
audit a portfolio of audit clients who are private companies. One of the clients, ABC Pvt. Ltd. is a
jeweller in the small town near Jaipur. The revenue generated for the current year ended is ₹10.5
crores and the entity is not a holding or subsidiary of any public company. Your team member is keen
to know whether ABC Pvt. Ltd is required to comment on the matters prescribed under CARO 2020.
Advise.
(a) No requirement to comment on the matters prescribed under CARO 2020 as the entity’s revenue exceeds
₹10 crores.
(b) No requirement to comment on the matters prescribed under CARO 2020 as the entity is not a holding or
subsidiary of any public company.
(c) Requirement to comment on the matters prescribed under CARO 2020 exist as the entity’s revenue
exceeds the limit of ₹10 Cr.
(d) Requirement to comment on the matters prescribed under CARO 2020 exist as it is not a holding or
subsidiary of any public company.

Questions asked from RTPs, MTPs and Past Exams (Memory Based) of ICAI
40 You are the audit in charge of audit of Surya Pvt. Ltd. which is running a hotel in a small town. The
revenue generated for the current year ended is ₹10.5 crores and the entity is not a holding or
subsidiary of any public company. The owner of the business Mr. Ram Hazoor runs this family
business from last 10 years. Your team member is keen to know whether there is a requirement to
report on the matter prescribed under CARO 2020.
Which of your explanations to him are correct?
(a) The entity’s revenue exceeds ₹10 crores. Hence, no need to comment on the matter prescribed under
CARO 2020.
(b) The entity is not a holding or subsidiary of any public company, hence no need to comment on the matter
prescribed under CARO 2020.
(c) The entity’s revenue for the year is ₹10.5 crores which exceed the limit of ₹10 crores. Hence, there is a
requirement to report under CARO, 2020.
(d) The entity is not a holding or subsidiary of any public company, hence there is a need to comment on the
matter prescribed under CARO 2020.

8.8
Chapter 8 CARO, 2020

Answers
1 (d) 10 (b) 19 (b) 28 (a) 37 (c)

2 (a) 11 (d) 20 (a) 29 (c) 38 (c)

3 (d) 12 (c) 21 (d) 30 (d) 39 (c)

4 (b) 13 (d) 22 (a) 31 (d) 40 (c)

5 (c) 14 (d) 23 (b) 32 (a)

6 (d) 15 (c) 24 (b) 33 (c)

7 (c) 16 (b) 25 (c) 34 (c)

8 (b) 17 (d) 26 (c) 35 (a)

9 (c) 18 (c) 27 (b) 36 (b)

8.9
8.10