Statutory audit · CARO 2020
CARO 2020: applicability, clauses & reporting checklist.
Which companies the Companies (Auditor's Report) Order 2020 applies to, the small-company and OPC exemptions, what each clause actually asks the auditor to report on, and a working checklist for the file.
- Reviewed July 2026
- 8 min read
- CA Anil Agarwal & the TatvaBooks team
What is CARO 2020?
The Companies (Auditor's Report) Order, 2020 — CARO 2020 — is issued by the Ministry of Corporate Affairs under Section 143(11) of the Companies Act, 2013. It requires the statutory auditor of a company to include, as an annexure to the main audit report, specific comments on a defined list of matters — fixed assets, inventory, loans, statutory dues, fraud, going concern and more. It supersedes the earlier CARO 2016 and applies to audits of financial years commencing on or after 1 April 2021.
CARO reporting is additional to the auditor's main opinion on the financial statements under Section 143(2)/(3) — it does not replace it. An adverse or qualified CARO comment on a clause can still feed into the main opinion if it is material.
Who does CARO 2020 apply to — the exemptions
CARO 2020 applies to every company audited under the Companies Act, 2013, except the categories specifically carved out in paragraph 1(2) of the Order. The private-company exemption is the one CAs check most often, and it is a cumulative test — all conditions must hold together, not any one of them.
| Company type | Condition | CARO applies? |
|---|---|---|
| Private company | Not a subsidiary or holding company of a public company, AND paid-up capital + reserves ≤ ₹1 crore (as per last audited balance sheet), AND total borrowings from any bank/FI ≤ ₹1 crore at any point during the year, AND total revenue (incl. other income) ≤ ₹10 crore | Yes — if all conditions are met simultaneously |
| One Person Company (OPC) | Any OPC, regardless of size | Yes — CARO does not apply |
| Small company (Sec 2(85)) | Paid-up capital ≤ threshold and turnover ≤ threshold prescribed under the Companies Act | Yes — but check independently against the private-company test above; the two tests can give different answers |
| Banking / insurance company; Sec 8 company | Governed by sector-specific regulation | Yes — specifically excluded by the Order |
| Any other company (public, or private failing the size test) | Fails one or more of the private-company conditions above | No — CARO 2020 reporting is mandatory |
Note: the private-company monetary thresholds (₹1 crore capital+reserves, ₹1 crore borrowings, ₹10 crore revenue) and the small-company definition under Section 2(85) are both prescribed figures that Parliament and the MCA can revise — verify the current figures on the MCA portal or the ICAI Guidance Note before applying them to a specific audit.
The 21 clauses, grouped by theme
CARO 2020 has more reporting points than any of its predecessors. Reading them clause-by-clause in the bare text is hard going — grouped by subject, the logic is more manageable.
| Theme | Clause(s) | What the auditor reports on |
|---|---|---|
| Fixed assets & investments | Clause (i) | Existence of records for property, plant & equipment and intangibles; physical verification programme; title deeds held in the company's name; revaluation (if any) and its basis; proceedings under the Benami Act. |
| Inventory & working capital | Clauses (ii) | Physical verification of inventory and whether discrepancies were properly recorded; whether working-capital limits from banks/FIs above ₹5 crore are backed by quarterly returns/statements that agree with the books. |
| Loans, guarantees & investments | Clauses (iii), (iv) | Loans and advances given to related/other parties — terms, repayment regularity, overdue amounts; compliance with Sections 185 and 186 on loans, investments, guarantees and security. |
| Deposits & cost records | Clauses (v), (vi) | Compliance with deposit-acceptance provisions (Sections 73–76); whether cost records under Section 148(1) have been maintained, where applicable. |
| Statutory dues | Clause (vii) | Regularity of depositing GST, PF, ESI, income-tax, customs and other statutory dues; disputed dues and the forum where pending; amounts not deposited on account of a dispute. |
| Undisclosed income & wilful default | Clauses (viii), (ix) | Any income surrendered/disclosed under tax assessments not recorded in the books; default in repayment of loans/borrowings to banks, FIs or debenture holders; wilful defaulter status; end-use of term loans and short-term funds used for long-term purposes. |
| Fraud, managerial remuneration & related parties | Clauses (x), (xi), (xiii) | Utilisation of IPO/further-issue proceeds; any fraud by or on the company reported or noticed during the year, including reporting under Section 143(12); managerial remuneration in excess of Section 197 limits; compliance with Sections 177 and 188 on related-party transactions. |
| Nidhi, private placement & non-cash transactions | Clauses (xii), (xiv), (xv) | Nidhi company ratios (if applicable); adequacy of the internal audit function relative to size and nature of business; compliance with Section 42 on private placement of securities; non-cash transactions with directors under Section 192. |
| Registration, CSR, group & going concern | Clauses (xvi), (xvii), (xviii), (xix), (xx), (xxi) | Registration under Section 45-IA of the RBI Act; cash losses in the current and preceding year; resignation of statutory auditors and reasons; a specific opinion on whether material uncertainty exists on the company's ability to meet liabilities as they fall due (the 'going concern' clause); CSR spending under Section 135; qualifications in group companies' CARO reports (for consolidated audits). |
Do not treat this table as a substitute for the Order's actual text or the ICAI Guidance Note on CARO 2020 — the exact wording of each sub-clause, and the specific reporting format, should be read from the primary source and cross-checked for the year of audit, since the Guidance Note is periodically updated.
