Prepare carrot cake according to package instructions in a 9x13in pan. Let cool completely. Use a rounded spoon handle to poke several holes in the cake.
Whisk together the vanilla pudding mix with cold milk (and drops of orange candy coloring if desired), for 2 minutes. Pour pudding into the holes on the cake, spread evenly over cake. Place in fridge while preparing frosting.
Beat the cream cheese with a mixer until smooth, add the cool whip and powdered sugar, mix until well blended. Carefully spread over the pudding mixture, it will be thick, so spread carefully.
Cover with chopped walnuts around the edges of the cake, and decorate with candies if desired. Store cake covered in fridge until ready to enjoy.