What is CARO 2020?
CARO 2020 — the Companies (Auditor's Report) Order, 2020 — is the statutory order issued by the Ministry of Corporate Affairs that prescribes the matters every company auditor must address in the audit report. It replaced CARO 2016 and applies to financial years starting on or after 1 April 2021.
CARO 2020 has 21 clauses. Several have direct consequences for procurement and asset-management workflows, the most important being:
- Clause 3(i) — Property, Plant & Equipment and intangible assets: register, physical verification, title deeds, revaluation, benami
- Clause 3(ii) — Inventory: physical verification, working-capital limit certifications
- Clause 3(vii) — Statutory dues: GST, PF, ESI, income tax, cess — paid in full and on time
- Clause 3(ix) — Loans and borrowings: defaults, end-use of funds
- Clause 3(xi) — Fraud reporting
- Clause 3(xv) — Related-party transactions
- Clause 3(xviii) — Resignation of statutory auditors
Clauses 3(i), 3(ii), and 3(vii) are the ones procurement and asset-management teams interact with most, because the underlying records (asset register, inventory ledger, GST returns) are the source of truth the auditor sample-tests against.
Why CARO 2020 matters for procurement and asset teams
Procurement and asset records are the denominators that the audit's existence and accuracy assertions test. A typical CARO walk-through goes like this:
- The auditor pulls the asset register as of year-end
- Selects a sample of high-value additions and disposals
- Traces each addition back to the PO, GRN, and capitalization entry
- Visits the floor for a sample to confirm physical existence
- Reviews the company's own physical verification report and reconciles to year-end
- Checks title deeds and revaluation reports
- Documents discrepancies and asks for written explanations
Every step is harder when procurement, finance, and asset management run on disconnected systems. The most common audit qualifications under Clause 3(i) are:
- Asset register not updated to reflect post-balance-sheet additions/disposals
- Physical verification report missing photographs, GPS, or auditor signatures
- Material discrepancies between physical count and register, not yet adjusted
- Title deeds for immovable property held in the name of the previous owner or in the personal name of a director
- Revaluations done by an unregistered valuer or without a board resolution
How TRAXX helps satisfy CARO 2020
- Asset register on rails — auto-populated from GRN, with capitalization values, useful life, location, custodian, and depreciation method pre-filled per Schedule II
- Physical verification — the VTR module produces the auditor evidence pack with photographs, GPS, scan timestamps, and signed-off variance treatment
- Disposal trail — every retired asset has a derecognition entry linking to disposal proposal, reverse auction, recycler chain-of-custody, and the journal entry — usable directly as Clause 3(i) evidence
- Statutory dues — GST/ITC reconciliation, GSTR-2A/2B import, PF/ESI payment tracking — supports Clause 3(vii)
- Related-party transactions — vendor master flags related-party flag with approval workflow — supports Clause 3(xv)
Common pitfalls before audit season
- Starting verification in March — by the time variances are found, there is no time to clean them up before signoff
- Treating verification as a once-a-year project rather than a continuous control
- Relying on extracts from multiple systems that don't reconcile with each other
- Disposal records exist in operations but never make it to finance — assets remain on the books years after they were physically retired
- Title-deed verification done only at incorporation, never refreshed after relocation or restructuring
FAQs
What does CARO 2020 require for fixed assets? +
CARO 2020 Clause 3(i) asks the auditor to report on five things: (a) whether the company maintains proper records of PP&E and intangibles, (b) whether a physical verification has been done at reasonable intervals and material discrepancies dealt with, (c) whether title deeds of immovable property are in the company's name, (d) whether revaluation is supported by a registered valuer, and (e) whether any benami transactions are pending.
How often is physical verification of fixed assets required? +
CARO 2020 says "at reasonable intervals". In practice, statutory auditors expect at least annual physical verification for all material asset classes, and rotating-class verification within 3 years for the full register. Many regulated industries (BFSI, Pharma, Broadcasting) verify quarterly for high-value classes.
Who is exempt from CARO 2020? +
CARO 2020 does not apply to: banking companies, insurance companies, Section 8 (charitable) companies, One Person Companies (OPC), small companies, and private companies with paid-up capital ≤ ₹1 crore plus turnover ≤ ₹10 crore plus borrowings ≤ ₹1 crore — provided they meet all four thresholds simultaneously. Every other company is in scope.
What happens if discrepancies are found during verification? +
The auditor must report the materiality of discrepancies and confirm whether they have been "properly dealt with in the books of account". This means a write-off, write-back, or reclass entry must be passed in the same financial year — and the audit trail (board approval, supporting documentation) must accompany it. Unresolved discrepancies attract an emphasis of matter or qualification.
What evidence pack does the auditor need? +
A defensible CARO 2020 evidence pack contains: (1) the fixed asset register as of audit date, (2) physical verification report with signatures, dates, and photographs, (3) reconciliation showing variances and their treatment, (4) board / management approval of write-offs, (5) title-deed copies for immovable property, (6) revaluation reports (if applicable). TRAXX VTR generates items 1–4 automatically.
Related terms
Last updated: 2026-04-29