CARO 2020 applicability checker
CARO 2020, the Companies (Auditor's Report) Order, 2020, applies to the statutory audit of every company except banking, insurance, Section 8, one person and small companies, and some small private companies. Answer a few questions to see whether it applies to yours this year, then use the 21-clause guide to prepare.
Small company test
Small private company test (paragraph 1(2)(v))
The revised small-company limits took effect on 1 December 2025. For a year that straddles that date, confirm the basis with your statutory auditor.
In short. CARO 2020 does not apply to banking, insurance, Section 8 or one person companies, to small companies (paid-up capital up to ₹10 crore and previous-year turnover up to ₹100 crore, not a holding or subsidiary), or to a private company that is not linked to a public company and stays within ₹1 crore capital plus reserves, ₹1 crore borrowing and ₹10 crore revenue. Everyone else gets a CARO report.
The 21 CARO 2020 clauses, in plain English
Paragraph 3 lists what the auditor must report on. Each clause applies only where the matter exists for the company, so a company with no deposits, for example, reports 3(v) as not applicable.
| Clause | Subject | What the auditor reports on |
|---|---|---|
| 3(i) | Property, plant and equipment, and intangibles | Proper records, physical verification and discrepancies, title deeds held in the company's name, revaluation, benami proceedings. |
| 3(ii) | Inventory and working capital | Physical verification and discrepancies of 10% or more; quarterly returns to banks for working capital limits above ₹5 crore agreeing with the books. |
| 3(iii) | Loans, investments, guarantees and security | Terms, repayment schedules, overdue amounts and loans repayable on demand to companies, firms, LLPs and other parties. |
| 3(iv) | Sections 185 and 186 | Compliance on loans to directors and on loans, investments, guarantees and security. |
| 3(v) | Deposits | Compliance with RBI directions and sections 73 to 76 for deposits and deemed deposits. |
| 3(vi) | Cost records | Whether cost records under section 148(1) are maintained. |
| 3(vii) | Statutory dues | Regular deposit of GST, PF, ESI, income tax, customs and other dues; disputed dues not deposited. |
| 3(viii) | Unrecorded income | Income surrendered or disclosed in tax assessments that was not recorded in the books. |
| 3(ix) | Borrowings | Defaults, wilful defaulter status, use of term loans, short-term funds used for long-term purposes, funds raised for subsidiaries, associates or joint ventures. |
| 3(x) | Raising of money | Use of IPO or FPO money; preferential allotment and private placement compliance under sections 42 and 62. |
| 3(xi) | Fraud and whistle-blower complaints | Fraud by or on the company, ADT-4 filings, and whistle-blower complaints considered by the auditor. |
| 3(xii) | Nidhi companies | Net owned funds, unencumbered deposits and defaults, for Nidhi companies only. |
| 3(xiii) | Related party transactions | Compliance with sections 177 and 188 and disclosure in the financial statements. |
| 3(xiv) | Internal audit | Whether the company has an internal audit system that fits its size and business, and whether the auditor considered its reports. |
| 3(xv) | Non-cash transactions with directors | Compliance with section 192. |
| 3(xvi) | RBI registration | Whether registration under section 45-IA of the RBI Act is needed, and core investment company matters. |
| 3(xvii) | Cash losses | Cash losses in the current and the immediately preceding financial year. |
| 3(xviii) | Auditor resignation | Whether the statutory auditor resigned and the issues raised by the outgoing auditor were considered. |
| 3(xix) | Going concern | Material uncertainty about meeting liabilities falling due within one year. |
| 3(xx) | CSR | Unspent CSR amounts transferred to a Schedule VII fund or the unspent CSR account on time. |
| 3(xxi) | Consolidated statements | Qualifications or adverse remarks in the CARO reports of companies in the consolidated financial statements. |
Where CARO audits usually go wrong
- Physical verification with no evidence. Clauses 3(i)(b) and 3(ii)(a) ask whether property and inventory were physically verified and how discrepancies were handled. A count sheet with no date, no counter and no photo is hard to rely on.
- Bank stock statements that do not match the books. For working capital limits above ₹5 crore, clause 3(ii)(b) requires the auditor to say whether quarterly returns agree with the books, and to report the differences.
- Statutory dues paid late. Clause 3(vii) is tested month by month. A single quarter of late TDS or PF deposits shows up in the report.
- Internal audit that exists only on paper. Clause 3(xiv) asks whether the internal audit system fits the size and nature of the business, which needs an audit plan, reports and follow-up on findings.
Get a CARO readiness review
A Chartered Accountant-led team reviews your records against every applicable clause before the statutory audit starts, and gives you a fix list with owners and dates.
Evidence for clauses 3(i) and 3(ii)
AuditFlow runs physical verification of inventory and fixed assets on a phone, offline, with time-stamped photos tied to each item and a tamper-evident trail, so the count your auditor tests is the count you actually did. From $12 a month, billed in INR.
See AuditFlow →AuditFlow records evidence and internal audits. It does not write the statutory CARO report, which is the auditor's.
Frequently asked questions
Which companies are exempt from CARO 2020?
Banking companies, insurance companies, Section 8 companies, one person companies, small companies, and private companies that are not a holding or subsidiary of a public company and that stay within three limits: paid-up capital plus reserves up to ₹1 crore, bank or financial-institution borrowing up to ₹1 crore at any time in the year, and total revenue up to ₹10 crore.
What is a small company for CARO 2020 now?
A private company that is not a holding or subsidiary company, not a Section 8 company and not governed by a special Act, whose paid-up capital is up to ₹10 crore and whose turnover for the previous financial year is up to ₹100 crore. These limits apply from 1 December 2025 (G.S.R. 880(E)); before that they were ₹4 crore and ₹40 crore.
Does CARO 2020 apply to LLPs?
No. CARO 2020 is issued under section 143(11) of the Companies Act, 2013 and covers companies only. An LLP is governed by the LLP Act, 2008.
Does CARO 2020 apply to consolidated financial statements?
Only clause 3(xxi), which asks the auditor to report qualifications or adverse remarks in the CARO reports of the companies included in the consolidation.
Does CARO apply to a one person company?
No. One person companies are exempt, along with small companies.
Who reports under CARO 2020?
The company's statutory auditor, as an annexure to the independent auditor's report. Management should prepare the information the auditor will test, such as physical verification records, the MSME and statutory dues ageing, loans to related parties and borrowing returns filed with banks.
How many clauses does CARO 2020 have?
Paragraph 3 has 21 clauses, numbered 3(i) to 3(xxi), each with sub-clauses. The table on this page summarises each one.
Related free tools and guides
This checker summarises paragraph 1(2) of CARO 2020 (S.O. 849(E), 25 February 2020) and section 2(85) of the Companies Act, 2013 as amended by G.S.R. 880(E). It is guidance, not an audit opinion.