CARO 2020 clause 3 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clause 3(i) asks the auditor five questions about a company's fixed assets: whether the records are proper, whether the assets are physically verified, whether title deeds are in the company's name, whether any asset was revalued, and whether benami proceedings exist. This article explains what the ICAI Guidance Note says the auditor should look at for each one.
It is explained from the ICAI Guidance Note on the Companies (Auditor's Report) Order, 2020 (Revised 2022 Edition, July 2022). CARO 2020 applies to audits of financial years commencing on or after 1 April 2021. Later amendments to the Order, Schedule III and the laws named should be checked.
The auditor reports on records, physical verification, title deeds, revaluation and benami proceedings. Records must tie to the books. Management, not the auditor, verifies the assets. Immovable property not held in the company's name needs a six-column reporting table. A revaluation is reported only under the revaluation model, with the change stated if it is 10 per cent or more of a class's net carrying value.
For the Order's own wording see the live clause i and ii explainer. Registers like these are the core of books of accounts compliance. The general approach is in our article on the approach and Schedule III link.
Clause 3(i)(a): proper records (paragraphs 41 and 42)
The Order does not define "proper records", so the GN describes what a sound register contains. For property, plant and equipment (PPE), the details include a description, classification, situation, quantity, original cost, year of purchase, date available for use, useful life, residual value, component-wise breakup, revaluation details, depreciation rate and amounts, impairment and disposals. Under Ind AS the auditor also looks at right of use assets, investment property and assets held for sale. Records must cover fully depreciated, retired and fully impaired items too.
Practical points from the GN: totals of cost, depreciation and impairment should reconcile with the books; an electronic register is acceptable if it cannot be altered without authorisation and audit trail and can be read or printed (otherwise obtain an authenticated printout); assets that move, such as site equipment, need a custody record; small-value items like chairs may be grouped.
If there is no PPE register at all, the GN treats it as a serious documentation and control lacuna that the auditor mentions in the report.
For intangible assets the expected records are: description, location, agreements, cost (development cost if self-generated), date available for use, amortisation and impairment registers, disposals, registration details and licences granted to others.
Clause 3(i)(b): physical verification (paragraph 43)
Verification is management's job. The auditor satisfies himself that it was done. Where verification is continuous or he is absent, he reads the written instructions given to staff and the staff working papers, and checks who did the work and whether they had the knowledge needed. Outside agencies may do it. The method should suit the asset: a plant in continuous use may be evidenced by normal production, and open land should be surveyed periodically for encroachment.
"Reasonable intervals" depends on number, nature and value of assets and spread of locations. The GN says that where annual verification is impracticable, the programme should cover all assets at least once in every three years. If not all assets were verified in the year, say so; if the frequency is satisfactory, say that as well.
Only material discrepancies need comment. The GN lists factors: cost relative to total cost (by value or count), criticality to operations, industry and size, and whether omitting it would distort a true and fair view. If a material discrepancy was properly booked, no details are needed, only a statement to that effect.
Clause 3(i)(c): title deeds (paragraph 44)
The clause covers immovable property disclosed in the financial statements, other than property where the company is lessee under a duly executed lease. The auditor identifies immovable property from the PPE register and checks the deeds against it. Transferable development rights, plant embedded in land and immovable property held as inventory are outside the clause.
Procedures include:
- examine registered sale, transfer or conveyance deeds;
- do a detailed check where property came through conversion of a firm or LLP, or an amalgamation, since the deeds may be in the old entity's name;
- get confirmations from lenders where deeds are mortgaged;
- for lost deeds, obtain certified copies, FIR details and a written representation;
- remember that management decides the legal validity of title, while the auditor can refer to SA 250 and, for legal counsel contact, SA 501;
- consider disclosing any title dispute.
If any deed is not in the company's name, the report gives the table the Order prescribes. The columns are shown below as described by the Order.
| Column | What the auditor ascertains |
|---|---|
| Description of property | Location and land or municipal identification |
| Gross carrying value | As in the balance sheet |
| Held in name of | Whose name the title stands in |
| Promoter, director, relative or employee | Specific mention if so |
| Period held | A range where appropriate |
| Reason not in company's name | Such as a transfer still being registered; also say if in dispute |
For leased property, a lease that is informal or not duly executed in the company's favour is worth including, in the GN's view, even though there is no direct duty.
Clause 3(i)(d): revaluation (paragraph 45)
Reporting is limited to the revaluation model, upward or downward. First-time Ind AS fair valuation, remeasurements and lease-modification changes are not revaluations. The auditor checks that the valuation came from a registered valuer and considers section 247 and the Registered Valuers rules: date, valuer's name and registration, valuation report, methods and assumptions, and the accounting of the surplus. If one item of a class is revalued, the whole class should be. Where the aggregate change is 10 per cent or more of the net carrying value of a class of PPE or intangibles, state the amount. The GN notes that using a registered valuer is not using an auditor's expert under SA 620, but management's expert principles in SA 500 apply.
Clause 3(i)(e): benami proceedings (paragraph 46)
The Order cites the Benami Transactions (Prohibition) Act, 1988. The GN points out that the Act was renamed in 2016 as the Prohibition of Benami Property Transactions Act, 1988, and that references should be to the Act as amended. The auditor checks whether the Initiating Officer started a notice during the year or any proceeding is pending against the company before any authority or court in earlier years, and whether disclosures are adequate. Schedule III disclosures cover property details, beneficiaries, the nature and status of proceedings and the company's view; see benami property under Schedule III. The auditor also takes a management representation, reads legal expenses and minutes, and applies SA 560 to proceedings started after year end. A notice received as beneficial owner is outside the clause.
A worked example
Meridian Foods Limited bought a factory plot in 2019 and has not yet registered the transfer; the deed stands in the seller's name. The auditor finds this by reconciling the PPE register to the deeds, and the report lists the plot with its gross carrying value, the seller's name, the period held and the reason (registration pending).
Need help with fixed asset records?
If your register, title deeds and revaluation file are not ready for the auditor, TaxClue's books of accounts compliance team can help rebuild and reconcile them before year end.
Key takeaways
- A proper register reconciles with the books and covers retired, fully depreciated and impaired items.
- Management verifies; the auditor tests the programme and evidence, with a three-year outer limit where annual verification is impracticable.
- Title deeds not in the company's name go into the prescribed table.
- Revaluation reporting covers only the revaluation model and states changes of 10 per cent or more per class.
- Benami reporting covers proceedings against the company as benamidar and adequacy of disclosure.
Read next
- CARO 2020 clause 3(ii) in practice: inventory and quarterly returns to banks
- CARO 2020 Guidance Note: general approach and Schedule III link
- Asset reconciliation under Schedule III
- SA 500: audit evidence
Disclaimer: Based on the Companies (Auditor's Report) Order, 2020 as explained in the ICAI Guidance Note on CARO 2020 (Revised 2022 Edition), as consulted on 3 October 2026. CARO applies to financial years commencing on or after 1 April 2021; later amendments to the Order, Schedule III and the laws referred to should be checked. This article is general information, not legal advice; check the official text before acting.