CARO 2020 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.
CARO 2020 is the set of questions an auditor must answer in a separate annexure to the audit report of most Indian companies. Whether you must answer them at all depends on the kind of company, its size on the balance sheet date and, for consolidated statements, on one clause only. This article explains how the ICAI Guidance Note reads those tests.
The explanation follows 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, after the Order's start was deferred by the notifications of 24 March 2020 and 17 December 2020. Later amendments to the Order, Schedule III and the laws named below should be checked before you rely on any figure.
The Order applies to every company unless it falls in one of five exempt classes: banking companies, insurance companies, section 8 licensed companies, one person companies and small companies, and a narrow class of small private companies. A private company is exempt only if it passes all the capital, borrowing and revenue tests together, and only if it is not a holding or subsidiary company of a public company. On consolidated statements, only clause 3(xxi) is reported.
Where the Order sits next to section 143
The Order is an addition to the auditor's report under section 143 of the Companies Act, 2013, not a replacement. Our section 143 explainer covers the base duties, and books of accounts compliance support keeps the records behind them ready. Two differences matter in practice. The section 143 enquiries need a comment only when the auditor has a special comment to make; the Order asks for a statement on every applicable matter, favourable or not (GN paragraph 4). The Order does not narrow the auditor's duties; it only adds statements to be made (paragraph 6).
For the wording of each clause, use the live Order explainers, starting with the applicability and reasons-for-unfavourable-answers post and the clause posts linked at the end. A newer reader can begin with what CARO 2020 is.
Who is inside the net
The Order applies to all companies except the exempt classes. The Guidance Note adds three extensions that are easy to miss.
- Foreign companies. A foreign company within section 2(42) is covered wherever the Act requires an audit under Chapter X (paragraphs 8 and 9).
- Branches. The branch auditor, including the auditor of a foreign branch, has the same duties as the company auditor under section 143(8), so the branch report must carry a statement on every matter that applies to the company. The company auditor needs it to complete his own report (paragraph 10).
- Project and liaison offices outside India. If separate auditors are appointed for them, the company's auditor should seek a report covering the Order matters (paragraph 10).
The five exempt classes
| Class | What the Order says | Practical note |
|---|---|---|
| Banking company | As defined in the Banking Regulation Act, 1949 | Private and foreign banks are banking institutions for the borrowing test below |
| Insurance company | As defined in the Insurance Act, 1938 | Status is tested on the balance sheet date |
| Section 8 company | A company licensed to operate under section 8 | The GN reads the exemption as reaching old section 25 companies through section 465 (paragraph 13) |
| One person company or small company | As defined in section 2(62) and 2(85) | A small company stays exempt even if it fails a private company test (paragraph 12) |
| Qualifying private company | Private company, not a holding or subsidiary of a public company, passing the three tests | All conditions must hold together (paragraph 14) |
Status is judged on the balance sheet date (paragraph 12). The GN notes that the small company limits in section 2(85) and the Definitions Details Rules have been revised over time, and tells the auditor to use the thresholds that apply to the year under audit; the current limits are explained in Rules 1 and 2 of the Definitions Details Rules.
A company that converts into an LLP, a partnership or any form outside the Act, or into an exempt constitution, is no longer covered (paragraph 15). Infrastructure and real estate investment trusts are outside the Order, and so are their consolidated trust statements, but a company in which such a trust invests is tested on its own (paragraph 16).
The private company tests
A private limited company means one registered as a private company under section 2(68) (paragraph 17). To be exempt, it must meet all of these, as the Order is printed in the GN (paragraph 11):
| Test | Limit | How the GN reads it |
|---|---|---|
| Paid-up capital plus reserves and surplus | Not more than Rs 1 crore on the balance sheet date | Unpaid calls are deducted, forfeited shares' paid amount is added, share application money and unconverted instruments are left out (paragraph 18) |
| Borrowings from any bank or financial institution | Not more than Rs 1 crore at any point of time during the year | Aggregate across all lenders, any day of the year, secured or unsecured, short or long term (paragraph 22) |
| Total revenue | Not more than Rs 10 crore during the year | Total income under Schedule III: revenue from operations, other income and discontinued operations (paragraph 24) |
| Group position | Not a subsidiary or holding company of a public company | A private company that holds, or is held by, a public company is outside the exemption |
Reserves for this test include capital and revenue reserves and the revaluation reserve, and a debit balance in the statement of profit and loss is netted (paragraph 19). Under Ind AS, the Schedule III Division II list of reserves is used, and items such as OCI balances are not treated as reserves (paragraph 20). On borrowings, the GN counts current maturity of long-term loans, interest accrued and due, devolved letters of credit, invoked bank guarantees and credit card dues, but not interest accrued and not due. A cash credit that touches the limit on a single day brings the company inside the Order. The term "financial institution" is read widely and covers an NBFC (paragraph 23).
A worked example
Orbit Packaging Private Limited has paid-up capital of Rs 40 lakh, reserves of Rs 55 lakh and revenue of Rs 8 crore. Its cash credit reached Rs 1.2 crore for two days in November. It looks exempt on capital and revenue, but the November balance puts total bank borrowings above Rs 1 crore at a point of time during the year. Because all conditions must hold together, the Order applies and the auditor reports on every applicable clause.
Consolidated statements and timing
The Order does not apply to the auditor's report on consolidated financial statements except clause 3(xxi) (paragraphs 26 and 27). The group auditor therefore gives only that one statement, and each applicable component company's own report is read for it.
On the period of compliance, the GN rejects the view that a lapse corrected before year end needs no comment. Compliance is judged for the whole accounting year, not only on the balance sheet date or the date of signing (paragraph 28). So a record-keeping gap in the first half of the year is still reportable.
Because the Order says "as may be applicable", the auditor reports only the clauses that fit the company (paragraph 25). For a financial year commencing before 1 April 2021, the earlier Order governs.
Need help with CARO readiness?
If you are unsure whether the Order applies to your company, or you want your records and schedules ready for the clause-wise questions, TaxClue's books of accounts compliance team can review them with you before the audit starts.
Key takeaways
- The Order covers all companies except banking, insurance, section 8, one person and small companies, and qualifying small private companies.
- A private company is exempt only if it meets every test together: capital and reserves, borrowings at any point of time, revenue, and no public holding or subsidiary link.
- Borrowings are counted in aggregate across lenders and on any day of the year.
- Only clause 3(xxi) applies to consolidated statements.
- Compliance is judged for the whole year, not just the balance sheet date.
Read next
- CARO 2020 Guidance Note: general approach, materiality and Schedule III mapping
- CARO 2020 Guidance Note: form of report, board reply and the checklist
- Independent auditor's report format for standalone financial statements
- Standards on Auditing in India: the full list
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.