Introduction<\/p>\n
The Companies (Auditor\u2019s Report) Order, 2020 (CARO 2020) continues to be an important reporting framework for statutory auditors of applicable companies in India. CARO 2020 was originally notified by the Ministry of Corporate Affairs (MCA) and was subsequently amended to make it applicable from financial years commencing on or after 1 April 2021.<\/p>\n
For auditors in 2026, CARO reporting requires more than simply completing a checklist. Each applicable clause should be supported by appropriate audit evidence, management information, reconciliations and working papers.<\/p>\n
This practical guide explains the major CARO 2020 reporting areas and provides an audit-focused approach to handling them.<\/p>\n
Before beginning clause-wise reporting, the auditor should establish whether CARO 2020 is applicable to the company.<\/p>\n
The Order contains specific exclusions and exemptions. Therefore, the auditor should evaluate the company’s nature, constitution, activities and applicable exemption criteria before concluding on CARO applicability.<\/p>\n
The applicability should be properly documented in the audit working papers.<\/p>\n
The auditor is required to report on matters relating to:<\/p>\n
Maintenance of records of Property, Plant and Equipment (PPE)<\/p>\n
Maintenance of records of intangible assets<\/p>\n
Physical verification of PPE<\/p>\n
Title deeds of immovable properties<\/p>\n
Revaluation of PPE and intangible assets<\/p>\n
Proceedings initiated or pending for holding benami property<\/p>\n
Practical audit approach<\/p>\n
The auditor should reconcile the fixed asset register with the general ledger and financial statements. Physical verification procedures should also be evaluated, including whether material discrepancies have been properly identified and adjusted.<\/p>\n
For immovable properties, verify whether title deeds are held in the company’s name and identify cases where the title deeds are not held by the company.<\/p>\n
CARO requires reporting on:<\/p>\n
Physical verification of inventory<\/p>\n
Discrepancies identified during verification<\/p>\n
Working capital limits exceeding the specified threshold<\/p>\n
Whether quarterly statements submitted to banks or financial institutions agree with the books of account<\/p>\n
Practical approach<\/p>\n
Auditors should compare inventory records with physical verification reports and investigate material discrepancies.<\/p>\n
Where working capital facilities exceed the prescribed threshold, the auditor should obtain the relevant quarterly statements submitted to lenders and reconcile them with the books.<\/p>\n
This is one of the important CARO reporting areas.<\/p>\n
The auditor should examine loans or advances in the nature of loans granted to subsidiaries, joint ventures, associates and other parties.<\/p>\n
Key matters include:<\/p>\n
Amount of loans or advances<\/p>\n
Balance outstanding<\/p>\n
Terms and conditions<\/p>\n
Repayment schedule<\/p>\n
Whether repayments are regular<\/p>\n
Amounts overdue<\/p>\n
Steps taken for recovery<\/p>\n
Audit tip<\/p>\n
Maintain a detailed party-wise schedule of loans and advances and reconcile it with the general ledger and confirmations.<\/p>\n
The auditor needs to consider whether applicable transactions relating to loans, investments, guarantees and securities comply with Sections 185 and 186 of the Companies Act, 2013.<\/p>\n
The working papers should clearly document the basis of the auditor’s conclusion.<\/p>\n
The auditor should verify whether the company has accepted deposits or amounts considered deposits and whether the relevant provisions of the Companies Act and related rules have been complied with.<\/p>\n
Any non-compliance should be evaluated for appropriate reporting.<\/p>\n
Where maintenance of cost records has been prescribed under Section 148(1), the auditor is required to report whether such accounts and records have been made and maintained.<\/p>\n
The auditor should obtain management’s cost-record documentation and evaluate whether the records are maintained as required.<\/p>\n
This clause covers reporting on undisputed and disputed statutory dues.<\/p>\n
Auditors should review dues relating to areas such as:<\/p>\n
GST<\/p>\n
Income tax<\/p>\n
Provident Fund<\/p>\n
Employees’ State Insurance<\/p>\n
Customs duty<\/p>\n
Excise duty<\/p>\n
Cess<\/p>\n
Other applicable statutory dues<\/p>\n
Particular attention should be given to outstanding statutory dues and disputes pending before appropriate authorities.<\/p>\n
