Companies (Auditor's Report) Order, 2016: Applicability, Clauses and Current Status

CARO 2016 prescribed additional matters that statutory auditors were required to report under section 143(11) of the Companies Act, 2013. It applied to auditor's reports for financial years commencing on or after 1 April 2015, subject to specified exemptions.

Current position: CARO 2016 is now primarily of historical relevance. The Central Government subsequently issued the Companies (Auditor's Report) Order, 2020. Its application was deferred so that CARO 2020 applies for financial years commencing on or after 1 April 2021. For current audits, readers should therefore verify the requirements of CARO 2020 and later amendments rather than rely on CARO 2016 alone.

What is CARO?

CARO means the Companies (Auditor's Report) Order. It supplements the statutory auditor's reporting duties under the Companies Act, 2013 by requiring comments on specified matters for companies to which the relevant Order applies. CARO does not replace the auditor's report under section 143; it adds prescribed reporting requirements.

Legal basis: section 143(11) of the Companies Act, 2013

Section 143 deals with the powers and duties of auditors and auditing standards. Sub-section (11) empowers the Central Government, after consultation with the prescribed body or committee, to direct that the auditor's report for specified classes or descriptions of companies shall include statements on additional matters specified in an order.

The official text of the Companies Act, 2013 is available from the Ministry of Corporate Affairs - Companies Act, 2013.

CARO 2016 applicability and exemptions

CARO 2016 applied to every company, including a foreign company as defined in section 2(42) of the Companies Act, 2013, except the classes expressly excluded by paragraph 1(2) of the Order.

Excluded class under CARO 2016	Explanation
Banking company	A banking company as defined in section 5(c) of the Banking Regulation Act, 1949.
Insurance company	An insurance company as defined under the Insurance Act, 1938.
Section 8 company	A company licensed to operate under section 8 of the Companies Act, 2013.
One Person Company	An OPC as defined in section 2(62) of the Companies Act, 2013.
Small company	A small company as defined in section 2(85), subject to the definition applicable for the relevant period.
Certain private companies	A private company that was not a subsidiary or holding company of a public company and satisfied all three CARO 2016 financial thresholds: paid-up capital plus reserves and surplus not exceeding Rs. 1 crore; borrowings from any bank or financial institution not exceeding Rs. 1 crore at any point during the financial year; and total revenue not exceeding Rs. 10 crore during the financial year.

Historical threshold warning: The figures above reproduce the exemption test under CARO 2016. They should not be used as a current CARO 2020 applicability test. Definitions and reporting requirements must be checked for the financial year being audited.

Effective date of CARO 2016

The Companies (Auditor's Report) Order, 2016 was issued on 29 March 2016 as S.O. 1228(E). It superseded CARO 2015, subject to the saving for things already done or omitted before supersession. Paragraph 2 required the additional reporting matters for financial years commencing on or after 1 April 2015.

CARO 2016 did not apply to the auditor's report on consolidated financial statements.

Matters required to be reported under CARO 2016

Paragraph 3 of CARO 2016 contained sixteen principal reporting areas. The following is an article-style summary of those requirements.

1. Fixed assets. Records of fixed assets, physical verification and material discrepancies, and whether title deeds of immovable properties were held in the company's name.

2. Inventory. Physical verification of inventory at reasonable intervals and treatment of material discrepancies.

3. Loans to specified parties. Loans to parties covered by the register maintained under section 189, including terms, repayment schedules, regularity and overdue amounts.

4. Loans, investments, guarantees and security. Compliance with sections 185 and 186 of the Companies Act, 2013.

5. Deposits. Compliance with applicable RBI directions, sections 73 to 76 and related rules, and compliance with orders of competent authorities.

6. Cost records. Whether cost records specified under section 148(1) were made and maintained.

7. Statutory dues. Regularity in depositing statutory dues, arrears outstanding for more than six months, and disputed dues with the forum where the dispute was pending.

8. Repayment defaults. Defaults in repayment of loans or borrowings to financial institutions, banks, Government or debenture holders, with period and amount of default.

9. Public offers and term loans. Whether money raised through initial or further public offers, including debt instruments, and term loans was applied for the stated purposes.

10. Fraud. Whether fraud by the company or fraud on the company by officers or employees was noticed or reported, with nature and amount where applicable.

11. Managerial remuneration. Compliance with approvals required under section 197 read with Schedule V.

12. Nidhi company requirements. Compliance with the prescribed Net Owned Funds to Deposits ratio and maintenance of unencumbered term deposits.

13. Related-party transactions. Compliance with sections 177 and 188 and disclosure under applicable accounting standards.

14. Preferential allotment or private placement. Compliance with section 42 and use of funds for the purposes for which they were raised.

15. Non-cash transactions. Compliance with section 192 for non-cash transactions with directors or connected persons.

16. RBI registration. Whether registration under section 45-IA of the Reserve Bank of India Act, 1934 was required and, if so, obtained.

Reasons for qualified or unfavourable answers

Paragraph 4 of CARO 2016 required the auditor to state the basis for an unfavourable or qualified answer. Where the auditor was unable to express an opinion on a specified matter, the report had to state that fact and explain why an opinion could not be given.

Current status: CARO 2020 replaced CARO 2016 for current reporting

The Central Government issued the Companies (Auditor's Report) Order, 2020 under section 143(11). The commencement date was later amended. The Companies (Auditor's Report) Second Amendment Order, 2020 substituted 1 April 2021 as the relevant commencement date. Accordingly, CARO 2020 applies to financial years commencing on or after 1 April 2021.

Official MCA source: Companies (Auditor's Report) Second Amendment Order, 2020.

Practical use of this page: Use the CARO 2016 material for audits and disputes relating to the period for which that Order governed the auditor's report. For present-day audits, consult CARO 2020, the Companies Act, 2013, applicable rules, accounting and auditing standards, and any later amendments or notifications relevant to the financial year concerned.

Frequently asked questions

Was CARO 2016 applicable from 1 April 2015?

Yes. CARO 2016 required the specified additional matters to be included in auditor's reports for financial years commencing on or after 1 April 2015, subject to the exemptions in the Order.

Does CARO 2016 still govern current company audits?

No. For current reporting periods, CARO 2020 is the relevant Order. Its application was deferred to financial years commencing on or after 1 April 2021.

What does section 143 of the Companies Act, 2013 cover?

Section 143 sets out important powers and duties of statutory auditors, including access to books and information, matters to be examined and reported, and the statutory framework for the auditor's report. Sub-section (11) is the enabling provision for additional reporting through orders such as CARO.

Last updated: 16 September 2026. This article is intended for legal and compliance information. The law and notifications applicable to the relevant financial year should be checked before acting.