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.
The last five clauses of paragraph 3 of CARO 2020 cover cash losses, resignation of the statutory auditor during the year, the auditor's opinion on whether a material uncertainty exists about meeting liabilities within one year, unspent CSR amounts, and qualifications in the CARO reports of group companies. 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 (xvii) asks whether the company incurred cash losses in the financial year and in the immediately preceding financial year and, if so, the amount; clause (xviii) asks about any resignation of the statutory auditors and whether the issues raised by the outgoing auditors were taken into consideration; clause (xix) is the going-concern style opinion on liabilities falling due within one year from the balance sheet date; clause (xx) covers unspent CSR; and clause (xxi), which also applies to the report on consolidated financial statements, covers qualifications or adverse remarks in the CARO reports of companies included in the consolidation.
Clause (xvii): cash losses
Whether the company has incurred cash losses in the financial year and in the immediately preceding financial year, and, if so, the amount of the cash losses. The question looks at two consecutive years, the year under audit and the year before it, and the amount of cash losses is stated. The Order does not define "cash losses" in this clause.
Clause (xviii): resignation of statutory auditors
Whether there has been any resignation of the statutory auditors during the year and, if so, whether the auditor has taken into consideration the issues, objections or concerns raised by the outgoing auditors. The incoming auditor therefore looks at the reasons the outgoing auditor gave. The resignation procedure for the outgoing auditor is in Rules 7 to 9 of the Audit and Auditors Rules: the resigning auditor files a statement in Form ADT-3, which gives the reasons the successor should read.
Clause (xix): the material uncertainty opinion
On the basis of the financial ratios, ageing and expected dates of realisation of financial assets and payment of financial liabilities, other information accompanying the financial statements, the auditor's knowledge of the Board of Directors and management plans, whether the auditor is of the opinion that no material uncertainty exists as on the date of the audit report that the company is capable of meeting its liabilities existing at the date of the balance sheet as and when they fall due within a period of one year from the balance sheet date.
The clause names four inputs: (1) financial ratios; (2) ageing and expected dates of realisation of financial assets and payment of financial liabilities; (3) other information accompanying the financial statements; and (4) the auditor's knowledge of the Board of Directors and management plans. The period tested is one year from the balance sheet date, and the liabilities tested are those "existing at the date of balance sheet". The wording is framed as an opinion that no material uncertainty exists. An unfavourable answer needs its basis stated under paragraph 4 (see paragraphs 1, 2 and 4).
Clause (xx): unspent CSR
| Sub-clause | What the auditor reports |
|---|---|
| (a) | In respect of other than ongoing projects, whether the company has transferred unspent amount to a Fund specified in Schedule VII to the Companies Act within a period of six months of the expiry of the financial year, in compliance with the second proviso to section 135(5) |
| (b) | Whether any amount remaining unspent under section 135(5), pursuant to any ongoing project, has been transferred to a special account in compliance with section 135(6) |
So the clause separates two kinds of unspent amount. For projects that are not ongoing, the question is whether the unspent amount went to a Schedule VII Fund within six months of the end of the financial year. For ongoing projects, the question is whether the amount went to a special account. The rules on the unspent CSR account and the three-year window are explained in Ongoing CSR Projects: The Unspent CSR Account, the Three-Year Window and What Happens to Money Not Spent, and the CSR Rules' spending provisions in Rules 7 to 9 of the CSR Policy Rules and Rule 8. The Board's report on CSR carries the matching disclosures.
Clause (xxi): group company CARO remarks
Whether there have been any qualifications or adverse remarks by the respective auditors in the CARO reports of the companies included in the consolidated financial statements; if yes, the details of the companies and the paragraph numbers of the CARO report containing the qualifications or adverse remarks.
This is the only clause that applies to the auditor's report on consolidated financial statements (the proviso to paragraph 2). The group auditor relies on the CARO reports of the component auditors, so the parent should collect each subsidiary's and associate's CARO report in time. A company included in the consolidation that is outside CARO (for example a small company) simply has no CARO report to review. Our virtual CFO services can run the collection and reconciliation across the group each year.
A worked example
Cedar Logistics Limited (invented) lost cash in both the current and the previous year; the auditor states the amount of the cash losses for the year. During the year its statutory auditor resigned, and the incoming auditor reports that the issues raised by the outgoing auditor were considered. Under clause (xix), after reviewing ratios, ageing of receivables and payables, and management plans, the auditor concludes that no material uncertainty exists that the company can meet its liabilities as they fall due within a year of the balance sheet date. For CSR, unspent money on a non-ongoing project was transferred to a Schedule VII Fund within six months of year-end, and unspent money on an ongoing project was moved to the special account. In the group report, a subsidiary's CARO report contains a remark on one paragraph; the parent's consolidated report lists the subsidiary and the paragraph number.
Practical points
- Prepare a cash loss working for two years, not one.
- Provide the incoming auditor with the outgoing auditor's ADT-3 statement and the Board's response.
- Keep a cash-flow forecast, ageing statements and a record of management's plans for the auditor's going-concern review.
- Track CSR transfer dates against the six-month and special-account requirements.
- Calendar the collection of CARO reports from all group auditors.
Need help with year-end reporting?
Clauses (xvii) to (xxi) bring together the liquidity, CSR and group reporting that finance teams must support at year-end. We can prepare the forecasts, the CSR transfer trail and the group CARO tracker through our virtual CFO services.
Key takeaways
- Clause (xvii): cash losses in the year and the preceding year, with the amount.
- Clause (xviii): resignation of statutory auditors and consideration of the outgoing auditor's concerns.
- Clause (xix): opinion on no material uncertainty in meeting liabilities falling due within one year.
- Clause (xx): unspent CSR to a Schedule VII Fund within six months (non-ongoing projects) or to a special account (ongoing projects).
- Clause (xxi): the only clause that applies to the consolidated report.
Read next
- Ongoing CSR Projects: The Unspent CSR Account and the Three-Year Rule
- Rules 7 to 9 of the CSR Policy Rules: CSR expenditure and surplus
- Rules 7 to 9 of the Audit and Auditors Rules: removal and resignation
- Clauses (xi) to (xvi): fraud, Nidhi, related parties and RBI registration
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.