The Companies (Auditor’s Report) Order, 2020 requires the statutory auditor of most companies to report on 21 specified matters in an annexure to the audit report. This checklist is the working paper that carries that reporting from enquiry to conclusion, clause by clause.
At a glance
- Document type
- Audit working paper / checklist
- Applies to
- Statutory audit of companies covered by CARO 2020
- Governing instrument
- Companies (Auditor’s Report) Order, 2020, issued under section 143(11), Companies Act, 2013
- Clauses covered
- Paragraph 3, clauses (i) to (xxi)
- Structure
- Five columns — Clause, Particulars, Remarks, WP Reference, Conclusion
- Used at
- Fieldwork and completion stages
- Format
- Microsoft Word (.docx), editable
What this template covers
CARO 2020 replaced CARO 2016 and materially expanded auditor reporting. The number of matters rose to 21, and several clauses now call for quantified disclosure rather than a yes or no — the amount of unrecorded income surrendered, the number of Core Investment Companies in a group, the ageing of financial assets against liabilities.
The checklist converts each clause of paragraph 3 into the underlying enquiries the auditor must actually make. Clause 3(i)(a)(A), for example, is a single line in the Order about maintaining proper records of property, plant and equipment. The checklist breaks it into the particulars those records must show: description sufficient to identify the asset, classification by head of account, location, quantity, original cost, year of purchase, revaluation adjustments, rate and basis of depreciation, useful life and impairment, accumulated depreciation, particulars of disposals, and assets retired from active use.
This is a working paper, not a report. It documents the evidence and reasoning behind each CARO answer. The reportable output is the CARO annexure to the auditor’s report; this checklist is what sits behind it in the audit file.
How the checklist is structured
The document is a single table of roughly 382 rows with five columns:
| Column | Purpose |
|---|---|
| CARO Clause | The clause reference, down to sub-clause level — 3(i)(a)(A), 3(iii)(c), 3(xvi)(d) and so on |
| Particulars | The specific enquiry or verification the clause requires, expanded into its components |
| Remarks | The auditor’s findings — what was examined, what was found, explanations obtained |
| WP Reference | Cross-reference to the working paper or schedule holding the supporting evidence |
| Conclusion | Whether the finding requires a modification to the CARO answer |
The final column is the one that earns its place. It forces an explicit decision on each clause rather than leaving a note in the Remarks column to be interpreted later, and it makes review straightforward — the reviewer reads down the Conclusion column and follows up only where a modification is flagged.
The opening row also records the Order’s own requirement that where an answer is unfavourable or qualified, the report must state the basis for it, and that where the auditor is unable to express an opinion on a matter, the report must say so together with the reasons.
The 21 CARO clauses
| Clause | Subject matter |
|---|---|
| 3(i) | Property, plant and equipment, and intangible assets — records, physical verification, title deeds, revaluation, Benami proceedings |
| 3(ii) | Inventory — physical verification and coverage; working capital limits above ₹5 crore and agreement of quarterly returns with books |
| 3(iii) | Investments, guarantees, security, loans and advances granted — terms, schedule of repayment, overdue amounts, renewals, loans repayable on demand |
| 3(iv) | Compliance with sections 185 and 186 in respect of loans, investments, guarantees and security |
| 3(v) | Deposits and deemed deposits — compliance with sections 73 to 76 and the rules |
| 3(vi) | Cost records under section 148(1), where prescribed |
| 3(vii) | Statutory dues — regularity of deposit, arrears outstanding for more than six months, dues not deposited on account of dispute |
| 3(viii) | Transactions not recorded in the books and surrendered or disclosed in income tax assessments |
| 3(ix) | Default in repayment of borrowings; wilful defaulter status; end use of term loans; short-term funds used for long-term purposes; funds raised to meet obligations of subsidiaries, associates or joint ventures |
| 3(x) | Money raised by public offer and by preferential allotment or private placement, and its application |
| 3(xi) | Fraud by or on the company; reporting under section 143(12) in Form ADT-4; whistle-blower complaints considered |
| 3(xii) | Nidhi companies — Net Owned Funds to deposits ratio, and maintenance of unencumbered term deposits |
| 3(xiii) | Related party transactions — compliance with sections 177 and 188, and disclosure in the financial statements |
| 3(xiv) | Internal audit system, and consideration of internal audit reports by the statutory auditor |
| 3(xv) | Non-cash transactions with directors or persons connected with them, and section 192 compliance |
| 3(xvi) | Registration under section 45-IA of the Reserve Bank of India Act; conduct of NBFC or Housing Finance activity; Core Investment Company status and number of CICs in the group |
| 3(xvii) | Cash losses in the financial year and the immediately preceding financial year |
| 3(xviii) | Resignation of the statutory auditors during the year, and consideration of the issues raised by the outgoing auditor |
| 3(xix) | Material uncertainty over meeting liabilities as they fall due within one year of the balance sheet date, on the basis of ratios, ageing and expected realisation dates |
| 3(xx) | Corporate social responsibility — transfer of unspent amounts under section 135, for other than ongoing projects and for ongoing projects |
| 3(xxi) | Qualifications or adverse remarks in the CARO reports of companies included in the consolidated financial statements |
Clause 3(xxi) applies only to the consolidated financial statements. CARO reporting is otherwise not required on consolidated financial statements — clause (xxi) is the single exception, requiring the auditor to list the companies whose own CARO reports carry qualifications or adverse remarks.
