Corporate Accounting and Auditing · Audit Report and Reporting under CARO

CARO 2020 Applicability: Who Must Report and Who Is Exempt

Updated 10 October 2026 · Fact-checked

The Companies (Auditor's Report) Order, 2020 applies to every company, including a foreign company, except banking companies, insurance companies, section 8 companies, One Person Companies, small companies, and certain small private companies. To solve a question, test the company type, then the three private company limits.

Understand Companies (Auditor's Report) Order, CARO 2020: Applicability

The Companies (Auditor's Report) Order, 2020 (CARO 2020) is an order made by the Central Government under sub-section (11) of section 143 of the Companies Act, 2013, after consulting the National Financial Reporting Authority. It replaced CARO 2016. It adds specific matters that the auditor must report on, over and above the normal audit report under section 143.

The starting point is wide. The Order applies to every company including a foreign company as defined in clause (42) of section 2 of the Companies Act. Then paragraph 1(2) lists the exceptions. So your approach is always: assume it applies, then check whether any exception removes the company.

The exempted companies are:

a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949
an insurance company as defined under the Insurance Act, 1938
a company licensed to operate under section 8 of the Companies Act
a One Person Company and a small company
a private limited company that meets all the small-private-company conditions (see below)

The last exemption is the one examiners like to test. The company must be a private limited company, not a subsidiary or holding company of a public company. It must also satisfy three limits together: paid up capital and reserves and surplus not more than ₹1 crore as on the balance sheet date; no total borrowings exceeding ₹1 crore from any bank or financial institution at any point of time during the financial year; and total revenue as disclosed in Schedule III (including revenue from discontinuing operations) not exceeding ₹10 crore during the financial year. Breach of any one limit means the company is not exempt.

Two more points about scope. The Order applies to the auditor's report for financial years commencing on or after 1 April 2019. And it does not apply to the auditor's report on consolidated financial statements, except clause (xxi) of paragraph 3. That clause asks whether any auditor of a company included in the consolidation has given qualifications or adverse remarks in that company's CARO report, and if yes, the details of the companies and the paragraph numbers.

Key rules to remember

General rule: CARO 2020 applies to every company, including a foreign company, unless an exception in paragraph 1(2) applies; Start from 'applicable' and then test exemptions.
Fully exempt company types: Banking company; insurance company; section 8 company; One Person Company; small company; No further test is needed for these categories.
Small private company exemption: Private limited company, not a subsidiary or holding company of a public company, AND paid up capital + reserves and surplus ≤ ₹1 crore AND no borrowings from bank or financial institution > ₹1 crore at any point in the year AND total revenue ≤ ₹10 crore; All conditions must hold together. Failing one means CARO applies. Borrowings are tested at any point during the year; capital and reserves on the balance sheet date.
Consolidated financial statements: CARO 2020 does not apply to the report on consolidated financial statements, except clause (xxi) of paragraph 3; Clause (xxi) deals with qualifications or adverse remarks in CARO reports of group companies.
Period covered: Auditor's reports for financial years commencing on or after 1 April 2019; The matters in paragraphs 3 and 4 are reported in addition to the section 143 report, as applicable.

How to solve Companies (Auditor's Report) Order, CARO 2020: Applicability questions

Use this order for any applicability question. It stops you missing a condition.

1Identify the entity: bank, insurer, section 8 company, One Person Company, small company, private company, public company or foreign company.
2If it is a banking company, insurance company, section 8 company, One Person Company or small company, conclude that CARO 2020 does not apply.
3If it is a private limited company, check whether it is a subsidiary or holding company of a public company. If yes, the small private exemption is not available and CARO applies.
4Test the three limits one by one: paid up capital plus reserves and surplus against ₹1 crore on the balance sheet date; borrowings from banks or financial institutions against ₹1 crore at any point in the year; total revenue against ₹10 crore.
5Remember the limits are 'not more than' and 'not exceeding'. Exactly ₹1 crore or ₹10 crore is still within the limit.
6If the question is about consolidated statements, say that CARO applies only through clause (xxi) of paragraph 3.
7Write a clear conclusion: applicable or not, with the reason in one line.

Quickest way: Three-question filter

When to use it: For MCQs and short applicability cases where you have under two minutes.

Is the company a bank, insurer, section 8, OPC or small company? If yes, exempt.
Is it a private company linked to a public company as holding or subsidiary? If yes, CARO applies.
Otherwise check ₹1 crore (capital plus reserves), ₹1 crore (borrowings), ₹10 crore (revenue). Exempt only if all three are within limits.

