Module: | Specialized Audits, Tech & ESG Disclosures
Q85: Consider the following statements regarding the auditor's reporting on defaults in repayment of borrowings under Clause (ix) of CARO 2020, applicable in 2025-2026:
1. The auditor must explicitly state whether the company has defaulted in the repayment of loans or in the payment of interest to any lender.
2. If a default has occurred, the auditor is mandated to provide a detailed, tabular format specifying the nature of the borrowing, name of the lender, amount of default, and the number of days delayed.
3. The auditor must also report whether the company has been declared a "wilful defaulter" by any bank, financial institution, or other lender.
Which of the above statements is/are correct?
2. If a default has occurred, the auditor is mandated to provide a detailed, tabular format specifying the nature of the borrowing, name of the lender, amount of default, and the number of days delayed.
3. The auditor must also report whether the company has been declared a "wilful defaulter" by any bank, financial institution, or other lender.
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; a blanket statement on default status is the primary requirement.
Statement 2 is correct; CARO 2020 introduced a strict, granular tabular format for reporting defaults, removing the auditor's ability to be vague.
Statement 3 is correct; formally documenting whether the company has been officially tagged as a "wilful defaulter" by the banking system is a direct requirement.
Historical/Related Context: Prior to CARO 2020, auditors would often bury loan defaults deep in the notes to accounts with convoluted language.
Following the massive NPA (Non-Performing Asset) crisis in Indian banking, the MCA weaponized the audit report to act as an early warning system for the RBI and future investors.
Causal Reasoning: By forcing the auditor to publicly list the exact number of days a payment was delayed and name the specific bank, the regulator prevents companies from hiding liquidity crises from their shareholders while secretly negotiating with banks to avoid NPA classification.