When to use it
The checklist has three natural points of use in the engagement:
- Planning. Read through the clauses at the planning stage to identify which will need substantive work. Clauses 3(ii) on quarterly returns to banks, 3(ix) on end use of borrowings and 3(xix) on the one-year outlook usually require evidence that must be requested early rather than assembled at completion.
- Fieldwork. Complete the Remarks and WP Reference columns as the underlying areas are audited, so that CARO work is a by-product of the audit rather than a separate exercise at the end.
- Completion. Review the Conclusion column, settle any modifications with the engagement partner, and draft the CARO annexure from it.
Treating CARO as a completion-stage formality is the most common cause of weak reporting. Several clauses require evidence obtainable only during fieldwork — physical verification attendance, bank confirmations of quarterly returns, title deed inspection. Filling the checklist retrospectively invites answers that are not properly supported.
Which companies CARO applies to
CARO 2020 applies to every company including a foreign company, with specified exclusions. It does not apply to:
- A banking company as defined in the Banking Regulation Act, 1949
- An insurance company as defined in the Insurance Act, 1938
- A company licensed to operate under section 8 of the Companies Act, 2013
- A One Person Company, and a small company as defined in section 2(85)
- A private limited company that is not a subsidiary or holding of a public company, and which satisfies all of the specified conditions on paid-up capital and reserves, borrowings and revenue
The private company exemption is cumulative — every condition must be met. Confirm the position for the year under audit before concluding that reporting is not required, because a company can move into the scope of the Order from one year to the next on a change in borrowings or revenue alone.
How it maps to the Standards on Auditing
CARO reporting is not free-standing. The work behind it is governed by the Standards on Auditing, and the checklist is the documentation that demonstrates compliance:
| Standard | Relevance to CARO work |
|---|---|
| SA 200 | Overall objectives — professional scepticism and reasonable assurance apply to CARO matters as to any other reporting |
| SA 230 | Audit documentation — the checklist and its WP references are the record that the work was performed |
| SA 240 | Fraud — underpins clause 3(xi) and the section 143(12) reporting decision |
| SA 250 | Laws and regulations — underpins clauses 3(iv), 3(v), 3(vii), 3(xiii) and 3(xv) |
| SA 501 | Specific considerations — inventory attendance supporting clause 3(ii) |
| SA 505 | External confirmations — bank and borrowing confirmations for clauses 3(ii) and 3(ix) |
| SA 550 | Related parties — supports clause 3(xiii) |
| SA 570 | Going concern — closely related to the clause 3(xix) assessment, though the two are not identical |
| SA 580 | Written representations — management representations obtained on CARO matters |
| SA 700 / 705 | Forming the opinion and modifications — the CARO annexure accompanies the auditor’s report |
Clause 3(xix) is not a going concern opinion. The clause asks whether, on the basis of ratios, ageing and expected realisation dates, the auditor is of the opinion that a material uncertainty exists as to the company meeting its liabilities falling due within one year. It is a specific reporting requirement and should not be answered simply by copying the SA 570 conclusion. The Order itself records that the auditor gives no guarantee of future viability.
Using the template well
- Do not delete inapplicable clauses. Mark them “Not applicable” with the reason — for example that the company is not a Nidhi company for clause 3(xii). A visibly considered clause is evidence; a deleted one is a gap.
- Keep the WP Reference column populated. An empty reference against a substantive Remark is the first thing a reviewer or a quality inspection will question.
