CARO 2020 clause 3(i): fixed asset records and physical verification

If your company is audited under the Companies Act, 2013, the auditor's report includes a section under the Companies (Auditor's Report) Order, 2020, known as CARO 2020. Clause 3(i) is the part about fixed assets. It is also the clause most likely to be qualified for reasons that have nothing to do with accounting: a register that does not say where things are, or a physical verification that was never written down.

What CARO 2020 is and who it applies to

The Ministry of Corporate Affairs issued CARO 2020 on 25 February 2020 and, after deferrals, it applies to audits of financial years beginning on or after 1 April 2021. It applies to every company, including a foreign company, except the following.

• A banking company, as defined in the Banking Regulation Act, 1949.
• An insurance company, as defined under the Insurance Act, 1938.
• A company licensed under section 8 of the Companies Act.
• A one person company and a small company.
• A private limited company that is not a subsidiary or holding company of a public company, and that has paid-up capital and reserves and surplus of not more than ₹1 crore on the balance sheet date, total borrowings from any bank or financial institution not exceeding ₹1 crore at any point in the year, and total revenue (including discontinuing operations) not exceeding ₹10 crore for the year. All three conditions must be met.

The small company limits changed recently. From 1 December 2025, under the Companies (Specification of Definition Details) Amendment Rules, 2025, a small company is one with paid-up capital of not more than ₹10 crore and turnover of not more than ₹100 crore, up from ₹4 crore and ₹40 crore. Holding and subsidiary companies, section 8 companies and companies governed by a special Act cannot be small companies. ICAI study material notes that a small company stays exempt from CARO even if it fails the separate private company tests.

The six points in clause 3(i)

For title deeds not held in the company's name, the auditor reports the description of the property, gross carrying value, the name it is held in, whether that person is a promoter, director, relative or employee, the period held and the reason, including whether it is in dispute.

What "full particulars, quantitative details and situation" means

CARO does not define proper records, but the ICAI's revised 2022 Guidance Note on CARO, as summarised in Taxmann's commentary on the clause, lists what a fixed asset register should hold for each item:

• A description sufficient to identify the item (make, model, colour and so on).
• Classification, meaning the account head it sits under, such as plant and machinery, furniture and fixtures or office equipment.
• Situation, meaning its location.
• Quantity, meaning the number of units.
• Original cost, year of purchase and the date it became available for use (the guidance suggests recording date of purchase and date put to use, which also helps for income tax).
• Useful life, residual value and component-wise break-up where applicable.
• Revaluation adjustments, date of revaluation and the registered valuer's report where relevant.
• Rate or basis of depreciation, depreciation for the year and accumulated depreciation.
• Impairment, and particulars of sale, discarding, demolition or destruction.

The same guidance adds points that operations teams usually own rather than finance. Fully depreciated items, items retired and held for disposal and items written off in the year of purchase still belong in the register. Where equipment moves between sites, such as construction plant, a record of movement and custody is enough in place of a fixed location. Where assets such as furniture, air conditioners or cars sit in staff residences, the register should show the name and designation of the person who has custody. Low value items such as chairs and tables may be grouped. Totals of cost, accumulated depreciation and impairment by head should reconcile with the books of account.

Physical verification: what reasonable intervals means

Clause 3(i)(b) asks whether management verified the assets at reasonable intervals, not whether it counted everything every year. Taxmann's analysis of the ICAI guidance stresses that the auditor must state whether the interval is reasonable having regard to the size of the company and the nature of its assets; simply reporting "all items covered once in 3 years according to a programme" is not enough on its own. Expect the auditor to want to see the programme, not just the outcome.

Unlike the inventory clause, which tests discrepancies of 10% or more per class, the PPE clause sets no percentage. Materiality is judged in context, with more attention to high value assets. Two links matter: if the register is not proper, the auditor cannot comment on discrepancies at all, so a weak register can drag both sub-clauses down; and a discrepancy is only properly dealt with once the books reflect it.

How to run and evidence a verification

1. 1
   Write a verification policy

   State the frequency by class, for example laptops and portable tools every year and fixed plant over a cycle, who counts, and who approves write-offs. Have it approved once; auditors ask for it.

2. 2
   Plan coverage

   Divide the register by location or department so every item falls in exactly one count. Track which areas are done so a rolling programme demonstrably covers everything within the stated cycle.

3. 3
   Count against the register

   Have someone other than the custodian check each item where it stands, by tag or serial, and record it as found or missing, plus condition and any item found that is not on the register.

4. 4
   Reconcile

   List missing items, unrecorded items, items found at the wrong location and tag mismatches. Investigate each before calling it a discrepancy; many are moves nobody recorded.

5. 5
   Write up discrepancies

   For each one: the asset, book value, what was found, the explanation, and the action taken, such as a transfer, a write-off or a police complaint for theft.

6. 6
   Adjust the books and file evidence

   Get management approval for write-offs, post the entries, update the register, and keep the count sheets, the reconciliation and the approvals together for the auditor.

What auditors typically ask for

• The fixed asset register at year end, reconciled to the trial balance by class.
• The physical verification policy and the programme showing coverage.
• Count records for the year: who counted, when, what was found and what was missing.
• The discrepancy reconciliation, management approvals and the resulting journal entries.
• Title deeds, or details of deeds held elsewhere, for immovable property.
• Registered valuer reports for any revaluation, and confirmation about benami proceedings.

A pre-audit checklist

1. 1Every item has a unique tag that matches the register, and the register records location or custodian.
2. 2Register totals reconcile to the books by class, including fully depreciated and retired items.
3. 3A written verification policy exists and the year's counts match it.
4. 4Every count has a record: date, scope, counter, items verified and items missing.
5. 5Every discrepancy has a write-up, an approval and, where needed, an entry in the books.
6. 6Title deed and valuation documents are located and listed before the auditor asks.

Related reading on the Stackroom blog covers how to run a fixed asset physical verification and what a fixed asset register should contain, and the free fixed asset register template gives you the columns above in a spreadsheet if you are starting from nothing.