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.
Clause (i) of paragraph 3 of CARO 2020 makes the auditor report on the records of property, plant and equipment (PPE) and intangible assets, their physical verification, title deeds of immovable property, revaluation and benami proceedings. Clause (ii) covers physical verification of inventory and the agreement of quarterly returns with the books where working capital limits exceed five crore rupees. This article is based on the Order as amended up to the notification of 24 March 2020 per the MCA e-book. Later amendments should be checked.
Clause (i) has five parts, (a) to (e), including a table for title deeds of immovable property not held in the company's name; clause (ii) has two, (a) and (b). For inventory, the auditor reports on discrepancies of 10% or more in the aggregate for each class of inventory; for working capital, on limits sanctioned in excess of five crore rupees, in aggregate, on the security of current assets, and whether the quarterly returns agree with the books. These matters apply to companies within the Order (see paragraphs 1, 2 and 4).
Clause (i): PPE and intangible assets
| Sub-clause | What the auditor reports |
|---|---|
| (a)(A) | Whether the company is maintaining proper records showing full particulars, including quantitative details and situation, of Property, Plant and Equipment |
| (a)(B) | Whether the company is maintaining proper records showing full particulars of intangible assets |
| (b) | Whether the PPE have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed and, if so, whether they have been properly dealt with in the books of account |
| (c) | Whether the title deeds of all immovable properties disclosed in the financial statements (other than properties where the company is the lessee and the lease agreements are duly executed in favour of the lessee) are held in the name of the company; if not, details in the format below |
| (d) | Whether the company has revalued its PPE (including Right of Use assets) or intangible assets or both during the year and, if so, whether the revaluation is based on the valuation by a Registered Valuer; the amount of change, if the change is 10% or more in the aggregate of the net carrying value of each class of PPE or intangible assets |
| (e) | Whether any proceedings have been initiated or are pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 and rules made under it; if so, whether the company has appropriately disclosed the details in its financial statements |
The title deed table in sub-clause (c)
Where title deeds are not held in the company's name, the auditor gives details in a six-column format:
| Column | Heading in the Order |
|---|---|
| 1 | Description of property |
| 2 | Gross carrying value |
| 3 | Held in name of |
| 4 | Whether promoter, director or their relative or employee |
| 5 | Period held, indicating range where appropriate |
| 6 | Reason for not being held in name of company (also indicate if in dispute) |
Three limits shape what the auditor must look at. The title-deed enquiry covers immovable properties disclosed in the financial statements, but leaves out properties where the company is the lessee and the lease agreement is duly executed in its favour. The revaluation limb is not limited to PPE: it covers Right of Use assets and intangible assets too, and it asks whether the valuation was by a Registered Valuer. And the ten per cent in sub-clause (d) is a change in the aggregate of the net carrying value of each class, not of the whole asset base. For Registered Valuers, see the Act and the valuation rules.
Clause (ii): inventory and working capital
(ii)(a). Whether physical verification of inventory has been conducted at reasonable intervals by the management and whether, in the opinion of the auditor, the coverage and procedure of such verification are appropriate. Whether any discrepancies of 10% or more in the aggregate for each class of inventory were noticed and, if so, whether they have been properly dealt with in the books of account.
(ii)(b). Whether, at any point of time during the year, the company has been sanctioned working capital limits in excess of five crore rupees, in aggregate, from banks or financial institutions on the basis of security of current assets; and whether the quarterly returns or statements filed by the company with those banks or institutions are in agreement with the books of account of the company, and, if not, the details.
The sanction test uses "in aggregate" and "at any point of time during the year": a company with several limits from several banks adds them up, and a limit that is sanctioned and later reduced still counts if it was above five crore rupees at any point. The test is also about limits secured on current assets, not term loans. The loans and borrowing side of the report is in clauses (iii) to (vi), and defaults and diversion of funds in clauses (vii) to (x).
How the auditor's report reads
The statements are in the auditor's report as a numbered answer to each sub-clause. For the report as a whole, including how the CARO annexure sits beside the opinion, see Independent Auditor's Report Format for Standalone Financial Statements. Where an answer is unfavourable or qualified, paragraph 4 requires the basis to be stated. Our books of accounts compliance service can prepare the fixed asset register and the title deed schedule an auditor will ask for.
A worked example
Granite Cables Limited (invented) has a fixed asset register with quantitative details and location for each item and a register of intangibles. Management verifies PPE once a year and a small discrepancy was properly adjusted. Two factory plots are held in the name of a promoter's relative pending transfer: the auditor lists them in the six-column table with the gross carrying value, the holder, the promoter link, the period held and the reason. During the year the company revalued one class of PPE on a Registered Valuer's report; the change was above 10% of that class's net carrying value, so the auditor states the amount. The company's inventory was physically verified with a 12% discrepancy in one class, which is reported along with how it was dealt with. Its banks sanctioned working capital limits of seven crore rupees in aggregate against stocks and receivables; the auditor reports whether the quarterly statements agree with the books.
Practical points
- Keep a title-deed schedule listing every immovable property with the registered owner, so the table in clause (i)(c) can be completed at once.
- Date the PPE and inventory verifications and record the follow-up on any difference.
- Have valuations of revalued assets signed by a Registered Valuer.
- Reconcile quarterly stock statements to the books every quarter, not at year-end.
- Check the benami position of every property and disclose it appropriately.
Need help preparing for the CARO annexure?
The title deed table and the working capital reconciliation are the two points that most often surface late in an audit. We can prepare the schedules, reconcile the quarterly returns to the books and brief the audit team through our books of accounts compliance service.
Key takeaways
- Clause (i): records of PPE and intangibles, physical verification, title deeds, revaluation and benami proceedings.
- A six-column table is used for title deeds not in the company's name.
- Revaluation: Registered Valuer; report the change if it is 10% or more in the aggregate of a class.
- Clause (ii): inventory discrepancies of 10% or more in aggregate for a class, and working capital above five crore rupees in aggregate secured on current assets.
- Unfavourable answers need stated reasons.
Read next
- Paragraphs 1, 2 and 4: which companies CARO applies to
- Clauses (iii) to (vi): loans, investments, deposits and cost records
- Independent Auditor's Report Format for Standalone Financial Statements
- What is CARO 2020 and Its Applicability
Disclaimer: Based on the Companies Act, 2013 rules (and the Companies (Auditor's Report) Order, 2020) named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.