CARO Applicability for FY 2025-26: Which Companies Are Covered

CARO applicability for FY 2025-26: CARO 2020 applies to every company, including foreign companies, except banking companies, insurance companies, Section 8 companies, one person companies and small companies. A private limited company is also outside CARO if it is not a subsidiary or holding company of a public company and it satisfies the conditions in the table below.

Condition (all must be met)	Threshold
The company is not a subsidiary or holding company of a public company	Applies regardless of the figures below
Paid-up capital + reserves and surplus, as at the balance sheet date	Not exceeding ₹1 crore
Total borrowings from any bank or financial institution, at any point during the year	Not exceeding ₹1 crore
Total revenue as disclosed in Schedule III, including revenue from discontinuing operations, for the financial year	Not exceeding ₹10 crore

What Counts as a Small Company for the CARO Exemption

Small companies are exempt from CARO 2020, so the definition matters before the table above is applied. A private limited company has two separate routes out of CARO, and they are not the same test.

The small company route comes from Section 2(85) of the Companies Act, 2013. The thresholds were revised with effect from 1 December 2025 by the Companies (Specification of Definition Details) Amendment Rules, 2025, notified as G.S.R. 880(E).

Condition (both must be met)	Threshold
Paid-up share capital	Not exceeding ₹10 crore
Turnover, as per the profit and loss account for the immediately preceding financial year	Not exceeding ₹100 crore

Both conditions must be satisfied together. Breaching either one removes small company status. The earlier limits, in force from September 2022 until 30 November 2025, were ₹4 crore and ₹40 crore.

Companies That Cannot Be Small Companies

The proviso to Section 2(85) excludes the following regardless of their figures:

A public company. The definition applies only to companies other than a public company.

A holding company or a subsidiary company. Note that this is wider than the CARO test — it is not limited to holding or subsidiary companies of a public company.

A company registered under Section 8.

A company or body corporate governed by any special Act.

How the Two Routes Compare

A company outside CARO by either route is outside CARO. The routes are tested independently.

	Small company route	CARO private company route
Source	Section 2(85), Companies Act, 2013	Paragraph 1(vi), CARO 2020
Paid-up capital	Up to ₹10 crore	Paid-up capital + reserves and surplus up to ₹1 crore
Turnover / revenue	Up to ₹100 crore	Up to ₹10 crore
Borrowings	Not a condition	Up to ₹1 crore at any point in the year
Public company link	Cannot be a holding or subsidiary company at all	Cannot be a subsidiary or holding company of a public company

Since the December 2025 revision, the small company route is the wider of the two on capital and turnover. A private company that exceeds the CARO paragraph 1(vi) figures may still fall outside CARO as a small company, provided it clears the Section 2(85) exclusions. A company that is a subsidiary of another private company clears the CARO test on that limb but cannot be a small company at all.

Applicability is assessed afresh each financial year. A company that qualified last year does not carry that position forward, and events during the year — a change in shareholding, a new borrowing, a group restructuring — can change the answer

Under CARO 2020, auditors are required to comment on:

• maintenance of proper fixed asset records,
• physical verification of Property, Plant, and Equipment (PPE),
• title deeds of immovable properties,
• revaluation of assets,
• and proceedings related to benami property.

Because of these expanded reporting requirements, companies are increasingly focusing on:

• physical verification of fixed assets,
• FAR reconciliation,
• asset tagging,
• and audit-ready asset management systems.

This guide explains CARO applicability, the CARO 2020 fixed asset verification requirements, and how companies can improve compliance and audit readiness

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What Is CARO 2020?

CARO 2020 stands for:

Companies (Auditor’s Report) Order, 2020

It was issued by the Ministry of Corporate Affairs (MCA) under the Companies Act, 2013.

CARO 2020 requires statutory auditors to provide additional reporting on specific operational and financial areas, including:

• fixed assets,
• inventory,
• loans,
• statutory dues,
• fraud reporting,
• and internal controls.

The order significantly increased the importance of fixed asset verification and FAR accuracy.

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Why Fixed Asset Verification Is Important Under CARO 2020

Under CARO 2020 fixed asset verification requirements, auditors must evaluate whether:

• proper records of PPE are maintained,
• assets physically exist,
• discrepancies are material,
• and verification processes are reasonable.

If companies fail to maintain accurate records or proper verification systems, auditors may report adverse observations.

This can impact:

• audit reporting,
• compliance reputation,
• investor confidence,
• and internal control assessments.

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CARO 2020 Clause Related to Fixed Assets

The most important CARO 2020 clause related to fixed assets is:

Clause 3(i)

This clause covers:

• Property,
• Plant,
• Equipment (PPE),
• Right-of-Use (ROU) assets,
• and intangible assets.

The auditor must comment on several aspects related to fixed asset management and verification.For a clause-by-clause breakdown of 3(i)(a) to 3(i)(e), see our detailed Clause 3(i) of CARO 2020 guide.

