## CARO 2020 Clause (xix) – Going Concern

### What the Auditor Must Report

Based on a holistic assessment, whether the auditor is of the opinion that no material uncertainty exists as on the date of the Audit Report that the company is capable of meeting its liabilities existing at the date of the Balance Sheet as and when they fall due within a period of 1 year from the Balance Sheet date.

### The Four Inputs for Assessment

Input	What to Examine
Financial Ratios	Liquidity ratios, debt-equity, interest coverage, current ratio
Ageing & Expected Realisation of Financial Assets	How long debtors/receivables take to convert; expected dates of collection
Payment of Financial Liabilities	Expected dates when borrowings, payables fall due
Other Information in FS	Notes, contingent liabilities, post-balance sheet events
Auditor's Knowledge of Plans	Board/management plans to address liquidity/solvency concerns

### The Standard to Apply

The test is 1 year from Balance Sheet date, not from the audit report date. The auditor forms an opinion on the company's ability to meet liabilities within that window.

### Possible Outcomes

Opinion	CARO Reporting
No material uncertainty exists	Positively state this conclusion
Material uncertainty exists	Report that material uncertainty exists; this typically triggers an Emphasis of Matter or Qualified/Adverse opinion in the main audit report

> Note: This is consistent with SA 570 (Going Concern). CARO clause (xix) does not substitute SA 570 — both operate simultaneously.

Worked example

### Example 1

Example 1 – No material uncertainty:

JKL Ltd. has a current ratio of 2.1, all major debtors are expected to pay within 90 days, term loans are due after 3 years, and the board has confirmed no plans to wind up. Financial ratios are healthy.

CARO Reporting: Based on financial ratios, ageing and expected dates of realisation of financial assets and payment of financial liabilities, and other accompanying information, the auditor is of the opinion that no material uncertainty exists as on the date of the audit report that the company is capable of meeting its liabilities as and when they fall due within a period of one year from the balance sheet date.

### Example 2

Example 2 – Material uncertainty exists:

MNO Ltd. has accumulated losses exceeding its paid-up capital, its current ratio is 0.4, and a major term loan of ₹200 crore falls due within 8 months with no confirmed refinancing arrangement.

CARO Reporting: Based on assessment, a material uncertainty exists regarding the company's ability to meet its liabilities within one year from the balance sheet date. The auditor also issues an Emphasis of Matter paragraph under SA 570 in the main audit report.

⚠️ Common exam mistakes

Limiting assessment to financial ratios alone — all five inputs (ratios, asset ageing, liability payment schedule, FS notes, and management plans) must be considered.
Applying the 1-year window from the audit report date instead of from the Balance Sheet date.
Treating going concern as a pass/fail — the auditor must affirmatively state whether material uncertainty exists or does not exist.
Ignoring SA 570 — CARO clause (xix) and SA 570 are both applicable; a going concern issue must be addressed in both.

Bare-Act text Para 3(xix) · Companies (Auditor's Report) Order, 2020 (CARO 2020) · click to expand

On the basis of the financial ratios, ageing and expected dates of realisation of financial assets and payment of financial liabilities, other information accompanying the financial statements, and the auditor's knowledge of the Board of Directors and management plans, whether the auditor is of the opinion that no material uncertainty exists as on the date of the audit report that company is capable of meeting its liabilities existing at the date of balance sheet as and when they fall due within a period of one year from the balance sheet date.

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CARO 2020 – Going Concern (Clause xix)

Worked example

⚠️ Common exam mistakes