# CARO 2020 — Clauses (xiv) to (xvi)

## Clause (xiv) — Internal Audit

(a) Whether the company has an Internal Audit Function (IAF) commensurate with size & nature of business.

(b) Whether reports of internal audit for the audit period were considered by the statutory auditor.

## Clause (xv) — Non-Cash Transactions with Directors

Whether the company entered into non-cash transactions with directors or persons connected with them. If yes — whether Section 192 of the Companies Act has been complied with.

> Section 192 requires prior approval by ordinary resolution for arrangements involving acquisition of assets for consideration other than cash.

## Clause (xvi) — RBI Registration / Core Investment Companies

(a) Whether the company is required to be registered under Section 45-IA of RBI Act (NBFC registration). If yes — whether registration obtained.

(b) Whether the company conducted NBFC or Housing Finance Co. activities without a valid Certificate of Registration from RBI.

(c) If the company is a Core Investment Company (CIC) — whether it continues to fulfil CIC criteria. If exempted/unregistered CIC — whether it continues to fulfil exemption criteria.

(d) Whether the Group has more than one CIC — if yes, indicate the number of CICs in the Group.

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## Quick Reference

Clause	Trigger	Key Test
xiv	All companies	IAF + auditor's use of IA reports
xv	Non-cash arrangements with directors	Sec 192 compliance
xvi(a)–(b)	NBFC/HFC activity	RBI registration
xvi(c)–(d)	CIC	CIC criteria + Group CIC count

Worked example

### Example 1

Example — Clause (xv):

Director Mr. P transferred his personal land to the company in exchange for 50,000 equity shares issued at face value, without shareholder approval.

Reporting: This is a non-cash transaction with a director. Section 192 requires prior shareholder approval by ordinary resolution → non-compliance to be reported.

### Example 2

Example — Clause (xvi)(a):

Investment Company Y has financial assets > 50% of total assets and income from financial assets > 50% of gross income (principal business test).

Conclusion: It is an NBFC requiring Sec 45-IA registration. If not registered → auditor reports non-compliance.

⚠️ Common exam mistakes

Under clause (xiv), forgetting that even private companies above certain thresholds need IA — reporting must be on whether IAF is commensurate, not merely whether it exists
Confusing Sec 192 with Sec 188 — Sec 192 is non-cash transactions with directors; Sec 188 is related party transactions
Reporting CIC criteria check only for registered CICs — exempted/unregistered CICs also need ongoing criteria check under (xvi)(c)

Bare-Act text 192 · Companies Act, 2013 · click to expand

Section 192 — No company shall enter into an arrangement by which a director of the company or its holding, subsidiary or associate company or a person connected with him acquires or is to acquire assets for consideration other than cash, from the company or vice versa, unless prior approval for such arrangement is accorded by a resolution in general meeting.

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CARO 2020 - Internal Audit, Non-cash & RBI Registration (Clauses xiv-xvi)

Worked example

⚠️ Common exam mistakes