CARO 2020: Applicability, Exemptions and the 21 Clauses of the Companies (Auditor’s Report) Order
CA Meet Dhrangadhariya 
June 11, 2026
CA Meet Dhrangadhariya June 11, 2026
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Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
Section 143(11) of the Companies Act lets the Central Government direct that the auditor’s report of specified companies include a statement on matters it lists. The Companies (Auditor’s Report) Order, 2020 (CARO 2020) is that direction. It supersedes the 2016 Order and applies to auditor’s reports for financial years commencing on or after 01/04/2019.
CARO 2020 applies to every company including a foreign company, except:
The Order does not apply to the auditor’s report on consolidated financial statements, except clause (xxi).
| Clause | Subject |
|---|---|
| (i) | Property, plant and equipment and intangibles: proper records, physical verification, title deeds of immovable property held in the company’s name, revaluation by a registered valuer (change of 10% or more), benami proceedings |
| (ii) | Inventory: physical verification and discrepancies of 10% or more per class; for working capital limits above Rs 5 crore on security of current assets, whether quarterly returns agree with the books |
| (iii) | Investments, guarantees, security and loans: amounts, terms not prejudicial, repayment schedule, overdues above 90 days, renewals to settle overdues, loans repayable on demand or without terms and loans to promoters and related parties |
| (iv) | Compliance with sections 185 and 186 on loans, investments, guarantees and security |
| (v) | Deposits: compliance with RBI directions and sections 73 to 76 and orders of tribunals or courts |
| (vi) | Cost records under section 148, where specified |
| (vii) | Statutory dues (GST, PF, ESI, income-tax and others): regularity of deposit, arrears over six months, and disputed dues with the forum |
| (viii) | Unrecorded transactions surrendered or disclosed as income in tax assessments |
| (ix) | Borrowings: defaults to lenders (in the prescribed format), wilful defaulter status, end use of term loans, short term funds used for long term, funds taken for obligations of subsidiaries, associates or joint ventures, and loans raised on pledge of their securities |
| (x) | Public issues and preferential allotments or private placements: use of funds and compliance with sections 42 and 62 |
| (xi) | Fraud: any fraud by or on the company, whether Form ADT-4 report under section 143(12) was filed, and whistle-blower complaints considered |
| (xii) | Nidhi companies: net owned funds to deposits ratio of 1:20, ten per cent unencumbered term deposits, defaults on deposits |
| (xiii) | Related party transactions: compliance with sections 177 and 188 and disclosure in the financial statements |
| (xiv) | Internal audit system commensurate with the size and nature of business, and whether the internal auditors’ reports were considered |
| (xv) | Non-cash transactions with directors or connected persons and section 192 |
| (xvi) | NBFC and housing finance activity: registration under section 45-IA of the RBI Act, activity without a certificate of registration, status as a Core Investment Company and number of CICs in the group |
| (xvii) | Cash losses in the year and the preceding year |
| (xviii) | Resignation of statutory auditors during the year and whether the issues raised by the outgoing auditor were considered |
| (xix) | Whether the auditor believes no material uncertainty exists about the company meeting its liabilities as they fall due within one year of the balance sheet date |
| (xx) | CSR: transfer of unspent amount to a Schedule VII fund within six months, and to a special account for an ongoing project (section 135(5) and (6)) |
| (xxi) | Consolidated statements: qualifications or adverse remarks in the CARO reports of the companies included, with details of each company and paragraph |
Where the answer to any matter in paragraph 3 is unfavourable or qualified, the report must also state the basis for that answer (paragraph 4).
The Companies (Auditor’s Report) Order, 2020, made by the Central Government under section 143(11) of the Companies Act, 2013 after consulting the NFRA. It requires the auditor’s report to include a statement on the matters in paragraph 3 of the Order.
To the auditor’s report for financial years commencing on or after 01/04/2019. It superseded the Companies (Auditor’s Report) Order, 2016.
Banking companies, insurance companies, Section 8 companies, one person companies, small companies, and a private company that is not a subsidiary or holding company of a public company and has paid-up capital and reserves of not more than Rs 1 crore, borrowings from banks and financial institutions of not more than Rs 1 crore at any time in the year, and total revenue of not more than Rs 10 crore.
Only clause (xxi), which asks for qualifications or adverse remarks in the CARO reports of the companies included in the consolidation.
The auditor must state the basis for the unfavourable or qualified answer.
Yes. It applies to every company including a foreign company, except those listed in the exemptions.
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