The real estate industry in India is a significant contributor to the country's economy, providing
employment opportunities and contributing to GDP growth. Within this dynamic sector, chartered
accountants (CAs) play a crucial role in ensuring financial integrity, compliance, and strategic
decision-making for real estate companies. In this blog post, I will explore the impact of chartered
accountants in the real estate industry in India.

Ø Financial Management: Chartered accountants bring their expertise in financial
management to the real estate industry. They help real estate companies estimate correct
financial needs for a financial closure, maintain accurate financial records, prepare
financial statements, and monitor financial health. CAs analyze cash flow, manage budgets,
and provide recommendations for cost optimization and financial stability. Their insights
enable companies to make informed financial decisions and enhance profitability.
Ø Taxation and Compliance: Real estate transactions involve complex tax implications, and
chartered accountants are instrumental in navigating the tax landscape. CAs assist with tax
planning, compliance with direct and indirect tax regulations, and ensuring timely filing of
returns. They help real estate companies optimize tax liabilities, claim applicable
deductions and exemptions, and manage Goods and Services Tax (GST) compliance. Their
expertise minimizes the risk of non-compliance and potential legal consequences.
Ø Audit and Assurance: Chartered accountants play a critical role in auditing and providing
assurance services in the real estate industry. They conduct internal and statutory audits to
assess the accuracy and reliability of financial information. CAs verify adherence to
accounting standards, identify control weaknesses, and offer recommendations for
improvement. Their independent assessment strengthens investor confidence, facilitates
due diligence, and enhances transparency within the industry.
Ø Funding and Investment: Real estate projects often require substantial funding, and
chartered accountants assist in securing financing and attracting investments. CAs prepare
financial models, feasibility studies, and investment proposals, which provide potential
investors with insights into the project's viability. They help real estate companies structure
financial transactions, negotiate terms with financial institutions, and evaluate the financial
impact of funding options. Chartered accountants also contribute to risk assessment and
mitigation strategies, enabling prudent investment decisions.
Ø Regulatory Compliance: The real estate sector in India is subject to various regulatory
frameworks, including the Real Estate (Regulation and Development) Act (RERA).
Chartered accountants support real estate companies in complying with RERA guidelines,
assisting in registration, document preparation, and financial disclosures. CAs ensure that
companies adhere to disclosure norms, maintain escrow accounts, and fulfill regulatory
obligations, enhancing transparency and protecting the interests of homebuyers.
Ø Due Diligence and Valuation: Chartered accountants conduct due diligence exercises and
valuation assessments, assisting in mergers, acquisitions, and joint ventures within the real
estate industry. They review financial statements, assess risks, and provide insights into
the financial health and potential of target companies. CAs evaluate assets, liabilities, and
cash flows, enabling informed decision-making during negotiations. Their expertise helps
mitigate financial and legal risks associated with real estate transactions.

Conclusion: Chartered accountants play a vital role in the Indian real estate industry by ensuring
financial integrity, compliance, and strategic decision-making. Their expertise in financial
management, taxation, audit, funding, regulatory compliance, due diligence, and valuation is
instrumental in driving the industry's growth and maintaining investor confidence. Real estate
companies benefit from the guidance and support of chartered accountants, who contribute to their
financial stability, transparency, and long-term success. The partnership between chartered
accountants and the real estate sector is essential for fostering a robust and sustainable real estate
ecosystem in India.

CA. Dinesh Kumar Malik (dinesh@vsda.in)
Senior Partner,
VSD & Associates
Chartered Accountants,
DD 34, Basement, Kalkaji,
New Delhi – 110 019

www.vsda.in

Applicability of CARO 2020

CARO 2020 is applicable for all statutory audits commencing on or after 1 April 2021 corresponding to the financial year 2020-21. The order is applicable to all companies which were covered by CARO 2016. Accordingly, the order applies to all the companies except the following companies specifically excluded from its purview:

• One person company.
• Small companies (Companies with paid up capital less than/equal to Rs 50 lakh and with a last reported turnover which is less than/equal to Rs 2 crore).
• Banking companies.
• Companies registered for charitable purposes.
• Insurance companies.
• The following private companies are also exempt from the requirements of CARO, 2020: 
• Whose gross receipts or revenue (including revenue from discontinuing operations) is less than or equal to Rs 10 crore in the financial year.
• Whose paid-up share capital plus reserves is less than or equal to Rs 1 crore as on the balance sheet date (i.e., usually at the end of the FY).
• Not a holding or subsidiary of a public company.
• Whose borrowings is less than or equal to Rs 1 crore at any time during the FY.

