To increase transparency and governance the corporate affairs ministry has included another provision in the law. As per the Companies (Auditor's Report) Order, 2020 (CARO 2020), the statutory auditor has to ask for details of whistleblower complaints that were raised and how their due diligence was done by the organisation.
It will also be mandatory for the companies to share all the whistleblower complaints that were registered with its internal audit committee during the course of the year.
Till now there was no requirement for the audit committee to report whistleblower complaints to an external statutory auditor. The notification leaves it upon their discretion whether the complaint should get included as a line item. This will ensure firms don't suppress any complaints that could impact its financial performance.
Also, the format in which way the report has to be provided, the level of details to be shared is at the discretion of the auditor and has not been prescribed under the current notification. If it gets included in the CARO, it will then become a part of the firm's Annual Report.
One direct implication of this provision in the law is that the statuary auditor will have more information and will also become more liable. "It puts greater onus on audit committee as well so they don't end up suppressing any information from the auditor that can have material impact on company's financials," says Rishi Agrawal, CEO at regulatory technology firm Avantis Regtech (a Teamlease company).
The primary objective of the CARO report is to ensure external shareholders get a fair view of the financial statements of the company so they can take an objective view of their investments in the firm. "It doesn't increase any compliance burden but enhances the level of transparency of and accountability in the corporate governance framework. These practices are going to go a long way in ensuring that there is no information asymmetry between the company and the shareholders," Agrawal adds.
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