The Guidance Note on the Companies (Auditor's Report) Order, 2020 is an ICAI publication that explains the clauses of CARO 2020 and how an auditor should report on them. It is guidance, not law. The law is the Order itself. The Note helps you read the Order consistently and defend your reporting.
Last reviewed: 17 October 2026. Facts checked. We ran a web search and read summaries from studycafe.in, fintaxblog.com, KPMG's August 2022 accounting and auditing update, and the listing of ICAI files on kb.icai.org. We could not open the Guidance Note PDF, so we quote no paragraph. One commentary site reports that a revised edition was released in July 2022 after the Schedule III changes, and we could not confirm whether a newer edition has since come out. Check the ICAI Knowledge Base for the latest. The example below is invented.
What it is, and what it is not
CARO 2020 is the Order issued by the Ministry of Corporate Affairs that sets out the matters an auditor must report on, in the auditor's report, for companies it covers. The ICAI Auditing and Assurance Standards Board issued the Guidance Note to help auditors comply, with detailed guidance on the clauses.
Three points follow.
- It is not the law. If the Note and the Order seem to differ, the Order governs.
- It reflects ICAI's view. Following it is good evidence of reasonable practice, for example in peer review or an inspection.
- It ages. After the March 2021 Schedule III changes, ICAI began a revision, per the sources we read. Always use the latest edition.
For applicability and the clauses themselves, see our CARO 2020 clause-by-clause guide. This post is about how to work with the Note.
What the Note typically contains
From the summaries we read, the Note gives, for each clause:
- the text of the clause;
- an explanation of what it asks;
- guidance on the audit work and the wording of the report;
- examples and illustrative reporting formats.
The same sources mention appendices with the Order's text and a comparison with the earlier Order, CARO 2016. We did not open it, so check the contents page of the edition you download.
A way to work with it
1. Start with applicability, not the clauses
Before reading any clause, decide whether the Order applies to the company, and note which clauses fall away for it. The exemptions are in the Order and the figures can change by amendment, so read the Order and any MCA notification, not only the Note. If the entity falls under an exemption, document the test and the numbers.
2. Build a clause matrix
One row per clause, with these columns: applies or not, source of evidence, who in the client will provide it, working paper reference, conclusion.
3. Read the Note's explanation before drafting the wording
Many clauses use terms that are easy to misread, such as "default", "wilful defaulter" or "utilised for the purpose". The Note's explanation shows how the profession reads them. Where you depart from it, write down why.
4. Link each reporting statement to evidence
The report says something specific, so the file must support it. A statement that "the company has maintained proper records" needs the test behind it. Our post on audit documentation sets out what a defensible file looks like.
5. Use the illustrative formats carefully
Illustrations show structure. Do not copy wording that does not match the facts. A clause that is "not applicable" should say so for the right reason.
6. Re-read before signing
Check that the CARO report, the main report and the notes to accounts do not contradict each other.
Where auditors usually slip
- Treating the Note as optional reading. Teams lift wording from last year's report and miss changes.
- Using an old edition. The Schedule III revision altered many disclosures that clauses cross-refer to.
- Mixing up CARO and the main opinion. The CARO report is a separate annexure with its own purpose. See SA 700 report format.
- Silence where adverse matters exist. If a clause calls for reporting an adverse matter, "no comment" is not an option.
- Last-minute clause work. The clauses on loans, borrowings and related parties need data that clients take time to produce.
A short invented example
A team is auditing a company with a large working-capital loan from a bank. Under the clause on borrowings, the senior asks for the sanction letters and the lender statements for the year, and compares the quarterly statements filed with the bank against the books. She then reads the Note's explanation of the clause to see what the profession expects. Two items cannot be reconciled. She records the difference, discusses it with management and decides, with the partner, whether to report it. The Note guided the reading. The decision rested on the facts and the Order.
Frequently Asked Questions
What is the Guidance Note on CARO 2020?
An ICAI publication that explains CARO 2020 clause by clause and helps auditors report on them.
Is the Guidance Note mandatory?
It is guidance, not law. The Order is the law. Following the Note is good practice and helps in review.
Which edition should I use?
The latest one. We saw a report of a revised edition in July 2022 but could not confirm whether a newer one exists. Check kb.icai.org.
Where do I find it?
On the ICAI Knowledge Base (kb.icai.org) and ICAI's publications section.
Does the Note decide who is exempt from CARO?
The exemptions come from the Order and amendments. Use the Order and MCA notifications for applicability.
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Last reviewed: 17 October 2026. Facts checked. Opened: web search results and commentary (studycafe.in, fintaxblog.com, KPMG August 2022 update, kb.icai.org listings); our own site posts. Could not open: the Guidance Note PDF itself, or MCA notifications. Check the current edition and its contents there.
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