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.
Before the first clause is tested, the ICAI Guidance Note sets out how the auditor should go about the whole exercise: what level of work is expected, how to plan it with the client, what to keep on file, how materiality applies and why some Schedule III disclosures feed straight into a CARO answer. This article covers that general approach.
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.
CARO reporting is part of the audit, not an investigation. The work follows the Standards on Auditing, may need extra procedures for particular clauses, and must be backed by working papers. Materiality applies to each clause, with one exception for group reporting. Several clauses overlap with Schedule III disclosures, but the auditor must report on the clause even if management's disclosure is missing or inadequate.
Not an investigation (paragraphs 29 and 30)
The Order does not turn the audit into an investigation of the listed matters. Many of them are covered in an ordinary audit already, and the emphasis is on giving specific information on certain aspects of the work (paragraph 29). The reporting is supplemental to the audit of the financial statements and generally runs within the framework of the Standards on Auditing prescribed under section 143(10). Some clauses, however, may need procedures beyond those required for the audit opinion (paragraph 30). Read the SA series list to see which standards stand behind each clause.
Plan with management in writing (paragraph 31)
The Guidance Note expects advance planning between the auditor and the management on how the examination for the Order will be done and how the company keeps its records so that evidence is available. Its example is the records needed to verify property, plant and equipment or inventory. It suggests that the auditor tell management in writing what is required before each audit starts, and add to the list during the audit if needed. The auditor should also consider obtaining management representations on the matters where the Order asks for a statement. Keeping such records ready through the year is part of books of accounts compliance. The wider rules on representation letters are in our SA 580 explainer.
Working papers: four things they must show (paragraph 32)
The GN says working papers matter more here than usual, because the file should show four things:
- the opinion rests on an examination made by the auditor;
- the auditor gave due weight to the information and explanations the company supplied;
- the information obtained was full and complete, meaning the auditor asked for everything needed before forming the view;
- the auditor did not merely accept the company's replies but tested them reasonably for accuracy and completeness.
To meet SA 230 in this setting, paragraph 33 suggests a set of steps. Send the company a questionnaire on the important Order matters. Ask in writing about anything the questionnaire does not cover. Insist that replies are in writing and signed by a responsible officer. Record discussions with management where explanations are not otherwise on file. And prepare the auditor's own checklist, noting who on the audit staff did the work and which company staff provided the information. Appendix V of the Guidance Note is an illustrative checklist and is described in our form of report article.
If a requirement of the Order is not met but the auditor decides not to make an unfavourable comment because of materiality, the reason should be recorded in the working papers (paragraph 34).
Materiality and judgement (paragraphs 35 to 38)
The Order is confined to specific matters, but that does not limit the auditor's wider duties in an audit, and the reporting obligation stays confined to what the Order lists (paragraph 35). Many clauses call for judgement, not a mechanical test. The GN's example is clause 3(i)(b): is a discrepancy material, and is the accounting treatment proper (paragraph 36).
Materiality follows SA 320. For clause 3(iii), for example, the auditor reads the loan documents of all large loans and test-checks the rest on a materiality basis (paragraph 37). There is one special rule for clause 3(xxi): once any component's CARO report carries a qualification or adverse remark, the GN says there is a presumption that the item is material to that component, so the group auditor does not re-test materiality from the group's point of view and includes every such remark.
On liability, the GN says an opinion that rests on judgement is not wrong merely because someone else disagrees. The test is good faith with "reasonable care and skill" (paragraph 38), and the auditor may be liable only if the opinion was given without that care, without applying mind to the facts, or recklessly.
The Schedule III link (paragraph 39)
Schedule III to the Companies Act, 2013 (Divisions I, II and III) requires disclosures that overlap with CARO matters. The GN lists them. The table below arranges them against the clause they usually feed. The clause references are TaxClue's arrangement of the GN's list; the clause articles confirm each one.
| Schedule III disclosure (GN list) | CARO 2020 clause it ties to |
|---|---|
| Title deeds of immovable properties | Clause 3(i)(c) |
| Revaluation of property, plant and equipment and intangible assets | Clause 3(i)(d) |
| Proceedings for holding benami property | Clause 3(i)(e) |
| Borrowings from banks or financial institutions on security of current assets | Clause 3(ii)(b) |
| Loans or advances repayable on demand or with no repayment terms | Clause 3(iii)(f) |
| Undisclosed income | Clause 3(viii) |
| Wilful defaulter declaration | Clause 3(ix)(b) |
| Borrowings not used for the purpose taken | Clause 3(ix)(c) |
| Certain ratios | Clause 3(xix) |
| Corporate social responsibility activities | Clause 3(xx) |
The key point in paragraph 39 is about responsibility. The disclosures belong to management. If management has not made them, or has made them inadequately, the auditor must still report on the CARO clause, and must then consider what the gap means for the main audit report. Clause 3(viii) names the Income Tax Act, 1961, while the Income-tax Act, 2025 applies from 1 April 2026; check how the clause is read for the year in question and see our income-tax guides for the tax side.
What goes into the report (paragraph 40)
The matters are in paragraph 3 of the Order, which has twenty one clauses. The live Order explainers give the wording; for example, clauses i and ii and clauses iii to vi. The clause-wise articles in this series start with clause 3(i).
A short example
Kiran Textiles Limited has an Ind AS balance sheet and a title deed for a warehouse still in the seller's name. Management has not given the Schedule III note on title deeds. The auditor reports on clause 3(i)(c) anyway, setting out the position in the annexure, and also considers whether the missing disclosure affects the main report. The working paper records the questionnaire reply, the deed copy seen, and the officer who signed the reply.
Need help with audit-ready records?
If you want the questionnaire replies, registers and disclosures ready before the auditor asks, TaxClue's books of accounts compliance team can set up the records and review the Schedule III notes with you.
Key takeaways
- The Order is reported within the audit framework; it does not demand an investigation.
- Tell management in writing what is needed before each audit, and ask for signed replies.
- Working papers should show the examination, the explanations considered, completeness and the tests applied.
- Materiality applies clause by clause, except that every component qualification is carried into clause 3(xxi).
- Report the CARO clause even if the Schedule III disclosure is absent, and assess the effect on the main report.
Read next
- CARO 2020 Guidance Note: which companies the Order covers
- CARO 2020 clause 3(i) in practice
- Section 143: auditor powers and duties
- SA 230: audit documentation
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.