Reporting Requirements Under CARO 2020

The auditor’s report (CARO 2020) shall include a statement on the following matters, namely:

1. Details of tangible and intangible assets.
2. Details of inventory and working capital.
3. Details of investments, any guarantee or security or advances or loans given.
4. Compliance in respect of a loan to directors.
5. Compliance in respect of deposits accepted.
6. Maintenance of costing records.
7. Deposit of statutory liabilities.
8. Unrecorded income.
9. Default in repayment of borrowings.
10. Funds raised and utilisation.
11. Fraud and whistle-blower complaints.
12. Compliance by a Nidhi.
13. Compliance on transactions with related parties.
14. Internal audit system.
15. Non-cash dealings with directors.
16. Registration under section 45-IA of RBI Act, 1934.
17. Cash losses.
18. Resignation of statutory auditors.
19. Material uncertainty on meeting liabilities.
20. Transfer to fund specified under Schedule VII of Companies Act, 2013.
21. Qualifications or adverse auditor remarks in other group companies.

Comparative View between CARO 2016 and CARO 2020

Sr. No	CARO 2016	CARO 2020	Remarks
1	Fixed Assets	‘Property, Plant and Equipment’ and ‘Intangible Assets’	Retained with some changes
2	Inventory	Inventory	Retained with some changes
3	Loan given by Company	Investment made, provided guarantee or security or granted Loans or advances in the nature of Loans by company	Retained with some changes
4	Loan to director and investment by the company	Loan to director and investment by the company	Retained, no changes
5	Deposits	Deposits or Deemed Deposits	Retained with some changes
6	Cost Records	Cost Records	Retained, no changes
7	Statutory Dues	Statutory Dues	Retained, no changes (GST included)
8	-	Unrecorded Income	Newly Inserted
9	Repayment of Loans	Repayment of Loans	Retained with some changes
10	Utilisation of IPO and Further Public Offer	Utilisation of IPO, Further Public Offer, Preferential Issue, Private Placement	Retained, no changes (CARO 2016 clause ix and xiv clubbed in CARO 2020 clause x)
11	Reporting Fraud	Reporting Fraud	Retained with some changes
12	Managerial Remuneration	-	Deleted
13	Nidhi Company	Nidhi Company	Retained with some changes
14	Related Party Transactions	Related Party Transactions	Retained, no changes
15	Preferential Issue, Private Placement	-	(CARO 2016 clause ix and xiv clubbed in CARO 2020 clause x)
16	-	Internal Audit Systems	Newly Inserted
17	Non-Cash Transactions	Non-Cash Transactions	Retained, no changes
18	Register under RBI Act 1934, (NBFC)	Register under RBI Act 1934, (NBFC)	Retained with some changes
19	-	Cash Losses	Newly Inserted
20	-	Resignation of Statutory Auditors	Newly Inserted
21	-	Financial Ratios	Newly Inserted
22	-	Transfer of Unspent Fund	Newly Inserted
23	-	Qualification in CARO by Group Auditors of the companies included in the CFS	Newly Inserted

Clauses & Sub Clauses increased in CARO 2020

Clause No.	No. of Sub Clauses	Clause No.	No. of Sub Clauses
I	5	XII	3
II	2	XIII	1
III	6	XIV	2
IV	1	XV	1
V	1	XVI	4
VI	1	XVII	1
VII	2	XVIII	1
VIII	1	XIX	1
IX	6	XX	2
X	2	XXI	1
XI	3
Total clauses-21	Total Sub Clauses-47

Detailed Additional Reporting Under Each Clause

1. Details of tangible and intangible assets

• Whether a revaluation has been done by the company of its property, plant and equipment (including the right of use assets) or intangible assets or both during the year and, if so, whether the revaluation is based on the valuation by a Registered Valuer.
• In case of a change in values upon revaluation, specify the amount of change, if the change is 10% or more in the aggregate of the net carrying value of each class of property, plant and equipment or intangible assets.
• Whether any proceedings have been initiated or are pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder. If yes, whether the company has appropriately disclosed the details in its financial statements.

• Details of inventory and working capital
• Has the company, during any point of time of the year, sanctioned working capital limits in excess of five crore rupees, in aggregate, from banks or financial institutions on the basis of security of current assets.
• Are the quarterly returns or statements filed by the company with financial institutions or banks in agreement with the books of account of the Company? In case of non-agreement, to provide details of such non-agreement.

