An audit goes well or badly long before the auditor arrives. Most of what the auditor must report on is a matter of record: registers, reconciliations, confirmations, minutes. This note looks at the Companies (Auditor’s Report) Order, 2020, known as CARO, from the company’s side: what it asks, and what a company can have on file before it is asked.
Who CARO applies to
CARO applies to the statutory audit of most companies, with exclusions. It does not apply to banking companies, insurance companies, companies licensed under section 8, one person companies and small companies. It also does not apply to a private company that is not a holding or subsidiary of a public company and that, throughout the year, kept within all three of these limits: paid-up capital and reserves of ₹1 crore or less, borrowings of ₹1 crore or less, and revenue of ₹10 crore or less.
A change to note
The definition of a small company in section 2(85) was widened with effect from 1 December 2025: paid-up capital up to ₹10 crore and turnover up to ₹100 crore. Some companies that were within CARO’s scope before may now fall outside it, and the others should confirm their status each year from the audited figures, not from memory. Holding and subsidiary companies, public companies and section 8 companies cannot be small companies whatever their size.
What the auditor reports on
Paragraph 3 of CARO lists twenty-one matters. The ones that most often need work by the company are these:
| Clause | Subject | What the company should have ready |
|---|---|---|
| 3(i) | Property, plant and equipment | A fixed asset register with locations; physical verification records; title deeds of immovable property in the company’s name |
| 3(ii) | Inventory and working capital limits | Physical verification records and how differences were dealt with; where sanctioned working capital limits exceed ₹5 crore, the quarterly statements filed with the banks, reconciled to the books |
| 3(iii) | Loans, advances and guarantees given | Terms, repayment schedules and board approvals for loans to others |
| 3(vii) | Statutory dues | Evidence of timely deposit of GST, TDS, provident fund, ESI and other dues; a list of disputed amounts with the forum where each is pending |
| 3(viii) | Income surrendered in tax assessments | Whether any income not recorded in the books was disclosed in a tax assessment, and how it was accounted for |
| 3(ix) | Borrowings | Repayment record; use of term loans for their stated purpose |
| 3(xi) | Fraud and whistle-blower complaints | A register of frauds noticed and of complaints received, with action taken |
| 3(xiv) | Internal audit | Internal audit reports for the year, where the company is required to have an internal audit |
| 3(xix) | Ability to meet liabilities | Ageing of assets and liabilities and the cash-flow plan behind the going-concern view |
| 3(xx) | Corporate social responsibility | Unspent amounts and their transfer within the time allowed |
Records to keep through the year
- Registers kept current, not rebuilt in April: fixed assets, investments, loans given, related parties, charges.
- Monthly reconciliations of banks, GST returns against the books, TDS against Form 26AS and its successor statements, and stock statements against the ledger.
- Physical verification of inventory and fixed assets on a documented plan, with the counting sheets signed and differences explained.
- Board and committee minutes that record approvals of loans, guarantees, related-party transactions and borrowings when they happen.
- A statutory dues file with challans and a schedule of disputes that is updated whenever a notice or order arrives.
Audit trail and back-ups
Since 1 April 2023, every company keeping its books electronically must use software that records an audit trail of each change, with the date, and where the trail cannot be disabled. The auditor reports on this separately (rule 11(g) of the Companies (Audit and Auditors) Rules, 2014). Books kept electronically must also be backed up daily on servers physically located in India. Both are easier to show than to reconstruct: a short note of the software used, where the trail is enabled, and where back-ups are held saves time in the first week of the audit.
A year-end timeline
| When | What |
|---|---|
| January | Agree the audit timetable; confirm CARO applicability on the latest figures |
| March | Physical verification of inventory and fixed assets; cut-off procedures |
| April | Balance confirmations; final reconciliations; draft financial statements |
| May–June | Fieldwork; management representations; board approval of accounts |
The dates will differ by company; the order is what matters. Nothing on the list is the auditor’s job. All of it is what the auditor will ask to see.