Module: | Statutory Audit, NFRA & ICAI Standards
Q60: Consider the following statements regarding the reporting of whistle-blower complaints under the Companies (Auditor's Report) Order (CARO):
1. The statutory auditor is mandated to state whether they have considered the whistle-blower complaints received during the year by the company.
2. This reporting requirement under CARO applies to all companies to which CARO is applicable, including qualifying private limited companies.
3. The auditor's responsibility is limited to considering the complaints to assess the risk of material misstatement; they are not required to act as forensic investigators to resolve the complaints.
Which of the above statements is/are correct?
2. This reporting requirement under CARO applies to all companies to which CARO is applicable, including qualifying private limited companies.
3. The auditor's responsibility is limited to considering the complaints to assess the risk of material misstatement; they are not required to act as forensic investigators to resolve the complaints.
Which of the above statements is/are correct?
✅ Correct Answer: D
🎯 Quick Answer:
D. All statements 1, 2, and 3 are correct.Structural Breakdown: Statement 1 is correct; Clause (xi)(c) of CARO explicitly requires the auditor to document their consideration of whistle-blower complaints.
Statement 2 is correct; CARO applies to public companies and private companies crossing specific thresholds (e.g., paid-up capital > Rs 1 Cr, or borrowings > Rs 1 Cr), making this clause applicable to them.
Statement 3 is correct; the standard of auditing dictates that an auditor assesses the complaints to adjust their audit risk and testing strategy, but they are not management or law enforcement tasked with solving the underlying HR or legal dispute.
Historical/Related Context: Before this clause was introduced in the 2020 iteration of CARO, auditors routinely ignored internal whistle-blower complaints, claiming they were "management issues." The MCA added this clause to force auditors to publicly acknowledge internal distress signals.
Causal Reasoning: A sudden spike in whistle-blower complaints about aggressive revenue recognition is a massive red flag.
Forcing the auditor to consider them ensures they design specific audit procedures to hunt for the alleged fraud, rather than relying on generic audit programs.