CAROCO 2020 applies to every company, including a foreign company as defined in Section 2(42) of the Companies Act, 2013.
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### Exceptions — Companies Exempt from CARO 2020
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Category
Key Reference
(i)
Banking company
Section 5(c), Banking Regulation Act, 1949
(ii)
Insurance company
Insurance Act, 1938
(iii)
Section 8 company (licensed for charitable/non-profit objects)
Section 8, Companies Act, 2013
(iv)
One Person Company (OPC) or Small Company
Sections 2(62) and 2(85), Companies Act, 2013
(v)
Qualifying private limited company (all three conditions must be met — see below)
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#### Qualifying Private Limited Company (Exception v) — All Three Conditions Must Be Satisfied Simultaneously
1. Not a subsidiary or holding company of a public company, AND
2. Paid-up capital + reserves and surplus ≤ ₹1 crore (as on balance sheet date), AND
3. Total borrowings from any bank or financial institution ≤ ₹1 crore at any point during the financial year, AND
4. Total revenue (including revenue from discontinuing operations per Schedule III) ≤ ₹10 crore during the financial year.
> Memory tip: For the private company exemption, think 1-1-10: ₹1 Cr capital+reserves, ₹1 Cr borrowings, ₹10 Cr revenue — all ceilings must hold simultaneously.
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### Practical Check for Applicability
When a company is given in a question, systematically verify:
Is it banking / insurance / Section 8? → Exempt
Is it OPC or small company? → Exempt
Is it a private company meeting all three financial thresholds and not a subsidiary/holding of a public company? → Exempt
Otherwise → CARO 2020 applies
Worked example
### Example 1
Q (MTP 1): DOX Limited — courier services company, turnover ~₹300 crores, profitable, has an internal audit department. Is CARO 2020 applicable?
Check each exemption:
Not a banking or insurance company ✗
Not a Section 8 company (it is profit-making, courier services) ✗
Not an OPC or small company (₹300 Cr turnover far exceeds small company threshold) ✗
Name suggests it is not a private company (or if it were, ₹300 Cr revenue exceeds the ₹10 Cr ceiling) ✗
Conclusion: No exemption applies → CARO 2020 is fully applicable.
### Example 2
Q (MTP 4): Mr. Chetan is auditor of Spot Limited, a small company. Is CARO 2020 applicable?
A small company is specifically listed in Exception (iv) — defined under Section 2(85) of the Companies Act, 2013.
Conclusion: CARO 2020 is NOT applicable to Spot Limited.
⚠️ Common exam mistakes
Assuming all private companies are exempt — the private company exemption has three strict financial ceilings that must ALL be met simultaneously.
Forgetting that borrowings must not exceed ₹1 crore 'at any point during the financial year' — not just on the balance sheet date.
Assuming a subsidiary of a public company qualifies for the private company exemption — it does not.
Applying CARO 2020 to banking companies or insurance companies — they are specifically excluded.
Bare-Act text Paragraph 1 — Applicability · Companies Auditor's Report Order, 2020 · click to expand
CARO, 2020 shall apply to every company including a foreign company as defined in clause (42) of section 2 of the Companies Act, 2013, except— (i) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949; (ii) an insurance company as defined under the Insurance Act,1938; (iii) a company licensed to operate under section 8 of the Companies Act; (iv) a One Person Company as defined in clause (62) of section 2 of the Companies Act and a small company as defined in clause (85) of section 2 of the Companies Act; and (v) a private limited company, not being a subsidiary or holding company of a public company, having a paid up capital and reserves and surplus not more than one crore rupees as on the balance sheet date and which does not have total borrowings exceeding one crore rupees from any bank or financial institution at any point of time during the financial year and which does not have a total revenue as disclosed in Scheduled III to the Companies Act (including revenue from discontinuing operations) exceeding ten crore rupees during the financial year as per the financial statements.