—Guide
CARO 2020 and IFC Reporting: What Your Auditor Reports On and Who Is Exempt
Two extra reports many company audits include — CARO 2020 and internal financial controls — what each covers and which companies are exempt.
Beyond the main audit opinion, many company audit reports include two additional reports: one under the Companies (Auditor's Report) Order, 2020 — known as CARO — and one on internal financial controls. Whether they apply depends on the company's size. This guide explains both.
CARO 2020
CARO requires the auditor to report on a set of specific matters, clause by clause. Among them:
- Whether fixed assets and inventory were physically verified, and title deeds held in the company's name.
- Loans, guarantees and investments made by the company.
- Whether undisputed statutory dues like GST, TDS, PF and ESI were deposited regularly, and disputed dues outstanding.
- Defaults in repaying loans, and use of funds raised.
- Frauds noticed during the year.
- Related party transactions, internal audit, and cash losses.
Who's exempt from CARO
- One Person Companies and small companies.
- Private companies that meet all of: paid-up capital and reserves of ₹1 crore or less, borrowings from banks or financial institutions of ₹1 crore or less, and total revenue of ₹10 crore or less.
- Certain other classes, like banking and insurance companies and Section 8 companies.
Internal Financial Controls (IFC)
Under Section 143(3)(i), the auditor reports on whether the company has adequate internal financial controls over financial reporting and whether they operated effectively.
Who's exempt from IFC reporting
- One Person Companies and small companies.
- Private companies with turnover below ₹50 crore as per the latest audited financial statements, or aggregate borrowings from banks, financial institutions or any body corporate below ₹25 crore at any point during the year.
Why the Exemptions Matter
Growing companies often cross the thresholds without noticing. The first year CARO or IFC reporting applies, the auditor needs more evidence, and weaknesses that were never reported before appear in the audit report. Knowing you're about to cross a threshold lets you prepare.
How to Prepare
- Check each year whether CARO and IFC apply, based on the previous year's figures.
- For CARO, keep fixed asset registers, physical verification records and statutory dues schedules current.
- For IFC, document key processes and controls, and test them before year end.
- Deal with statutory dues arrears, which CARO reports on specifically.
Getting Help
Think Filing helps companies prepare for CARO and IFC reporting, and carries out statutory audits that include them.