Advanced Auditing & Professional EthicsMCQQuestion 5855 of 984
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Under Clause (ii)(b) of Paragraph 3 of the Companies (Auditor's Report) Order, 2020 (CARO 2020), the auditor is required to report if the company has been sanctioned working capital limits in excess of which threshold from banks or financial institutions on the basis of security of current assets?

Select Your Answer (Keyboard: A, B, C, D)
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Correct Answer

✅ Option B — ₹5 crores

All Options:

  • A₹2 crores
  • B₹5 crores ✓
  • C₹10 crores
  • D₹25 crores

Detailed Solution & Explanation

Under CARO 2020, Paragraph 3, Clause (ii)(b):
1. **Threshold**: Working capital limits sanctioned in excess of **₹5 crore**, in aggregate, from banks or financial institutions on the basis of security of current assets at any point of time during the year.
2. **Auditor's Duty**: The auditor must report whether quarterly returns or statements (e.g. stock statements, book debt statements) filed with banks are in agreement with the books of account of the company; and if not, provide details.
Hence, **Option B** is the correct answer.

Key Concepts to Understand

Working Capital

The excess of current assets over current liabilities, representing the short-term liquidity available to a business for its day-to-day operations. Positive working capital indicates good short-term financial health.

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