Corporate Accounting and Auditing · Audit Report and Reporting under CARO

CARO 2020: Statutory Dues, Fraud, Borrowings and Other Clauses

Updated 10 October 2026 · Fact-checked

CARO 2020 requires the statutory auditor to answer specific questions in a report attached to the audit report. For clauses 3(vii), 3(ix), 3(xi), 3(xiv) and 3(xvii), you report on statutory dues, loan defaults, fraud and whistle-blowers, internal audit, and cash losses, giving amounts and details where the answer is adverse.

Understand CARO 2020: Statutory Dues, Fraud, Borrowings and Other Clauses

The Companies (Auditor's Report) Order, 2020 (CARO 2020) asks the auditor to report on a fixed list of matters in paragraph 3. Each clause is a question. You answer it with facts from your audit work. Where the answer is adverse, you give the nature, period and amount.

This topic covers five groups of clauses. Clause 3(vii) is about statutory dues such as GST, provident fund, employees' state insurance, income-tax, customs, excise, VAT and cess. Clause 3(ix) is about borrowings: defaults, wilful defaulter status and use of loan funds. Clause 3(xi) is about fraud and whistle-blower complaints. Clause 3(xiv) is about the internal audit system. Clause 3(xvii) is about cash losses.

In clause 3(vii)(a), you report whether the company is regular in depositing undisputed statutory dues. If not, you indicate the extent of arrears outstanding on the last day of the financial year for a period of more than six months from the date they became payable. In 3(vii)(b), where dues are unpaid because of a dispute, you give the amounts involved and the forum where the dispute is pending. A mere representation to the department is not a dispute.

Clause 3(ix) has six parts. (a) is default in repayment of loans or borrowings or interest to any lender, reported in the prescribed format with period and amount. (b) is wilful defaulter status. (c) is whether term loans were applied for their purpose. (d) is short-term funds used for long-term purposes. (e) is funds taken to meet obligations of subsidiaries, associates or joint ventures. (f) is loans raised on pledge of securities held in subsidiaries, joint ventures or associates.

Clause 3(xi) asks about fraud by or on the company noticed or reported during the year, whether the auditor filed a report in Form ADT-4 under sub-section (12) of section 143 of the Companies Act, and whether the auditor considered whistle-blower complaints. Clause 3(xiv) asks whether the company has an internal audit system commensurate with its size and nature, and whether the auditor considered the internal auditors' reports. Clause 3(xvii) asks whether the company incurred cash losses in the year and the immediately preceding year, and the amount.

Key rules to remember

Clause 3(vii)(a): undisputed statutory dues: Report arrears outstanding on the last day of the year for more than six months from the date payable; Applies to undisputed dues including GST, provident fund, ESI, income-tax, sales-tax, service tax, customs, excise, VAT, cess and other statutory dues.
Clause 3(vii)(b): disputed dues: Disclose amount involved and forum where dispute is pending; A mere representation to the department is not a dispute.
Clause 3(ix)(a): default in repayment: Report period and amount of default, in the prescribed format; Format covers nature of borrowing, lender name, amount not paid, principal or interest, days of delay and remarks. Lender-wise details are needed for banks, financial institutions and Government.
Clause 3(xi): fraud and whistle-blowers: (a) fraud noticed or reported, with nature and amount; (b) ADT-4 filed under section 143(12); (c) whistle-blower complaints considered; Covers fraud by the company and fraud on the company.
Clause 3(xiv): internal audit: System commensurate with size and nature; internal audit reports considered by statutory auditor; Two separate sub-clauses, (a) and (b).
Clause 3(xvii): cash losses: Cash loss in current year and in immediately preceding year; state amount; Report whether cash losses were incurred in the current year and in the immediately preceding year. State the amount for each year in which they were incurred.

How to solve CARO 2020: Statutory Dues, Fraud, Borrowings and Other Clauses questions

Use this method for any question that asks you to report under a CARO clause on facts given in the case.

1Identify the clause the facts belong to: dues 3(vii), borrowings 3(ix), fraud or whistle-blower 3(xi), internal audit 3(xiv), cash loss 3(xvii).
2Split the clause into its sub-clauses and match each fact to one sub-clause.
3Separate undisputed from disputed dues, and principal from interest, before computing anything.
4Apply the test in the clause, for example more than six months from the due date for dues.
5State the answer for each sub-clause: yes or no, then the amount, period, nature or forum required.
6Write the reporting in the auditor's voice, in short numbered points.
7Conclude with the impact, such as whether the matter also needs an adverse remark elsewhere in the audit report.

Quickest way: Clause-and-trigger scan

When to use it: Use it in MCQs and short-note questions where you must pick the right clause or the reporting trigger quickly.

Link the keyword to the clause: dues to 3(vii), default or term loan to 3(ix), fraud or whistle-blower to 3(xi), internal audit to 3(xiv), cash loss to 3(xvii).
Look for the trigger: six months from the due date for dues. For cash losses, check both the current year and the immediately preceding year, and state the amount for each year in which a cash loss was incurred.
Check whether the item is disputed. If yes, report amount and forum under 3(vii)(b).
Pick the option that matches the exact wording of the clause.

