The Institute of Chartered Accountants of India (ICAI) has created a detailed guidance note to help auditors follow the Companies (Auditor’s Report) Order, 2020, known as CARO 2020. This order was issued by the Ministry of Corporate Affairs (MCA) and replaced CARO 2016.
The guidance note explains what auditors need to report under CARO 2020. It has been updated to match changes in the Companies Act, 2013. As of September 2025, the latest version is the Revised 2022 Edition. ICAI has not released any newer updates since then.
ICAI’s Revised Guidance Note (2022 Edition)
ICAI released the updated Guidance Note on CARO 2020 on July 14, 2022. This version includes all changes from Schedule III and other updates. It gives clear instructions on how to handle new reporting areas and audit methods.
The note is a key resource for auditors. It explains how CARO 2020 and Schedule III work together. It also highlights areas where auditors must use their judgment. New sections cover topics like:
- Identifying wilful defaulters, based on banking rules
- Checking compliance with CSR requirements
ICAI’s Revised/ Updated Guidance Note on CARO 2020 of MCA: 2022 Edition
CARO 2020 Guidance Note: Key Features, Applicability & Auditor Duties Explained
The CARO 2020 Guidance Note issued by ICAI helps auditors understand how to report under the Companies (Auditor’s Report) Order, 2020. It explains each reporting clause in a clear and practical way for anyone interested in company audits:
What Is the CARO 2020 Guidance Note?
CARO 2020 adds extra reporting points to the auditor’s report under the Companies Act, 2013. The Guidance Note helps auditors understand how to follow these rules in day-to-day audits. It explains the purpose of CARO, how it applies, and what auditors need to check before reporting.
Why CARO 2020 Matters
Auditors must issue reports that show a clear and true picture of a company’s affairs. CARO 2020 strengthens this process. It makes the audit report more informative by requiring comments on areas like:
Property and equipment
Inventory
Loans and investments
Borrowings
Statutory dues
Fraud
CSR
Related-party dealings
These extra details give stakeholders more confidence in the financial statements.
Who Must Follow CARO 2020?
The Guidance Note explains that CARO applies to most companies. But some companies are exempt, such as:
Banking companies
Insurance companies
Section 8 companies
One Person Companies
Small companies
Some private companies that meet limits on capital, borrowings, and revenue
CARO also extends to foreign companies and branch audits where the law requires a statutory audit.
What the Guidance Note Says About the Auditor’s Role
The CARO 2020 Guidance Note makes it clear that CARO does not replace a regular audit. Instead, it adds specific points auditors must comment on. According to the Note, auditors should:
Use strong professional judgement
Gather proper evidence
Plan well before audit work starts
Keep complete working papers
Seek clear records from management
These steps help auditors report confidently on each CARO clause.
How CARO Connects with Schedule III
The Guidance Note also explains that Schedule III now requires several disclosures that match CARO requirements.
These include:
Title deeds of immovable property
Use of borrowed funds
Benami property cases
Undisclosed income
CSR expenditure
Even if the company does not disclose these details, the auditor must still report them under CARO.
Clause-by-Clause Guidance in the Note
A large part of the Guidance Note covers detailed reporting for each CARO clause. Some key areas include:
1. Property, Plant and Equipment
How to maintain proper records, verify assets, and record any differences. (Paras 41–46)
2. Inventory
How to verify stock and deal with shortages or excess. (Paras 47–48)
3. Loans and Investments
What to check under sections 185 and 186. (Paras 49–56)
4. Statutory Dues
How to report overdue and disputed dues. (Paras 59–60)
5. Undisclosed Income
What auditors must check under tax laws. (Para 61)
6. Borrowings
How to report defaults, willful default, and misuse of funds. (Paras 62–67)
Other clauses relate to fraud, internal audit, CSR, related-party transactions, cash losses, and resignation of auditors.
CARO Reporting for Consolidated Financial Statements
The Guidance Note clarifies that CARO does not apply to consolidated financial statements, except for one clause—3(xxi). Auditors must check if any component auditor has issued a modified CARO report. (Paras 26–27)
Format of the CARO 2020 Report
The document also guides auditors on how to place CARO comments within the statutory audit report. It explains how to keep the format aligned with Standards on Auditing. (Paras 88–97)
Useful Tools Included in the Guidance Note
The Guidance Note also provides:
Text of CARO 2020
Comparison with CARO 2016
Important definitions
List of key legal provisions
A full practical checklist
These tools help auditors apply CARO correctly in real audits. (Pages 229–368)
In nutshell, the CARO 2020 Guidance Note serves as a complete guide for auditors. It simplifies each clause, explains audit steps in a practical way, and links the requirements with the Companies Act and Schedule III. Anyone involved in statutory audits can use this Note to improve audit quality and compliance.
MCA Notification and Applicability of CARO 2020
CARO 2020 was officially notified by the MCA on February 25, 2020. It introduced new reporting rules to improve the quality of audit reports. Auditors now need to report on:
- Revaluation of assets like property, plant, equipment, and intangible assets
- Cases under the Benami Transactions (Prohibition) Act, 1988
- Working capital limits backed by current assets
- Loans or advances repayable on demand without clear terms
- Undisclosed income
- Wilful defaulter declarations
- Uncertainty in meeting financial obligations
- Corporate Social Responsibility (CSR) activities
Originally, CARO 2020 was meant for financial statements starting April 1, 2019. But due to practical issues, its rollout was delayed twice:
- First delay: March 24, 2020, moved to financial year 2020-21
- Second delay: December 17, 2020, moved to financial year 2021-22 and onwards
This gradual rollout gave companies and auditors time to adjust.
CARO 2020 Applicability Timeline Extended to FY 2021-22: MCA
Initial Guidance Note Issued by ICAI
After CARO 2020 was notified, ICAI released its first guidance note in June 2020. This note helped auditors understand how to meet the new reporting requirements.
It replaced the earlier CARO 2016 guidance for audits starting April 1, 2020. The note explained each reporting clause and suggested audit procedures. It also reminded auditors to use their professional judgment, especially in areas not fully covered by the note.
ICAI’s Initial Guidance Note on CARO 2020: 2020 Edition
Amendments to Schedule III and ICAI’s Interim Advisory
On March 24, 2021, the MCA updated Schedule III of the Companies Act, 2013. These changes took effect from April 1, 2021. They required companies to include more detailed disclosures in their financial statements to support CARO 2020 reporting.
Because of these changes, parts of ICAI’s June 2020 guidance became outdated. To help members during this transition, ICAI issued an advisory on April 2, 2022. It explained how the updated Schedule III connects with specific CARO clauses. This helped auditors apply the new rules correctly until a revised guidance note was ready.
ICAI Announcement dt. 02/04/2022: Guidance Note on CARO 2020 of MCA (Update)
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CARO 2020 Applicability Timeline Extended to FY 2021-22: MCA