Practical procedure<\/p>\n
Prepare a statutory dues reconciliation showing:<\/p>\n
Opening balance + additions \u2013 payments \u00b1 adjustments = closing balance<\/p>\n
This should be reconciled with the books and relevant statutory returns.<\/p>\n
The auditor should consider whether transactions previously unrecorded in the books have been surrendered or disclosed as income during tax assessments and whether such income has been properly recorded in the books.<\/p>\n
Tax assessment orders, notices and management representations can be useful audit evidence in this area.<\/p>\n
The auditor should examine:<\/p>\n
Default in repayment of loans or borrowings<\/p>\n
Interest defaults<\/p>\n
Whether the company has been declared a wilful defaulter<\/p>\n
Utilisation of term loans<\/p>\n
Funds obtained for short-term purposes but used for long-term purposes<\/p>\n
Funds taken to meet obligations of subsidiaries, associates or joint ventures<\/p>\n
Loans raised on pledge of securities of subsidiaries, associates or joint ventures<\/p>\n
Bank confirmations and loan statements are important supporting documents.<\/p>\n
Where applicable, the auditor should report on money raised through:<\/p>\n
Initial public offer<\/p>\n
Further public offer<\/p>\n
Preferential allotment<\/p>\n
Private placement<\/p>\n
The auditor should verify whether funds raised were used for the purposes for which they were raised.<\/p>\n
The auditor should consider whether:<\/p>\n
Fraud by the company or on the company has been noticed or reported<\/p>\n
Any report under Section 143(12) has been filed<\/p>\n
Whistle-blower complaints were received during the year<\/p>\n
The auditor should document the procedures performed and management’s responses.<\/p>\n
For companies that are Nidhi companies, specific reporting requirements apply regarding compliance with the relevant provisions and ratios.<\/p>\n
The auditor should first establish whether the entity falls within the definition and regulatory framework applicable to Nidhi companies.<\/p>\n
The auditor should examine whether transactions with related parties comply with Sections 177 and 188 of the Companies Act, where applicable, and whether the required disclosures have been made in the financial statements.<\/p>\n
The related-party register, Board minutes, contracts and financial statement disclosures should be cross-checked.<\/p>\n
The auditor should consider:<\/p>\n
Whether the company has an internal audit system commensurate with its size and nature of business<\/p>\n
Whether internal audit reports were considered by the statutory auditor<\/p>\n
A practical approach is to obtain the internal audit plan and reports and assess whether relevant observations have been appropriately considered during the statutory audit.<\/p>\n
The auditor should verify whether the company has entered into non-cash transactions with directors or persons connected with them and whether the applicable provisions have been complied with.<\/p>\n
Where applicable, the auditor should examine whether the company is required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934.<\/p>\n
This clause is particularly relevant when the company’s activities involve financing, investment or lending.<\/p>\n
The auditor is required to report whether the company has incurred cash losses in the current financial year and the immediately preceding financial year.<\/p>\n
The calculation should be supported by a clearly documented working paper.<\/p>\n
Where the previous statutory auditor has resigned during the year, the incoming auditor should consider the issues, objections or concerns raised by the outgoing auditor and determine whether they have implications for the audit.<\/p>\n
Communication with the previous auditor should be properly documented.<\/p>\n
This clause requires the auditor to consider whether material uncertainty exists regarding the company’s ability to meet liabilities falling due within one year from the balance sheet date.<\/p>\n
The auditor should consider:<\/p>\n
Current liabilities<\/p>\n
Cash flows<\/p>\n
Existing borrowings<\/p>\n
Repayment schedules<\/p>\n
Cash flow forecasts<\/p>\n
Financial support available<\/p>\n
Subsequent events<\/p>\n
This assessment should be aligned with the auditor’s broader evaluation of going concern.<\/p>\n
Where CSR provisions apply, the auditor should examine whether unspent amounts relating to CSR have been transferred to the appropriate fund or special account within the prescribed time, as applicable.<\/p>\n
