[Opinion] Common CARO Reporting Errors and Overlap with Main Audit Report

Editorial Team – [2026] 185 taxmann.com 897 (Article)

1. Introduction

The Companies (Auditor’s Report) Order, 2020 (CARO 2020) significantly enhances auditors’ reporting responsibilities by requiring detailed, clause-wise disclosures on specific aspects of a company’s operations. While the main audit report expresses an overall opinion on the financial statements, CARO focuses on granular reporting of key matters such as fixed assets, borrowings, statutory dues, and internal controls.

In practice, however, auditors often face challenges in ensuring consistency and completeness between CARO reporting and the main audit report. Instances of incomplete reporting, contradictions, or omission of critical matters in either report are commonly observed, leading to regulatory scrutiny and, in some cases, disciplinary action. This highlights the need to clearly understand the distinction, overlap, and interlinkages between CARO and the main audit report.

2. Relevant Provisions

2.1 Companies Act, 2013

As per Section 143(3), The auditor’s report shall also state—

(a) whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit;

(b) whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;

(c) whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company auditor has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report;

(d) whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;

(e) whether, in his opinion, the financial statements comply with the accounting standards;

(f) the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;

(g) whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;

(h) any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;

(i) whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls;

(j) such other matters as may be prescribed.

As per Section 143(11), The Central Government may, after consultation with the Advisory Committee, by general or special order, direct, in respect of such class or description of companies, as may be specified in the order, that the auditor’s report shall also include a statement on such matters as may be specified therein.

Provided that until the National Financial Reporting Authority is constituted under section 132, the Central Government may hold consultation required under this sub-section with the Committee chaired by an officer of the rank of Joint Secretary or equivalent in the Ministry of corporate Affairs and the committee shall have the representatives from the Institute of Chartered Accountants of India and Industry Chambers and also special invitees from the National Advisory Committee on Accounting Standards and the office of the Comptroller and Auditor General. (Effective from 10th April,2015)

2.2 Analysis – Overlap and Practical Challenges

While CARO 2020 and the main audit report serve different purposes, they are interrelated. CARO is not a substitute for audit opinion but a supplementary reporting framework. However, in practice:

• Matters reported under CARO, for example, defaults in loan repayment, fraud, and non-compliance with laws, may have implications on the audit opinion.
• Failure to reflect such matters appropriately in the main audit report can result in inconsistency.
• Conversely, qualifications in the main report may not always be properly mirrored or explained in CARO clauses

This creates overlap risks and reporting gaps, requiring careful evaluation by auditors.

2.3 Illustrative Cases Observed in Practice

The following cases are illustrative of audit deficiencies and reporting inconsistencies observed in orders and inspection findings issued by the National Financial Reporting Authority and disciplinary proceedings of the Institute of Chartered Accountants of India.

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