CARO 2020 Applicability – Quick Decision Framework Updated for Revised Small Company Limits
The Companies (Auditor's Report) Order, 2020 (CARO 2020) issued by the Ministry of Corporate Affairs (MCA) applies to every company including a foreign company, subject to specific statutory exemptions. Evaluating whether CARO 2020 applies to a client requires checking absolute entity exemptions, small company status under Section 2(85), and private company financial thresholds.
1. Absolute Exemptions
CARO 2020 does NOT apply to the following specified classes of companies:
- Banking Companies (as defined in Section 5(c) of the Banking Regulation Act, 1949)
- Insurance Companies (as defined under the Insurance Act, 1938)
- Section 8 Companies (companies registered with charitable objects)
- One Person Companies (OPCs) (as defined in Section 2(62) of Companies Act, 2013)
2. Small Company Test – Section 2(85)
A Small Company is completely exempt from CARO 2020. Under Section 2(85) of the Companies Act, 2013, the revised thresholds apply:
Revised Small Company Thresholds:
- Paid-up Share Capital: ≤ ₹10 crore, AND
- Turnover: ≤ ₹100 crore in the immediately preceding Financial Year.
➡️ Result: If both conditions are satisfied, the company qualifies as a Small Company and CARO 2020 is NOT Applicable.
3. Private Company Financial Threshold Test
This test applies only if the company is a Private Limited Company and is not a subsidiary or holding company of a Public Company.
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A private company is exempt from CARO 2020 only if all three conditions are satisfied simultaneously:
| Parameter | Threshold Limit | Measurement Date / Period |
|---|---|---|
| 1. Paid-up Capital + Reserves & Surplus | ≤ ₹1 crore | As at the Balance Sheet date |
| 2. Bank / FI Borrowings | ≤ ₹1 crore | At any point during the FY |
| 3. Total Revenue | ≤ ₹10 crore | During the FY (incl. discontinuing operations) |
➡️ All 3 conditions satisfied: CARO 2020 is Not Applicable.
➡️ Even 1 condition breached: CARO 2020 is Applicable.
🔑 Key Professional Takeaways for CAs
- Independent Routes: The Small Company route and the Private Company threshold route are completely independent—not cumulative.
- Small Company Immunity: A company qualifying as a Small Company is outside CARO 2020 regardless of whether it breaches the private-company financial thresholds.
- Consolidated Financial Statements (CFS): CARO 2020 does not apply to the auditor's report on Consolidated Financial Statements, except Clause 3(xxi) regarding adverse remarks in component CARO reports.