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:

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. NoCARO 2016CARO 2020Remarks
1Fixed Assets‘Property, Plant and Equipment’ and ‘Intangible Assets’Retained with some changes
2InventoryInventoryRetained with some changes
3Loan given by CompanyInvestment made, provided guarantee or security or granted Loans or advances in the nature of Loans by companyRetained with some changes
4Loan to director and investment by the companyLoan to director and investment by the companyRetained, no changes
5DepositsDeposits or Deemed DepositsRetained with some changes
6Cost RecordsCost RecordsRetained, no changes
7Statutory DuesStatutory DuesRetained, no changes (GST included)
8-Unrecorded IncomeNewly Inserted
9Repayment of LoansRepayment of LoansRetained with some changes
10Utilisation of IPO and Further Public OfferUtilisation of IPO, Further Public Offer, Preferential Issue, Private PlacementRetained, no changes (CARO 2016 clause ix and xiv clubbed in CARO 2020 clause x)
11Reporting FraudReporting FraudRetained with some changes
12Managerial Remuneration-Deleted
13Nidhi CompanyNidhi CompanyRetained with some changes
14Related Party TransactionsRelated Party TransactionsRetained, no changes
15Preferential Issue, Private Placement-(CARO 2016 clause ix and xiv clubbed in CARO 2020 clause x)
16-Internal Audit SystemsNewly Inserted
17Non-Cash TransactionsNon-Cash TransactionsRetained, no changes
18Register under RBI Act 1934, (NBFC)Register under RBI Act 1934, (NBFC)Retained with some changes
19-Cash LossesNewly Inserted
20-Resignation of Statutory AuditorsNewly Inserted
21-Financial RatiosNewly Inserted
22-Transfer of Unspent FundNewly Inserted
23-Qualification in CARO by Group Auditors of the companies included in the CFSNewly Inserted

Clauses & Sub Clauses increased in CARO 2020

Clause No.No. of Sub ClausesClause No.No. of Sub Clauses
I5XII3
II2XIII1
III6XIV2
IV1XV1
V1XVI4
VI1XVII1
VII2XVIII1
VIII1XIX1
IX6XX2
X2XXI1
XI3
Total clauses-21Total Sub Clauses-47

Detailed Additional Reporting Under Each Clause

  1. Details of tangible and intangible assets
Description of borrowing includes debt securitiesName of lender*Amount unpaid on the due dateWhether interest or principalNumber of days of delay or unpaidAuditor’s remarks 
*Details, lender-wise should be provided in case of defaults to financial institutions, banks, or Government     
  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.

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. NoSummary of reporting requirements under CARO 2020Summary of disclosures requirements under Schedule III to the Companies Act, 2013Remarks
1Whether 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 
2Whether 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. NoSummary of reporting requirements under CARO 2020Summary of disclosures requirements under Schedule III to the Companies Act, 2013Remarks
3Whether 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   
4Whether 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. NoSummary of reporting requirements under CARO 2020Summary of disclosures requirements under Schedule III to the Companies Act, 2013Remarks
5Whether 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.  
6Whether 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. NoSummary of reporting requirements under CARO 2020Summary of disclosures requirements under Schedule III to the Companies Act, 2013Remarks
7Whether 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)   
8Whether 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. NoSummary of reporting requirements under CARO 2020Summary of disclosures requirements under Schedule III to the Companies Act, 2013Remarks
9On 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.  
10Whether, 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. NoSummary of reporting requirements under CARO 2020Summary of disclosures requirements under Schedule III to the Companies Act, 2013Remarks
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)]    

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