CSR workings, Board records and bank statements should be reviewed.<\/p>\n
For consolidated financial statements, the auditor has additional reporting considerations relating to companies included in the consolidated financial statements that have adverse remarks or qualifications in their respective CARO reports.<\/p>\n
The auditor should obtain and review the relevant component auditors’ reports and CARO reporting before finalising the consolidated CARO reporting.<\/p>\n
Practical CARO 2020 Audit Checklist for 2026<\/p>\n
A good CARO working paper should generally contain:<\/p>\n Common CARO Reporting Mistakes<\/p>\n Auditors should avoid the following common issues:<\/p>\n Treating CARO as a simple checklist.<\/p>\n Reporting without maintaining sufficient audit evidence.<\/p>\n Failing to reconcile CARO information with the financial statements.<\/p>\n Not obtaining updated bank confirmations.<\/p>\n Ignoring statutory dues that are under dispute.<\/p>\n Not reviewing subsequent events for borrowings and defaults.<\/p>\n Using generic wording without considering the company’s actual circumstances.<\/p>\n Failing to document management’s explanations and the auditor’s independent verification.<\/p>\n Conclusion<\/p>\n CARO 2020 reporting should be approached as an evidence-based audit exercise rather than a compliance formality. For the 2026 audit cycle, auditors should begin clause-wise procedures early, establish clear documentation requirements and reconcile CARO information with the underlying books, statutory records and financial statements.<\/p>\n The original CARO framework and subsequent amendments should always be referred to when determining the applicable reporting requirements. The MCA’s 2020 amendment specifically shifted the applicability of CARO 2020 to financial years commencing on or after 1 April 2021.<\/p>\n Note: This article is intended as a practical professional guide and should be read together with the applicable provisions of the Companies Act, 2013, CARO 2020, subsequent amendments, and relevant professional guidance before finalising an audit report.<\/p>\n","protected":false},"excerpt":{"rendered":" Understand CARO 2020 reporting requirements with this practical 2026 guide covering key clauses, applicability, audit procedures, documentation, and common reporting issues.<\/p>\n","protected":false},"author":10,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[5],"tags":[635,632,634,633,636],"class_list":["post-984","post","type-post","status-publish","format-standard","hentry","category-income-tax","tag-auditor-reporting","tag-caro-2020-checklist","tag-caro-2026","tag-caro-audit-procedures","tag-statutory-audit-india"],"_links":{"self":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/984","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/comments?post=984"}],"version-history":[{"count":2,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/984\/revisions"}],"predecessor-version":[{"id":1506,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/984\/revisions\/1506"}],"wp:attachment":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/media?parent=984"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/categories?post=984"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/tags?post=984"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n\n
\n \nArea<\/th>\n Key Documents<\/th>\n<\/tr>\n<\/thead>\n \n PPE<\/td>\n Fixed asset register, title deeds, physical verification<\/td>\n<\/tr>\n \n Inventory<\/td>\n Stock records, physical verification reports<\/td>\n<\/tr>\n \n Loans<\/td>\n Loan schedules, confirmations, agreements<\/td>\n<\/tr>\n \n Statutory dues<\/td>\n GST\/TDS\/PF\/ESI and tax reconciliations<\/td>\n<\/tr>\n \n Borrowings<\/td>\n Bank confirmations, loan statements<\/td>\n<\/tr>\n \n Related parties<\/td>\n Register, agreements, Board minutes<\/td>\n<\/tr>\n \n Fraud<\/td>\n Management representation, legal correspondence<\/td>\n<\/tr>\n \n Internal audit<\/td>\n Internal audit reports<\/td>\n<\/tr>\n \n Cash losses<\/td>\n Calculation and supporting schedules<\/td>\n<\/tr>\n \n Going concern<\/td>\n Cash-flow forecasts and repayment schedules<\/td>\n<\/tr>\n \n CSR<\/td>\n CSR computation and utilisation records<\/td>\n<\/tr>\n \n Consolidation<\/td>\n Component financials and CARO reports<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n