Common mistakes in CARO 2020: Statutory Dues, Fraud, Borrowings and Other Clauses

Reporting disputed dues as arrears under 3(vii)(a).
Students see unpaid tax and treat it as a default.
Fix: Clause 3(vii)(a) covers undisputed dues. Put disputed dues under 3(vii)(b) with amount and forum.
Treating a letter to the tax department as a dispute.
The word representation looks like an appeal.
Fix: A mere representation to the concerned department is not a dispute. Report the amount as undisputed.
Using the wrong time test for dues, such as one year from the year end.
Students mix this with other time limits.
Fix: Count more than six months from the date the dues became payable, as on the last day of the year.
Reporting only bank loans under 3(ix)(a).
Students think of loans as bank loans.
Fix: The clause covers loans or other borrowings and interest to any lender. Lender-wise details are needed for banks, financial institutions and Government.
Confusing fraud reporting under 3(xi) with the ADT-4 filing alone.
Section 143(12) is remembered but the other parts are not.
Fix: Answer all three parts: fraud noticed with nature and amount, ADT-4 filed, whistle-blower complaints considered.
Reporting a cash loss for one year only.
The word immediately preceding is overlooked.
Fix: Clause 3(xvii) asks about the financial year and the immediately preceding year, with the amount.

Worked examples

Example 1

Auditor of Kaveri Textiles Ltd finds these statutory dues at 31 March: undisputed GST ₹4,00,000 payable since 15 September of the previous year; undisputed provident fund ₹1,50,000 payable since 10 February of the current year; income-tax ₹6,00,000 not paid because an appeal is pending before the Commissioner (Appeals). How will the auditor report under clause 3(vii)?

Show the solution

Clause 3(vii)(a) covers undisputed dues. GST and provident fund are undisputed.
GST: payable since 15 September, so more than six months before 31 March. Report it as arrears.
Provident fund: payable since 10 February, which is under two months before 31 March. It is not outstanding for more than six months, so it is not reported as arrears.
Income-tax of ₹6,00,000 is unpaid due to a dispute with an appeal pending. It goes under 3(vii)(b).
Under 3(vii)(b), mention the amount ₹6,00,000 and the forum, Commissioner (Appeals).

Answer: Under 3(vii)(a), report undisputed GST arrears of ₹4,00,000 outstanding for more than six months. Provident fund of ₹1,50,000 is not reported. Under 3(vii)(b), report income-tax of ₹6,00,000 with the forum, Commissioner (Appeals).

Example 2

During the year, a company's whistle-blower committee received two complaints. The auditor did not study them. A senior manager's misappropriation of ₹8,50,000 was discovered by the company. The auditor has not filed any report under section 143(12). The company also incurred cash losses of ₹12,00,000 this year and ₹7,00,000 last year. Which clauses apply, and what is the reporting position?

Show the solution

Fraud and whistle-blowers fall under clause 3(xi).
3(xi)(a): a fraud on the company has been noticed. Report its nature (misappropriation by a senior manager) and amount ₹8,50,000.
3(xi)(b): the clause asks only whether a report under section 143(12) has been filed in Form ADT-4 with the Central Government. On the given facts, no report has been filed. So the auditor reports that no ADT-4 has been filed. The auditor should also evaluate this fraud for reporting under section 143(12), but the clause itself asks for the factual position.
3(xi)(c): the clause asks whether the auditor has considered whistle-blower complaints received during the year. On the given facts, the auditor did not study the two complaints. So the auditor reports that the two whistle-blower complaints were not considered.
Cash losses fall under clause 3(xvii). Cash losses were incurred in both the current and the preceding year.
Report the amounts: ₹12,00,000 for the current year and ₹7,00,000 for the preceding year.

Answer: Under 3(xi)(a), report a fraud on the company of ₹8,50,000, with its nature (misappropriation by a senior manager). Under 3(xi)(b), report that no report has been filed in Form ADT-4 under section 143(12). Under 3(xi)(c), report that the two whistle-blower complaints were not considered by the auditor. Under 3(xvii), report cash losses of ₹12,00,000 in the current year and ₹7,00,000 in the preceding year.

Exam tips

Learn the clause numbers with one keyword each: 3(vii) dues, 3(ix) borrowings, 3(xi) fraud, 3(xiv) internal audit, 3(xvii) cash loss.
In MCQs, check the six-month test and the disputed or undisputed split before choosing.
In written answers, write each sub-clause as a separate numbered point. This earns step marks.
Quote the amount and period whenever the answer is adverse. A bare yes or no loses marks.
For clause 3(ix), remember all six sub-clauses (a) to (f) in order.

Practice questions from Audit Report and Reporting under CARO

CARO 2020: Statutory Dues, Fraud, Borrowings and Other Clauses: frequently asked questions

What does clause 3(vii) of CARO 2020 require?

It requires the auditor to report whether the company is regular in depositing undisputed statutory dues. Arrears outstanding for more than six months from the due date, as on the last day of the year, must be indicated. Disputed dues are reported with the amount and forum.

Does clause 3(xi) apply only to fraud by the company?

No. It covers fraud by the company and fraud on the company noticed or reported during the year. You state the nature and amount. You also report on the ADT-4 filing and on whistle-blower complaints.

What is reported under clause 3(ix)(a)?

You report whether the company defaulted in repaying loans or other borrowings or interest to any lender. If yes, give the period and amount in the prescribed format. Lender-wise details are needed for banks, financial institutions and Government.

What do clauses 3(xiv) and 3(xvii) ask?

Clause 3(xiv) asks whether the company has an internal audit system commensurate with its size and nature, and whether the auditor considered the internal auditors' reports. Clause 3(xvii) asks whether cash losses were incurred in the year and the preceding year, and the amount.