Paragraphs 1 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 Companies (Auditor's Report) Order, 2020 (CARO 2020) is an Order made under section 143(11) of the Companies Act, 2013, not a set of rules. Its parts are called paragraphs and clauses. Paragraph 1 says which companies it applies to and lists five exceptions; paragraph 2 says it applies to reports for financial years commencing on or after 1 April 2021; paragraph 4 requires reasons where an answer is unfavourable or qualified. This article is based on the Order as amended up to the notification of 17 December 2020, read with the MCA e-book and the ICAI Guidance Note on CARO 2020 (Revised 2022 Edition). Later amendments should be checked.
CARO 2020 applies to every company, including a foreign company, except a banking company, an insurance company, a company licensed under section 8, a One Person Company, a small company, and a private company that stays within three limits of one crore rupees (paid up capital plus reserves and surplus, and total borrowings) and ten crore rupees (total revenue) and is not a subsidiary or holding company of a public company (paragraph 1(2)). The auditor's report must contain the matters in paragraphs 3 and 4 for financial years commencing on or after 1 April 2021 (paragraph 2). It does not apply to the report on consolidated financial statements except clause (xxi) of paragraph 3.
Paragraph 1: title, application and commencement
1(1) names the Order: the Companies (Auditor's Report) Order, 2020. It was made by S.O. 849(E) of 25 February 2020 under section 143(11), after consultation with the National Financial Reporting Authority, in supersession of the Companies (Auditor's Report) Order, 2016 (S.O. 1228(E) of 29 March 2016), except as respects things done or omitted before that supersession.
1(3) says it came into force on the date of its publication in the Official Gazette.
Paragraph 1(2): who is covered
The Order applies to every company including a foreign company as defined in section 2(42) of the Act, except:
| Clause | Excluded company |
|---|---|
| (i) | A banking company as defined in section 5(c) of the Banking Regulation Act, 1949 |
| (ii) | An insurance company as defined under the Insurance Act, 1938 |
| (iii) | A company licensed to operate under section 8 of the Companies Act |
| (iv) | A One Person Company (section 2(62)) and a small company (section 2(85)) |
| (v) | A private limited company, not being a subsidiary or holding company of a public company, that meets all of the three limits below |
The three limits in clause (v), all of which must hold for the exemption:
- paid up capital and reserves and surplus not more than one crore rupees as on the balance sheet date;
- no total borrowings exceeding one crore rupees from any bank or financial institution at any point of time during the financial year; and
- no total revenue, as disclosed in Schedule III to the Companies Act (including revenue from discontinuing operations), exceeding ten crore rupees during the financial year as per the financial statements.
The words are "not more than" and "not exceeding", so a company exactly at the limit remains exempt. Because the clause covers only a private company that is neither a subsidiary nor a holding company of a public company, a private subsidiary of a public company cannot use it, whatever its size. Small company status is a matter for the Act and the Definitions Details Rules; see Rules 1 and 2 of the Definitions Details Rules.
For a general introduction see What is CARO 2020 and Its Applicability and, for a clause-by-clause overview, CARO 2020: Companies Auditor Report Order Explained Clause by Clause. Our books of accounts compliance service can test your company against the applicability limits at the balance sheet date.
Paragraph 2: when the Order bites, and consolidated statements
Every report made by the auditor under section 143 on the accounts of every company to which the Order applies, for the financial years commencing on or after 1 April 2021, must, in addition, contain the matters specified in paragraphs 3 and 4, as may be applicable. The Order first named 1 April 2019; the notification of 24 March 2020 moved this to 1 April 2020, and the notification of 17 December 2020 deferred it by one more year to 1 April 2021. So CARO 2020 reporting applies to audits of financial year 2021-22 onwards; for earlier years the previous Order applied.
The proviso says the Order does not apply to the auditor's report on consolidated financial statements except clause (xxi) of paragraph 3. Clause (xxi) asks about qualifications or adverse remarks in the CARO reports of the companies included in the consolidated financial statements; it is explained in Paragraph 3, clauses (xvii) to (xxi).
Paragraph 4: reasons for unfavourable or qualified answers
- 4(1). Where, in the auditor's report, the answer to any question referred to in paragraph 3 is unfavourable or qualified, the report must also state the basis for that answer.
- 4(2). Where the auditor is unable to express any opinion on a specified matter, his report must indicate that fact together with the reasons why it is not possible to give an opinion.
So the report cannot simply say "no" or "not applicable" without grounds; for an adverse answer the basis is stated, and for a matter on which no opinion can be given the reasons are stated.
The rest of paragraph 3, clause by clause
Paragraph 3 holds the twenty-one clauses. They are explained in this series as follows:
| Clauses | Subject | Article |
|---|---|---|
| (i) and (ii) | Property, plant and equipment, intangibles, inventory | Clauses (i) and (ii) |
| (iii) to (vi) | Loans, investments, sections 185 and 186, deposits, cost records | Clauses (iii) to (vi) |
| (vii) to (x) | Statutory dues, unrecorded income, defaults, fund raising | Clauses (vii) to (x) |
| (xi) to (xvi) | Fraud, Nidhi, related parties, internal audit, RBI registration | Clauses (xi) to (xvi) |
| (xvii) to (xxi) | Cash losses, auditor resignation, going concern, unspent CSR, group CARO | Clauses (xvii) to (xxi) |
A worked example
Ridge Foods Private Limited (invented) is a private company that is not a subsidiary or holding company of a public company. At the balance sheet date its paid up capital and reserves and surplus are below one crore rupees, it has not borrowed more than one crore rupees from any bank or financial institution at any time in the year, and its total revenue is below ten crore rupees. Under paragraph 1(2)(v) CARO 2020 does not apply to it. Its sister company, Ridge Retail Private Limited, is a subsidiary of a public company; even though it is small, it cannot use clause (v), and its auditor's report for a year commencing on or after 1 April 2021 must contain the paragraph 3 matters (unless another exception, such as small company status, applies).
Practical points
- Apply each test at the stated point: the balance sheet date for capital and reserves, any point in the year for borrowings, the full year for revenue.
- Check status as a subsidiary or holding company of a public company before using clause (v).
- For group audits, collect each component auditor's CARO report so that clause (xxi) can be answered.
- Document the reason for every unfavourable or qualified answer for paragraph 4.
Need help with CARO applicability?
A wrong applicability call leaves either an unnecessary report or a missing one. We can test your company against paragraph 1(2), prepare the supporting schedules and brief your auditor through our books of accounts compliance service.
Key takeaways
- CARO 2020 is an Order under section 143(11), made by S.O. 849(E) of 25 February 2020.
- Five exceptions: banking, insurance, section 8, OPC and small company, and the small private company within three limits.
- It applies for financial years commencing on or after 1 April 2021 (after two deferrals).
- On consolidated financial statements, only clause (xxi) of paragraph 3 applies.
- Unfavourable or qualified answers need reasons; inability to opine needs reasons too.
Read next
- What is CARO 2020 and Its Applicability
- CARO 2020: Companies Auditor Report Order Explained Clause by Clause
- Paragraph 3, clauses (i) and (ii): property, plant and equipment and inventory
- Section 143: Auditor Powers and Duties
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.