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.
The ICAI Guidance Note ends its clause-wise guidance with advice on how to write the report: what to say when an answer is unfavourable, when the management's explanation belongs in the report, how a CARO comment can affect the main audit opinion and how the board must respond. This article covers those points, a comparison with CARO 2016 and the layout of the illustrative checklist.
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, after the deferrals notified on 24 March 2020 and 17 December 2020; the Order as first issued referred to an earlier year. Later amendments to the Order, Schedule III and the laws named should be checked.
The auditor makes a statement on every applicable matter, gives reasons for any unfavourable or qualified answer and, if unable to give an opinion, says so with reasons. Management's explanation is added only where it makes the comment complete or shows the true and fair view is not affected. A CARO comment does not automatically modify the main report. The board must answer every qualification, including those in the Order report, in its own report.
For a sample structure of the whole auditor's report, see our independent auditor's report format. Drafting the report and its supporting papers is part of compliance documentation work. Which companies must give the report is covered in the applicability article.
What the report must say (paragraphs 88 and 94 to 96)
The Order requires a statement on all matters that apply to the company. Where the auditor cannot give an opinion on an applicable matter, the report says so and gives the reasons. For an unfavourable or qualified answer, reasons are mandatory.
The GN does not ask for lengthy reasons. The auditor should explain the general nature of the qualification or unfavourable comment clearly and without ambiguity, using the thinking in SA 705 for the explanation. Where he cannot give an opinion, the reason might be that records or evidence were not produced. The auditor should consider in each case whether the facts call for an unfavourable answer or can be expressed as a qualified answer.
Opinion, not only fact (paragraph 93)
Many answers are opinions. The GN suggests showing this in either of two ways: a general preface to the comments saying the statements rest on the information and explanations sought and given and the books and records examined in the normal course of audit, or a preface to individual comments such as "in our opinion". Choose one approach and apply it across the annexure.
Should the management's explanation be included? (paragraph 89)
Normally no. The GN gives two situations where it helps:
| Situation | Example in the GN |
|---|---|
| To make the comment complete and not misleading | Inventory verification was planned but not done because of a strike or lockout |
| To show why the true and fair view is unaffected despite the comment | Part of the inventory was not counted at year end, but other evidence satisfied the auditor on existence, condition and value |
Does a CARO comment modify the audit opinion? (paragraphs 90 to 92)
When any comment is qualified or unfavourable, the auditor considers whether it affects the true and fair view and so calls for modification of the report under sections 143(2) and 143(3). If it does, the manner of reporting follows SA 705. The GN stresses that not every unfavourable comment leads to a modification, for three reasons:
- the comment may concern something with no bearing on the true and fair view, such as late provident fund deposits or non-compliance in accepting public deposits;
- the non-compliance may be big enough for the Order but not for the financial statements;
- the matter may call for corrective action by management without being important enough for the main report.
This is a judgement for each case. For forming the opinion, see SA 700 part 2.
Information and explanations (paragraph 97)
Section 143(3) requires the auditor to say whether he obtained all the information and explanations needed for the audit. The GN reads the audit as including the Order reporting. If he sought but did not obtain what he needs for an Order statement, he says so on that specific question and considers the effect on the main report.
The board's reply under section 134(3)(f) (paragraphs 98 to 100)
The board report must give all information and explanations on every reservation, qualification, adverse remark or disclaimer in the auditor's report. The GN reads this to include every unfavourable comment or qualification in the Order report. Practical points:
- facts stated by the auditor and in the board's explanation should not conflict, so the auditor should, where possible, give the board a draft report to verify the facts;
- a genuine difference of opinion on the same facts is allowed, and the board's different view is not a reflection on the auditor's opinion.
See our section 134 explainer for the contents of the board report.
What changed from CARO 2016
The Guidance Note's comparison shows the old and new text together. In TaxClue's summary, the main changes are these:
| Area | CARO 2020 position compared with CARO 2016 |
|---|---|
| Application | Consolidated reports now carry clause 3(xxi); the earlier Order excluded them wholly |
| Fixed assets | Records now cover intangibles; title deeds table, revaluation by registered valuer and benami proceedings are new |
| Inventory | Discrepancy test is 10 per cent or more per class; quarterly bank statements are new |
| Loans | Wider scope than parties in the section 189 register; detailed sub-clauses (a) to (f) on amounts, terms, overdue, evergreening and demand loans |
| Dues | Dispute reporting covers all statutory dues, not a listed few; unrecorded income surrendered in assessments is new |
| Borrowings | Default reporting covers any lender; wilful defaulter, diversion, short-term funds, group funding and pledges are new sub-clauses |
| Fund raising | Public offers and private placements are separate limbs; term loans moved to clause 3(ix) |
| Fraud | The words "by its officers or employees" are gone; ADT-4 and whistle-blower complaints are new |
| Removed | The 2016 clause on managerial remuneration is not in the 2020 Order |
| New clauses | Internal audit reports, NBFC and core investment company limbs, cash losses, resignation, material uncertainty, unspent CSR and group CARO remarks |
How the illustrative checklist is organised
The Guidance Note ends with an illustrative checklist (Appendix V) that follows the clause order of the Order. For each clause it gives the question, then numbered sub-questions that break the clause into the records, evidence and computations the auditor needs, then a space for a conclusion. The table runs across four columns.
| Column | Use |
|---|---|
| Clause number | The sub-clause of paragraph 3 being tested |
| Particulars | The question and its sub-questions |
| Remarks | The answer, exceptions and findings |
| Working paper reference | Where the evidence sits in the audit file |
Use it as a template: copy the structure, replace the questions with your engagement's procedures, name the staff member and the client contact, and record a conclusion per clause, as the general approach article explains.
A worked example
Granite Foods Limited failed to deposit provident fund dues for four months. The auditor reports the irregularity under clause 3(vii)(a) with arrears and reasons. He decides that the matter does not affect the true and fair view and leaves the main opinion unmodified, noting his reasoning in the file. The board explains the delay in its own report.
Need help with audit documentation?
A clear checklist, working paper index and board-reply draft save time at finalisation. TaxClue's compliance documentation team can help prepare the records and responses that go with the audit report.
Key takeaways
- Report every applicable matter; give reasons for unfavourable or qualified answers; say so if no opinion can be given.
- Management's explanation is included only to complete the comment or to show the true and fair view stands.
- A CARO comment does not automatically modify the audit opinion.
- The board must answer all qualifications, including those in the Order report.
- Build the checklist around clause, particulars, remarks and working paper reference.
Read next
- CARO 2020 Guidance Note: general approach and Schedule III link
- CARO 2020 clauses 3(xvii) to 3(xxi) in practice
- SA 705: modifications to the opinion
- Section 134: board report
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.