- Quantify where the clause asks for a figure. Clauses 3(vii), 3(viii), 3(ix), 3(xi), 3(xvii) and 3(xx) call for amounts, periods or numbers, not a bare affirmative.
- Record the basis for every unfavourable or qualified answer, as the Order expressly requires.
- Update the template for amendments before reusing it in a later year. Reporting requirements change, and a checklist carried forward unchanged can quietly omit a new clause.
Common mistakes in CARO reporting
- Answering a clause “Yes” without the quantified detail the clause requires
- Omitting the basis for an unfavourable or qualified answer
- Reporting on consolidated financial statements beyond clause 3(xxi)
- Concluding that the private company exemption applies without testing every condition
- Treating clause 3(xix) as a restatement of the going concern conclusion
- Overlooking clause 3(xi)(c) on whistle-blower complaints, which requires the auditor to have considered complaints received during the year
- Reusing the prior year’s checklist without refreshing it for amendments or for changes in the company’s circumstances
Frequently asked questions
What is CARO 2020?
The Companies (Auditor’s Report) Order, 2020 is issued by the Central Government under section 143(11) of the Companies Act, 2013. It requires the statutory auditor of a covered company to report on 21 specified matters in an annexure to the auditor’s report.
Is this checklist mandatory?
No. CARO reporting is mandatory for covered companies, but the format of the working paper behind it is not prescribed. A checklist is the customary way of documenting the work and satisfying SA 230.
Does CARO apply to a private limited company?
It can. A private company is exempt only if it is not a subsidiary or holding of a public company and satisfies all the specified conditions on paid-up capital and reserves, borrowings and revenue. All conditions must be met.
Does CARO apply to a Section 8 company?
No. A company licensed to operate under section 8 of the Companies Act, 2013 is outside the scope of the Order.
Does CARO apply to consolidated financial statements?
Only clause 3(xxi), which requires reporting of qualifications or adverse remarks in the CARO reports of the companies included in the consolidation. The other clauses do not apply to consolidated financial statements.
How many clauses does CARO 2020 contain?
Paragraph 3 contains 21 clauses, numbered (i) to (xxi), many with sub-clauses.
What changed from CARO 2016?
CARO 2020 expanded reporting considerably. Among the additions are title deeds of immovable property, revaluation of assets, Benami property proceedings, quarterly returns filed with banks, loans repayable on demand, wilful defaulter status, end use of borrowings, cash losses, auditor resignation, the one-year liability outlook, CSR unspent amounts, and consolidation-level CARO qualifications.
Can this template be edited?
Yes. It is an editable Word document. Add columns for preparer and reviewer initials and dates if your firm’s documentation policy requires them.
Who should complete the checklist?
Ordinarily the engagement team member auditing the relevant area, with review by the engagement manager and partner. The clause conclusions should be settled by the engagement partner.
Where does the checklist sit in the audit file?
In the completion or reporting section, cross-referenced to the substantive working papers through the WP Reference column.
What is the difference between the checklist and the CARO annexure?
The checklist is internal documentation of the work performed. The annexure is the public reporting output attached to the auditor’s report. The annexure is drafted from the checklist’s conclusions.
Does completing the checklist discharge the auditor’s responsibility?
No. A checklist records that enquiries were made; it does not substitute for sufficient appropriate audit evidence or for professional judgement. The Standards on Auditing continue to govern the underlying work.
Conclusion
CARO 2020 asks 21 questions that cannot be answered well at the last minute. A clause-by-clause working paper with an explicit conclusion column keeps the reporting anchored to evidence, makes review efficient, and leaves a defensible record in the audit file. Used from the planning stage rather than at completion, it turns CARO from a year-end scramble into an ordinary part of the audit.
Download the template
CARO 2020 Audit Checklist Template
This template is a professional working paper circulated within the profession, shared here for the convenience of practitioners. Micro Advisor is not its author and claims no copyright in it. It is provided as-is, may not reflect the latest amendments, and is not a substitute for the authoritative pronouncements and formats issued by the relevant professional body or regulator.
Micro Advisor assists companies and audit firms with statutory audit and CARO reporting under the Companies Act, 2013.
References
Disclaimer. This article is for general information and does not constitute professional advice. The template is provided as-is and may not reflect subsequent amendments; readers should verify the current requirements of the Companies (Auditor’s Report) Order, 2020 and the Standards on Auditing before relying on it. Applicability of the Order and the conclusions reached on any clause depend on the facts of the engagement and the professional judgement of the auditor.