Companies Auditor Report Order Rules – What is CARO 2020? And CARO 2020 Applicability

What is CARO 2020?, CARO 2020 Applicability, and the Difference between CARO 2016 and CARO 2020

The Ministry of Corporate Affairs (MCA) has issued the Firms (Auditor’s Report) Order, 2020 (CARO 2020), which is effective for audits of financial statements of qualified companies beginning on or after April 1, 2020. In this article there is information on “What is CARO?”, CARO 2020 applicability, the difference between CARO 2016 and CARO 2020 is mentioned.


What is CARO?

CARO 2020 is a new audit report format for statutory audits of firms conducted under the Companies Act of 2013. Following consultations with the National Financial Reporting Authority, CARO (Companies Auditor Report Order Rules) 2020 now includes extra reporting obligations NFRA. The National Financial Reporting Authority (NFRA) is an independent regulatory agency in India that oversees the audit and accounting professions. The goal of CARO 2020 is to improve the overall quality of business auditor reporting.

CARO 2020 Applicability  

All statutory audits beginning on or after April 1, 2021, corresponding to the financial year 2020-21, must use CARO 2020. All companies that were covered by CARO 2016 are subject to the order. As a result, the order applies to all firms with the exception of the following, which are specifically excluded from its scope:

  • Insurance Company

  • One Person Company

  • Companies Registered as Charitable Organization

  • Small businesses (those with a paid-up capital of less than or equal to Rs 50 lakh and a previously reported turnover of less than or equal to Rs 2 crore)

  • Banking Company

The following private businesses are likewise excluded from CARO 2020’s requirements:

  • Private Company that have gross revenues or revenue (including money from ending operations) of less than or equal to Rs 10 crore in a financial year are also exempt from the provisions of CARO, 2020.

  • Whose paid-up share capital plus reserves are less than or equivalent to Rs 1 crore as of the balance sheet date (i.e. usually at the end of the FY).

  • Not a public company’s holding or subsidiary.

  • Whose borrowings are less than or equal to Rs 1 crore at any point throughout the fiscal year.

Difference between CARO 2016 and CARO 2020

CARO 2020

CARO 2016

Only property, plant, and equipment, as well as intangible assets, are reported. Property, Plant, and Equipment of the company are being re-evaluated.

All the Fixed Assets need to be reported. No format is given for disclosing in a financial statement.

Reporting on all immovable assets’ title deeds (other than properties where the company is the lessee and the lease agreements are properly executed in the lessee’s favor) (In Specified Format – Note 1).

Reporting on Title Deeds of all Immovable Properties.

Reporting of Investments in guaranty or security were provided, and no loans or advances were granted.

Granting of any loans or advances, secured or unsecured, must be reported.

Reporting on whether the company has raised loans using securities pledged by its subsidiaries, joint ventures, and partners, and if so, providing information as well as any defaults in repayment.

There is no such information that needs to be reported in CARO 2016

If there has been any fraud committed by or against the company, the amount and nature of the fraud must be reported.

Whether managerial remuneration has been paid or granted in compliance with Section 197 of the Companies Act, 2013’s required permissions.

Transactions with CARO 2020 Requirements for Reporting

  • Assets, both tangible and intangible, are described in detail.

  • Inventory and working capital information.

  • Investment information, including any guarantees or security, as well as any advances or loans made.

  • About a loan to directors, compliance is required.

  • Deposit compliance has been accepted.

  • Costing records must be kept up to date.

  • Statutory liabilities are deposited.

  • Unrecorded earnings.

  • Borrowings are not being repaid.

  • The amount of money raised and how it was spent needs to be reported.

  • Complaints about fraud and whistle-blowers.

  • Nidhi Company Compliances (If any).

  • Connected parties must be compliant.

  • System for internal auditing.

  • Dealings with directors that are not in cash.

  • Section 45-IA of the RBI Act of 1934 governs registration.

  • Losses in cash

  • Statutory auditors have resigned.

  • There is a significant risk of not being able to meet obligations.

  • Transfer to a fund established under the Companies Act of 2013, Schedule VII.

  • Other group companies’ qualifications or negative auditor remarks.

FAQs on CARO 2020 Applicability

1. Is CARO applicable to International Businesses?

Yes, foreign firms as defined by section 2 (42) of the Companies Act, 2013 are covered. A foreign company is defined as a company or body corporate incorporated outside India that has a place of business in India, whether directly or through an agent, electronically or physically, and conducts any business activity in India in any other way, according to Section 2 (42) of the Companies Act, 2013.

2. What is the basic difference between CARO 2020 and CARO 2016?

The CARO 2020 comprises 21 provisions, whereas the CARO 2016 only has 16. Seven new clauses have been added to CARO 2020, and the old clauses from CARO 2016 have been rewritten to elicit comprehensive feedback from the auditors.

3. For whom CARO 2020 is Applicable?

CARO 2020 is applicable for the companies that is registered under the Companies Act, 2013. CARO 2020 does not apply to LLP (Limited Liability Partnership) as it is registered under the Limited Liability Act, 2008.

4. Is CARO (Companies Auditor Report Order Rules) 2020 relevant to financial statements that are consolidated?

The CARO 2016 did not apply to the financial accounts of the combined entity. However, CARO 2020 includes a clause that now applies to consolidated financial statement reporting. According to this paragraph, if the auditors emphasize any negative remarks or qualifiers in their individual standalone firms’ CARO reports, the contents of those remarks should be stated by the companies’ auditors in their CARO reports of consolidated financial statements.


CARO (Companies Auditor Report Order Rules) 2020 advocates for a comprehensive disclosure mechanism that will improve the overall quality of auditing and reporting by requiring audited to share all information with auditors and financial statement consumers. The benefits will undoubtedly outweigh the additional responsibilities.

Categories: Company law
Zarana Mehta: Zarana Mehta is an MBA in Finance from Gujarat Technology University. Though having a masters degree in Business Administration, her upbeat and optimistic approach for changes led her to pursue her passion i.e. Creative writing. She is currently working as Content Writer at Ebizfiling.
Leave a Comment