Common mistakes in Companies (Auditor's Report) Order, CARO 2020: Applicability

Treating any private company with low revenue as exempt.
Students remember the ₹10 crore figure and forget the other conditions.
Fix: Check all three limits and the holding or subsidiary link. Exemption needs every condition to be met.
Ignoring the holding or subsidiary condition.
The condition sits at the start of the clause and is easy to skip when numbers are given.
Fix: Ask first: is it a subsidiary or holding company of a public company? If yes, no exemption.
Testing borrowings only at year end.
Capital and reserves are tested on the balance sheet date, so students apply the same date to borrowings.
Fix: Borrowings are tested at any point of time during the financial year. A mid-year peak above ₹1 crore removes the exemption.
Saying CARO applies fully to consolidated financial statements.
Students assume the Order covers all audit reports of a company.
Fix: The Order does not apply to the report on consolidated financial statements except clause (xxi) of paragraph 3.
Exempting a foreign company or treating CARO as limited to Indian companies.
The word 'company' is read narrowly.
Fix: The Order covers every company including a foreign company as defined in clause (42) of section 2, unless an exception applies.

Worked examples

Example 1

Sundaram Traders Private Limited is not a subsidiary or holding company of any public company. At the balance sheet date its paid up capital and reserves and surplus total ₹80 lakh. Its highest borrowing from a bank during the year was ₹1.20 crore. Its total revenue was ₹6 crore. Is CARO 2020 applicable?

Show the solution

It is a private limited company and not linked to a public company, so the first condition is met.
Paid up capital plus reserves and surplus: ₹80 lakh, which is not more than ₹1 crore. Condition met.
Borrowings: ₹1.20 crore at a point during the year, which exceeds ₹1 crore. Condition fails.
Total revenue: ₹6 crore, not exceeding ₹10 crore. Condition met.
The exemption needs all conditions together, so it is lost.

Answer: CARO 2020 is applicable to Sundaram Traders Private Limited because its borrowings from a bank exceeded ₹1 crore at a point during the year.

Example 2

State with reasons whether CARO 2020 applies to (a) a One Person Company with revenue of ₹25 crore, and (b) the auditor's report on the consolidated financial statements of a listed holding company.

Show the solution

(a) A One Person Company is expressly exempted under paragraph 1(2). Revenue size does not matter for this exemption.
(b) Under paragraph 2, the Order does not apply to the auditor's report on consolidated financial statements except clause (xxi) of paragraph 3.
Clause (xxi) requires the auditor to say whether there are qualifications or adverse remarks in the CARO reports of companies included in the consolidation, and if yes, give the companies and paragraph numbers.

Answer: (a) CARO 2020 does not apply to the One Person Company. (b) In the consolidated report, only clause (xxi) of paragraph 3 applies.

Exam tips

Write the exempted list from memory in one line at the start of the answer, then apply it to the facts.
In numerical cases, show each limit as a separate line with the figure and a tick or cross.
Watch the words 'not more than' and 'not exceeding'. A figure equal to the limit is within it.
In MCQs, look for a trap: a subsidiary of a public company, or a borrowing peak during the year.
Always mention clause (xxi) when consolidated financial statements appear in the question.

Practice questions from Audit Report and Reporting under CARO

Companies (Auditor's Report) Order, CARO 2020: Applicability in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CA IntermediateReporting under Companies Act: Section 143 and CARO 2020

Companies (Auditor's Report) Order, CARO 2020: Applicability: frequently asked questions

Is CARO 2020 applicable to banking companies and small companies?

No. A banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 is exempt. A small company as defined in clause (85) of section 2 of the Companies Act is also exempt.

What are the threshold limits for a private company under CARO 2020?

A private company, not a subsidiary or holding company of a public company, is exempt if paid up capital and reserves and surplus are not more than ₹1 crore, borrowings from banks or financial institutions did not exceed ₹1 crore at any time in the year, and total revenue did not exceed ₹10 crore. All three must be met.

Does CARO 2020 apply to consolidated financial statements?

Not in full. It applies to the auditor's report on consolidated financial statements only through clause (xxi) of paragraph 3, which deals with qualifications or adverse remarks in group companies' CARO reports.

From which year does CARO 2020 apply?

It applies to auditor's reports for financial years commencing on or after 1 April 2019. It replaced CARO 2016.