## CARO 2020 Clause (xxi) – Group Companies & Consolidated Financial Statements

### What the Auditor Must Report

Whether there are any qualifications or adverse remarks by the respective auditors in the CARO reports of the companies included in the consolidated financial statements (FS), and if so:

Identify the company where the qualification/adverse remark appears.
State the paragraph number of the relevant CARO report.
Describe the nature of the qualification or adverse remark.

### Purpose of This Clause

The group auditor consolidates results from multiple subsidiaries/associates/JVs. Each such entity has its own standalone CARO report. Clause (xxi) ensures that any red flags raised at the entity level are surfaced in the consolidated audit report, preventing them from being buried in individual company reports.

### Reporting Format

Company Name	CARO Para No.	Nature of Qualification / Adverse Remark
ABC Subsidiary Ltd.	Para 3(ii)(b)	Adverse remark on inventory — physical verification not conducted
XYZ Associate Ltd.	Para 3(vii)(a)	Company is not regular in depositing GST

### Critical Rule: Applicability of CARO 2020 to Consolidated FS

> CARO 2020 does NOT apply to the Auditor's Report on Consolidated Financial Statements — EXCEPT Clause (xxi).

This means:

All other CARO clauses (i) to (xx) → apply only to standalone financial statements.
Clause (xxi) → applies exclusively to the consolidated financial statements audit report.

### Practical Implication

The group auditor need not prepare a full CARO report for the consolidated FS. They must only include the Clause (xxi) reporting in their consolidated audit report.

Worked example

### Example 1

Example 1 – Clean subsidiary CARO reports:

DEF Group Ltd. has two wholly-owned subsidiaries. Both subsidiaries' standalone CARO reports are clean (no qualifications or adverse remarks).

CARO Reporting in Consolidated Audit Report: The auditor states that there are no qualifications or adverse remarks by the respective auditors in the CARO reports of the subsidiaries included in the consolidated FS.

### Example 2

Example 2 – Adverse remark in a subsidiary's CARO:

GHI Group's subsidiary JKL Ltd. received an adverse remark in Para 3(vii)(a) of its CARO report (dues to tax authorities not deposited).

CARO Reporting in Consolidated Audit Report: The auditor of GHI Group reports: 'JKL Ltd. (subsidiary) — Para 3(vii)(a) of CARO report — The company has not deposited undisputed statutory dues including GST regularly with appropriate authorities. There were outstanding dues of ₹X lakh as at year-end, outstanding for more than 6 months.'

⚠️ Common exam mistakes

Applying all 21 CARO clauses to the consolidated financial statements — only Clause (xxi) applies to the consolidated audit report.
Reporting only qualifications and ignoring adverse remarks — both must be reported.
Failing to cite the specific paragraph number of the individual CARO report — this is mandatory for the reader to trace the issue.
Treating associates and joint ventures differently from subsidiaries — all entities 'included in the consolidated FS' are covered, regardless of the type of relationship.
Confusing an 'emphasis of matter' paragraph with a qualification or adverse remark — Clause (xxi) covers only qualifications and adverse remarks, not emphasis of matter paragraphs.

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

Whether there are any qualifications or adverse remarks by the respective auditors in the Companies (Auditor's Report) Order (CARO) reports of the companies included in the consolidated financial statements, if yes, indicate the details of the companies and the paragraph numbers of the CARO report containing the qualifications or adverse remarks.

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CARO 2020 – Group Companies & Applicability to Consolidated FS (Clause xxi)

Worked example

⚠️ Common exam mistakes