Reporting checklist for the audit file
- Confirm applicability first — run the private-company size test (capital+reserves, borrowings, revenue) against the latest audited figures, not last year's; a company can cross the threshold mid-year and lose the exemption.
- Where CARO does not apply, still record the exemption basis in the audit file — the reason should be evidenced, not assumed.
- Build clause-wise working papers referencing the specific management representation, register, or third-party confirmation relied on for each clause.
- Obtain a fresh management representation letter covering benami property, undisclosed income, wilful defaulter status and related-party compliance — CARO reporting leans heavily on management assertions backed by audit evidence.
- Cross-check the going-concern clause (xix) with your SA 570 work — the two assessments should be consistent, not contradictory.
- For loans/guarantees (clause iii) and related parties (clause xiii), tie figures back to the Section 189/188 registers and board minutes, not just the ledger.
- Reconcile statutory-dues reporting (clause vii) against actual GST, TDS and PF/ESI challans and portal data — don't rely on the trial balance alone.
- Where a clause is answered 'unfavourable' or qualified, ensure the same matter is evaluated for impact on the main audit opinion under SA 705/706.
- Keep the CARO annexure consistent with the auditor's report format prescribed by the ICAI Guidance Note for the year — formats are revised periodically.
Common pitfalls in practice
A few recurring issues show up in quality-review and peer-review findings on CARO working papers:
- Applicability tested once, at the start of the engagement, and never revisited — a company that raised capital or crossed the revenue threshold mid-year can lose the private-company exemption; re-test at finalisation using the year's actual audited numbers.
- Boilerplate answers copied from the prior year — clauses like (iii) loans to related parties or (vii) statutory dues need fresh evidence every year; copying last year's wording without updating figures is a classic audit-quality finding.
- Going concern clause (xix) not cross-referenced to SA 570 workpapers — the two assessments are separate in form but should not read as contradictory in substance.
- Statutory dues (clause vii) reconciled only to the trial balance — without tying out to actual GST returns, TDS challans and PF/ESI portal data, understated arrears can be missed entirely.
- Fraud clause (x) treated as a formality — it requires an explicit statement, and any matter reported or noticed (including via whistle-blower complaints or internal audit) needs to be evaluated against the Section 143(12) fraud-reporting threshold separately.
Where clean books make CARO easier
Several CARO clauses — statutory dues, inventory records, loans and related-party transactions — are only as reliable as the underlying books. TatvaBooks keeps GST, TDS and PF/ESI postings correct at source, maintains an append-only activity log for every entry, and produces Schedule III-ready statements — which shortens the evidence-gathering work behind clauses (ii), (iii), (vii) and (xiii) considerably. See what the platform covers for CA firms on the TatvaBooks for Chartered Accountants page, or compare plans on pricing.
Frequently asked questions
Does CARO 2020 apply to a private limited company?
Is CARO 2020 applicable to an OPC or a small company?
How many clauses does CARO 2020 have?
What is the going concern clause in CARO 2020?
Is CARO 2020 applicable to LLPs?
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