• Details of investments, any guarantee or security or advances or loans given
• In case the company has given any loans or advances in the nature of loans either repayable on demand or without specification of any terms or period of repayment. If so, to specify the total amount, percentage thereof to the total loans granted, the total amount of loans granted to promoters, related parties as defined section 2(76) of the Companies Act, 2013.

• Compliance in respect of a loan to directors

• Compliance in respect of deposits accepted

• Maintenance of costing records

• Deposit of statutory liabilities

• Unrecorded income
• Whether any transactions which are not recorded in the accounts have been disclosed or surrendered before the tax authorities as income during the year. The details of such income tax assessments should be disclosed. – Whether such undisclosed income has been recorded in the accounts during the year.

• Default in repayment of borrowings
• In case the company has made any default in the repayment of loans or other borrowings or in the payment of interest thereon to any lender, then the amount and period of default to be reported as per table below:

Description of borrowing includes debt securities	Name of lender*	Amount unpaid on the due date	Whether interest or principal	Number of days of delay or unpaid	Auditor’s remarks
	*Details, lender-wise should be provided in case of defaults to financial institutions, banks, or Government

• Has the company been declared a wilful defaulter by any bank or financial institution or any other lender?

• Have term loans been used for the object for which they were obtained; in case they have not been, the loan funds diverted and disclosure of the end use of such loans.
• Has the company used funds raised for a short-term basis for long term purposes? The nature and the amount of such funds.
• Has the company raised any money from any person or entity for the account of or to pay the obligations of its associates, subsidiaries or joint ventures? The details of the money raised with the description of the transactions and the amounts in each case.
• Has the company raised any loans during the year by pledging securities held in their subsidiaries, joint ventures or associate companies? The details of such loans and also the default in the repayment of the loans.

1. Funds raised and utilisation
2. If the company has raised any funds from a public offer (equity or debt capital), details of the funds applied for the purposes. Also, the details of default or delays and rectification measures taken. – Has the company made any private placement or preferential allotment of shares or convertible debentures (fully, partially or optionally convertible) during the year, whether the same is in accordance with section 42 and section 62 of the Companies Act, 2013. – Whether the funds raised, have been used for the purposes they were raised and the non-compliance, if any.

1. Fraud and whistle-blower complaints
2. Whether the auditors of the company have filed a report in Form ADT-4 with the Central Government as prescribed under the Companies (Audit and Auditors) Rules, 2014.
3. In case of receipt of whistle-blower complaints, whether the complaints have been considered by the auditor.

1. Compliance by a Nidhi
2. Details of any default in payment of interest on deposits or repayment of for any period.

1. Compliance on transactions with related parties

1. Internal audit system
2. Does the company have an internal audit system in accordance with its size and business activities?
3. Have the reports of the internal auditors been considered by the statutory auditor.

1. Non-cash transactions

1. Registration under Section 45-IA of RBI Act, 1934
2. Whether the company has carried on any Non-Banking Financial or Housing Finance activities (NBFC or HFC) without having a valid registration certificate from RBI.
3. Is the company a Core Investment Company (CIC) under the RBI regulations and does it continue to fulfil the criteria of a CIC. In case the company is an exempted or unregistered CIC, does the company continue to fulfil the criteria for exemption.
4. Does the group to which the company belongs have more than one CIC as part of it, then indicate the number of CICs which are in the group?

1. Cash losses
2. Has the company incurred any cash losses in the financial year and the immediately preceding financial year, the amount of cash losses incurred?

1. Resignation of statutory auditors
2. Whether during the year, has there been any resignation of statutory auditors, if yes, has the auditor considered the objections, issues or concerns raised by the outgoing auditors.

1. Material uncertainty
2. Existence of any material uncertainty on the date of the audit report on an evaluation of: the ageing report, financial ratios and expected dates of realisation of financial assets and payment of financial liabilities, any other information accompanying the financial statements, the auditor’s knowledge of the Board of Directors and management plans. Opinion whether the company can meet its the liabilities which exist as at the balance sheet date when such liabilities are due in the future.

• Transfer to fund specified under Schedule VII of Companies Act, 2013
• With respect to obligations under Corporate Social Responsibility, whether the company has transferred the unspent amount to a Fund specified in Schedule VII to the Companies Act within a period of 6 months from the expiry of the financial year. – Whether any amount which remains unspent has been transferred to a special account in accordance with provisions of section 135 of the Companies Act, 2013.

