## CARO 2020 – Clauses 17 to 20

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### Clause 17: Cash Losses

Report on:

Whether the company has incurred cash losses in the current FY and in the immediately preceding FY
If yes — state the amount of cash losses in both years

> Cash loss = Net loss adjusted for non-cash items (depreciation, amortisation, provisions) — a sustained cash loss signals operational distress.

> Key point: Both the current year and the previous year must be examined and reported separately.

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### Clause 18: Resignation of Statutory Auditors

Report on:

Whether there has been any resignation of statutory auditors during the year
If yes — whether the incoming auditor has taken into consideration the issues, objections or concerns raised by the outgoing auditor

> This clause targets situations where auditors resign to escape reporting adverse findings. The incoming auditor must engage with the outgoing auditor's concerns.

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### Clause 19: Going Concern

Report on:

On the basis of financial ratios, ageing and expected dates of realisation of financial assets and payment of financial liabilities — whether the auditor is of the opinion that:
No material uncertainty exists as on the date of the audit report
That the 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

> If there IS material uncertainty about going concern, this must be prominently communicated in the main audit report as well (see SA 570).

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### Clause 20: Corporate Social Responsibility (CSR) – Section 135

Two categories:

#### Ongoing Projects

(Not detailed in this clause — governed by CSR rules separately)

#### Other Than Ongoing Projects:

Whether the company has transferred unspent CSR amounts to a fund specified in Schedule VII to the Companies Act
Transfer must be within 6 months of the expiry of the FY
In compliance with the second proviso to Section 135(5)

> If unspent CSR (for non-ongoing projects) is NOT transferred to Schedule VII fund within 6 months — report non-compliance.

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### Summary of Clauses 17–20

Clause	Focus	Key Threshold / Timeframe
17	Cash losses	Current + previous year both
18	Auditor resignation	Whether incoming auditor considered outgoing's concerns
19	Going concern	1-year forward-looking assessment
20	CSR spending	Transfer within 6 months of FY end

Worked example

### Example 1

Meridian Ltd had a cash loss of ₹30 lakh in FY 2023-24 and ₹15 lakh in FY 2022-23. Depreciation for both years was ₹40 lakh each, and the company reported a net profit of ₹10 lakh in FY 2023-24 and a net loss of ₹5 lakh in FY 2022-23 before depreciation. Explain the CARO Clause 17 reporting.

Answer: Cash profit/loss = Net profit/(loss) before depreciation minus depreciation: FY 2023-24: ₹10L – ₹40L = cash loss ₹30L; FY 2022-23: (₹5L) – ₹40L = cash loss ₹45L (not ₹15L as stated — the question data would be used as given). Report cash losses in both years with amounts. Sustained cash losses raise going concern doubts (link to Clause 19).

### Example 2

The previous statutory auditor of Titan Ltd resigned mid-year, citing concerns about inventory valuation and undisclosed liabilities. The newly appointed auditor proceeds to audit without reading the outgoing auditor's communication. How should this be reported under CARO Clause 18?

Answer: Clause 18: Report that (a) the statutory auditor resigned during the year; (b) the new auditor did NOT take into consideration the issues/objections raised by the outgoing auditor (undisclosed liabilities and inventory valuation concerns). This is non-compliance with the Clause 18 requirement. The new auditor should also perform additional procedures to address the outgoing auditor's concerns.

⚠️ Common exam mistakes

Reporting cash losses only for the current year and omitting the previous year — Clause 17 explicitly requires reporting for BOTH years.
Confusing cash loss with net loss — depreciation and other non-cash charges must be added back to arrive at cash profit/loss.
Treating Clause 19 (going concern) as merely duplicating the main audit report — it is a separate CARO reporting obligation requiring a specific opinion on 12-month liability-meeting capacity.
Forgetting the 6-month transfer deadline for CSR Clause 20 — a common error is stating 'within the financial year' instead of '6 months after FY expiry'.
Missing that Clause 18 places the obligation on the INCOMING auditor (not just noting that a resignation occurred) — the incoming auditor must actively consider the outgoing auditor's concerns.

Bare-Act text Section 135(6) – CSR Unspent Amount (read with second proviso to Section 135(5)) · Companies Act, 2013 · click to expand

Where the amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company or its implementing agency in pursuance of its Corporate Social Responsibility Policy, such amount shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII.

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CARO 2020 – Clauses 17–20: Cash Losses, Auditor Resignation, Going Concern, CSR

Worked example

⚠️ Common exam mistakes