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1. Proper Records of Property, Plant, and Equipment (PPE)

CARO 2020 requires companies to maintain proper records showing:

• full particulars of assets,
• quantitative details,
• and location of PPE.

This means companies should maintain:

• asset-wise records,
• asset categories,
• unique identification,
• location mapping,
• and capitalization details.

Companies using outdated Excel-based FAR systems often struggle with compliance.

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2. Physical Verification of Fixed Assets

Under CARO 2020 fixed asset verification requirements, auditors must report whether:

• physical verification was conducted by management,
• the frequency of verification is reasonable,
• and material discrepancies were noticed.

This makes periodic physical verification extremely important for companies.

Verification should ideally include:

• asset identification,
• location validation,
• quantity confirmation,
• and FAR reconciliation.

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3. Material Discrepancies Must Be Reported

If discrepancies are identified during verification, auditors evaluate whether they are material.

Common discrepancies include:

• missing assets,
• excess assets,
• FAR mismatch,
• duplicate entries,
• and incorrect asset locations.

Companies with weak asset tracking systems face higher audit risk under CARO 2020.

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4. Verification of Title Deeds of Immovable Properties

Auditors are also required to verify whether title deeds of immovable properties are held in the company’s name.

This applies to:

• land,
• buildings,
• and registered immovable assets.

Any mismatch or ownership issue must be reported.

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5. Reporting on Revaluation of Assets

CARO 2020 requires auditors to comment if:

• PPE or intangible assets were revalued,
• and whether the revaluation is based on valuation by a registered valuer.

This increases the importance of maintaining proper supporting documentation.

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6. Reporting on Benami Property Proceedings

Auditors must also report whether proceedings have been initiated or are pending under the Benami Transactions (Prohibition) Act.

This requirement strengthens transparency and compliance expectations.

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Common Challenges Companies Face Under CARO 2020

Many organizations struggle to comply with CARO 2020 fixed asset verification requirements because of:

• outdated FAR records,
• untagged assets,
• missing asset locations,
• duplicate entries,
• decentralized records,
• and weak verification systems.

These issues are especially common in:

• manufacturing plants,
• retail chains,
• warehouses,
• hospitals,
• educational institutions,
• and multi-location businesses.

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How Asset Tagging Helps in CARO 2020 Compliance

Asset tagging plays a major role in improving compliance under CARO 2020.

Tagged assets become easier to:

• identify,
• verify,
• reconcile,
• and track.

Companies implementing barcode or RFID-based asset tagging systems improve:

• verification speed,
• FAR accuracy,
• audit readiness,
• and internal controls.

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Importance of FAR Reconciliation Under CARO 2020

FAR reconciliation helps companies match:

• physical assets,
• and FAR records.

This process identifies:

• missing assets,
• excess assets,
• duplicate records,
• and incorrect classifications.

Regular reconciliation improves compliance and reduces audit observations significantly.

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Best Practices for CARO 2020 for Fixed Asset Compliance

Companies should follow these best practices:

• maintain updated FAR records,
• conduct periodic physical verification,
• implement asset tagging systems,
• maintain location-wise asset records,
• reconcile discrepancies regularly,
• and preserve audit documentation properly.

Digital asset management systems also help companies maintain stronger internal controls.

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Industries Most Affected by CARO 2020 Verification Requirements

CARO applicability and verification requirements are especially important for:

• manufacturing companies,
• infrastructure businesses,
• hospitals,
• logistics companies,
• retail chains,
• hotels,
• educational institutions,
• and large enterprise organizations.

Businesses with high-value assets and multiple locations require stronger verification controls.

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Benefits of Strong Fixed Asset Verification Processes

Companies maintaining proper verification systems gain several benefits:

• improved compliance,
• faster audits,
• reduced audit observations,
• stronger internal controls,
• improved FAR accuracy,
• and better operational visibility.

This also improves management confidence in asset reporting.

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Frequently Asked Questions (FAQs)

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Conclusion

Once CARO applicability is confirmed for your company, maintaining verified fixed asset records becomes a statutory necessity, not a choice.

CARO applicability significantly increased the importance of fixed asset verification, FAR accuracy, and asset management controls for Indian companies.

Organizations that fail to maintain proper asset records or verification systems may face:

• audit observations,
• compliance risks,
• and reporting challenges.

Companies implementing:

• periodic physical verification,
• asset tagging,
• FAR reconciliation,
• and digital asset management systems

are better prepared for CARO applicability compliance and statutory audit requirements.

As regulatory expectations continue to increase, businesses must strengthen their fixed asset verification processes to improve transparency, internal controls, and audit readiness.

Learn more about our fixed asset verification services for physical verification and audit compliance across multiple locations.

Companies preparing for a listing should also review our IPO readiness checklist for fixed assets and inventory.