• Qualifications or adverse auditor remarks in other group companies
• In case there have been any qualifications or adverse remarks in the audit reports issued by the respective auditors in case of companies included in the consolidated financial statements, to indicate the details of the companies and the paragraph numbers of the respective CARO reports containing the qualifications or adverse remarks.

All the above-stated clauses are mandatory to be reported on. Also, the disclosures are to be given appropriately.

Announcement by the Institute of Chartered Accountants of India

The Ministry of Corporate Affairs (MCA) issued the Companies (Auditor’s Report) Order, 2020 (CARO 2020) in February 2020. CARO 2020 contains many new reporting requirements for auditors such as revaluation of property, plant and equipment (including right of use assets) or intangible assets, benami property, working capital limits on basis of security of current assets, granting loans or advances in the nature of loans which are either repayable on demand or without specifying any terms or period of repayment, undisclosed income, company declared as wilful defaulter, material uncertainty in meeting liabilities, CSR activities. The Auditing and Assurance Standards Board (AASB) of the ICAI has issued the “Guidance Note on the Companies (Auditor’s Report) Order, 2020” (Guidance Note on CARO 2020) in July 2020 to provide detailed guidance on various clauses of CARO 2020 and reporting requirements for auditors.

To ensure that the management of companies provide various disclosures which pertain to clauses of CARO 2020 especially the aforesaid new reporting requirements, the MCA has brought out corresponding amendments in Schedule III (Division I, Division II and Division III) to the Companies Act, 2013 vide its notification dated 24th March 2021 for preparation of the financial statements. In addition to the said amendments, various other disclosure requirements have also been added in Schedule III to the Companies Act, 2013.

The members may note that in light of the said amendments, a comprehensive revision of the Guidance Note on CARO 2020 is being initiated by AASB. In the interregnum, the members should read CARO 2020 in conjunction with the corresponding amendments made in Schedule III to the Companies Act, 2013 for presentation and disclosure requirements stated therein and perform the audit procedures accordingly.

Annexure A to this Announcement summarises interplay of some of the clauses in CARO 2020 and consequential amendments to Schedule III to the Companies Act, 2013.

Annexure A

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
1	Whether the title deeds of all the immovable properties (other than properties where the company is the lessee and the lease agreements are duly executed in favour of the lessee) disclosed in the financial statements are held in the name of the company. If not, provide prescribed details [Clause 3(i)(c)]	Disclosure of details of title deeds of immovable properties (excluding leased properties) not held in the name of the company in the prescribed format.Disclose company’s share - if jointly held
2	Whether the company has revalued its property, plant and equipment (PPE) (including right of use assets) or intangible assets or both during the year.If so, whether the revaluation is based on the valuation by a registered valuer; specify the amount of change, if change is 10% or more in the aggregate of the net carrying value of each class of PPE or intangible assets [Clause 3(i)(d)]	Disclosure regarding revaluation of PPE/ intangible assets: Amount of change due to revaluation (if change is 10% or more in the aggregate of the net carrying value of each class of PPE/ intangible assets)Whether revaluation is based on valuation by a registered valuer defined under the Companies Act, 2013

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
3	Whether any proceedings have been initiated/ pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 and rules made thereunderIf so, whether the company has appropriately disclosed the details in its financial statements. [Clause 3(i)(e)]	Disclosure prescribed for proceeding initiated/ pending for holding any benami property e.g.:  Details of such property and amount thereof Details of beneficiaries If property is in the books, then reference to item in balance sheet If property is not in the books, then the fact with reasons Details of proceedings Nature of proceedings, status of same and Company’s view
4	Whether during any point of time of the year, the company has been sanctioned working capital limits in excess of five crore rupees, in aggregate, from banks or financial institutions on the basis of security of current assets; whether the quarterly returns or statements filed by the company with such banks or financial institutions are in agreement with the books of account of the Company, if not, give details; [Clause 3(ii)(b)]	In case of borrowings from banks or financial institutions on the basis of security of current assets, disclose whether quarterly returns/ statements of current assets filed with banks or financial institutions agree with books of accounts, If not, adequately disclose summary of reconciliation and reasons of material discrepancies	CARO 2020 prescribes reporting relating to sanctioned working capital limits in excess of five crore rupees, in aggregate. However, disclosure requirements under Schedule III to the Companies Act, 2013 are not limited to working capital but cover all borrowings. Further, no monetary threshold has been prescribed under Schedule III to the Companies Act, 2013 while making this disclosure.

