The auditor must report on five sub-clauses covering records, verification, title, revaluation, and benami property.
### (a) Proper Records
Company must maintain proper records with full particulars — including quantitative details and situation — of PPE and Intangible Assets.
### (b) Physical Verification by Management
Management (not auditor) must physically verify PPE at reasonable intervals.
Auditor checks:
Whether verification was actually conducted
Whether coverage and procedure were appropriate
Material discrepancies → properly dealt with in books
Discrepancy ≥ 10% in aggregate per class → must be disclosed and adjusted in books
### (c) Title Deeds of Immovable Property
Title deeds of all immovable property held as fixed assets must be in the name of the company.
If NOT in company's name → report: property description, GBV/NBV, reason, and name of actual holder.
Exception: Properties where company is lessee with duly executed lease agreements.
### (d) Revaluation Must Be by Registered Valuer
If PPE or Intangible Assets were revalued during the year:
Valuation must be by a Registered Valuer (not internal team)
If change ≥ 10% in aggregate of net carrying value per class → specify the amount of change
### (e) Benami Property Proceedings
Whether proceedings are initiated or pending under the Benami Transactions (Prohibition) Act, 1988.
If yes → details must be disclosed in the Financial Statements.
### Quick Reference
Sub-clause
Key Check
Threshold
(b)
Physical verification discrepancy
10% per class
(d)
Revaluation change
10% per class
(c)
Title deeds in company name
Absolute — no threshold
(e)
Benami proceedings
Disclose if any
Worked example
### Example 1
Title Deeds [Clause i(c)]:
ABC Ltd's balance sheet shows factory land (NBV ₹50 crore) whose title deed is registered in the name of promoter Mr. X. What should the auditor report?
Answer: Under Clause 3(i)(c), the auditor must report that title deeds of immovable property are NOT held in the company's name. Required disclosures: property description, gross/net carrying value (₹50 crore), and name of the person (Mr. X) in whose name the deeds are held.
### Example 2
Physical Verification Discrepancy [Clause i(b)]:
During physical verification of Plant & Machinery (carrying value ₹80 lakh), management found a shortage of ₹9 lakh (11.25%). No adjustment was passed in the books.
Answer: Since the discrepancy (11.25%) exceeds 10%, the auditor reports under Clause 3(i)(b) that a material discrepancy was found during physical verification and has NOT been properly dealt with in the books. This may also lead to a qualification in the main audit report.
### Example 3
Revaluation Without Registered Valuer [Clause i(d)]:
XYZ Ltd revalued land from ₹10 crore to ₹13 crore (30% increase) using an internal management committee.
Answer: Non-compliant. The revaluation change (30%) exceeds 10%, so it must be performed by a Registered Valuer. The auditor reports under Clause 3(i)(d) that the revaluation was not conducted by a Registered Valuer as required.
⚠️ Common exam mistakes
Confusing 'physical verification by management' with 'physical verification by the auditor' — CARO requires management to conduct it; the auditor only checks adequacy.
Omitting sub-clause (e) on Benami proceedings in exam answers — students often stop at sub-clause (d).
Assuming revaluation can be done by management or an internal team — it MUST be done by a Registered Valuer.
Ignoring the lessee exception in clause (c) — immovable property where the company is lessee with a duly executed lease is exempted from the title deed requirement.
Confusing the 10% physical verification threshold (PPE) with the 10% inventory discrepancy threshold (Clause ii) — both exist but apply to different clauses.
Bare-Act text Clause 3(i) · Companies (Auditor's Report) Order, 2020 (CARO 2020) · click to expand
3(i)(a) whether the company is maintaining proper records showing full particulars, including quantitative details and situation, of Property, Plant and Equipment and relevant details of Right of Use assets; (b) whether these PPE have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether these have been properly dealt with in the books of account; (c) whether the title deeds of all the immovable properties (other than properties where the company is the lessee and the lease agreements are duly executed in favour of the lessee) disclosed in the financial statements are held in the name of the company, if not, provide the details thereof; (d) whether the company has revalued its Property, Plant and Equipment or Intangible Assets or both during the year, and if so, whether the revaluation is based on the valuation by a Registered Valuer; specify the amount of change, if change is 10% or more in the aggregate of the net carrying value of each class of PPE or Intangible Assets; (e) whether any proceedings have been initiated or are pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 and rules made thereunder, if so, whether the company has appropriately disclosed the details in its financial statements.