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
5	Whether the company has granted any loans or advances in the nature of loans either repayable on demand or without specifying any terms or period of repayment, if so, specify the aggregate amount, percentage thereof to the total loans granted, aggregate amount of loans granted to Promoters, related parties as defined in section 2(76) of the Companies Act, 2013 [Clause 3(iii)(f)]	Disclosure to be provided in prescribed format where loans/ advances in the nature of loans are granted to promoters, directors, key managerial personnel and related parties, either severally or jointly with any other person, that are:  Repayable on demand or Without specifying any terms or repayment period	CARO 2020 additionally requires percentage of loan granted. Further, in Schedule III to the Companies Act, 2013, loans and advances given to promoters, directors, KMP and other related parties are considered, whereas in CARO 2020, if loans and advances are given to other than related parties these are also to be included. So, reporting requirements in CARO 2020 are wider as compared to Schedule III to the Companies Act, 2013.
6	Whether any transactions not recorded in the books of account have been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act, 1961, if so, whether the previously unrecorded income has been properly recorded in the books of account during the year [Clause 3(viii)]	Details of transaction not recorded in the books of accounts that has been surrendered/ disclosed as income during the year in the tax assessments (e.g. search), unless there is immunity for disclosure under the scheme Disclose whether the previously unrecorded income and related assets have been properly recorded in the books of account during the year

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
7	Whether the company is a declared wilful defaulter by any bank or financial institution or other lender [Clause 3(ix)(b)]	Disclose following if the company is a declared wilful defaulter by any bank/ financial institution / other lender:  Date of declaration as wilful defaulter Details of defaults (amount and nature of defaults)
8	Whether term loans were applied for the purpose for which the loans were obtained; if not, the amount of loan so diverted and the purpose for which it is used may be reported [Clause 3(ix)(c)]	Where borrowings from banks and financial institutions not used for the specific purpose for which it was taken at the balance sheet date – company to disclose details of where they have been used	CARO 2020 prescribes reporting on term loans from any party. However, disclosures under Schedule III to the Companies Act, 2013 are not limited to term loans but cover all borrowings. Further, disclosures under Schedule III to the Companies Act, 2013 have been prescribed only for borrowings from banks and financial institutions.

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
9	On the basis of the financial ratios, ageing and expected dates of realisation of financial assets and payment of financial liabilities, other information accompanying the financial statements, the auditor’s knowledge of the Board of Directors and management plans, whether the auditor is of the opinion that no material uncertainty exists as on the date of the audit report that company is capable of meeting its liabilities existing at the date of balance sheet as and when they fall due within a period of one year from the balance sheet date [Clause 3(xix)]	Disclosure of certain ratios including current ratio, debt-equity ratio, debt service coverage ratio, 1capital to risk-weighted assets ratio  Explain items included in numerator and denominator Explain any change in the ratio by more than 25% as compared to previous year	CARO 2020 requires the auditor to comment on material uncertainty in payment of liabilities on basis of the financial ratios and other prescribed matters. However, Schedule III to the Companies Act, 2013 requires disclosure of certain ratios.
10	Whether, in respect of other than ongoing projects, the company has transferred unspent amount to a Fund specified in Schedule VII to the Companies Act, 2013 within a period of six months of the expiry of the financial year in compliance with second proviso to section 135(5) of the Companies Act, 2013 [Clause 3(xx)(a)]	Details of CSR activities including amount required to be spent, amount of expenditure incurred, shortfall, total of previous years shortfall, reason for shortfall, nature of CSR activities, details of related party transactions, movements in provision made with respect to liability incurred by entering into a contractual obligation	CARO 2020 requires reporting of unspent CSR amount. However, disclosures prescribed under Schedule III to the Companies Act, 2013 are wider as compared to reporting requirements under CARO 2020.

Sr. No	Summary of reporting requirements under CARO 2020	Summary of disclosures requirements under Schedule III to the Companies Act, 2013	Remarks
	Whether any amount remaining unspent under section 135(5) of the Companies Act, 2013, pursuant to any ongoing project, has been transferred to special account in compliance with the provision of section 135(6) of the Companies Act, 2013 [Clause 3(xx)(b)]