Applies to India
CARO 2020 physical verification of fixed assets: a practical guide
By the OrbitPi product team · Updated · 6 min read
Clause 3(i) of the Companies (Auditor’s Report) Order, 2020 (CARO 2020) requires the auditor to report whether the company keeps proper records of its property, plant and equipment, whether management has physically verified them at reasonable intervals, and whether material discrepancies found were properly dealt with in the books. In practice that means a complete fixed asset register, a planned verification programme, and documented reconciliation of every difference.
Key takeaways
- CARO 2020 applies to financial years starting on or after 1 April 2021, with exemptions for banks, insurers, section 8 companies, one-person companies, small companies and some small private companies.
- Clause 3(i) covers asset records, physical verification, title deeds, revaluation and benami proceedings.
- Verification is management’s responsibility; the auditor reports on whether it was done and how discrepancies were handled.
- Reasonable intervals depend on the nature and value of assets. Many companies verify every asset at least once over a planned cycle.
- Evidence matters: keep who counted what, where and when, and how each variance was resolved.
What is CARO 2020?
The Companies (Auditor’s Report) Order, 2020 is issued by the Ministry of Corporate Affairs under section 143(11) of the Companies Act, 2013. It lists specific matters the statutory auditor must report on, in addition to the audit opinion. It applies to audits of financial years beginning on or after 1 April 2021.
- Banking companies and insurance companies
- Companies licensed under section 8 (not-for-profit companies)
- One-person companies and small companies
- Private companies that are not a holding or subsidiary of a public company, whose paid-up capital and reserves are not more than ₹1 crore, whose borrowings from banks or financial institutions are not more than ₹1 crore at any time in the year, and whose total revenue is not more than ₹10 crore
The companies above are exempt. The order also does not apply to the auditor’s report on consolidated financial statements, apart from one clause on qualifications in group companies.
What does clause 3(i) require?
| Sub-clause | The auditor reports whether |
|---|---|
| 3(i)(a) | The company maintains proper records showing full particulars, including quantitative details and situation, of property, plant and equipment, and proper records of intangible assets |
| 3(i)(b) | Property, plant and equipment have been physically verified by management at reasonable intervals, whether material discrepancies were noticed, and whether they were properly dealt with in the books |
| 3(i)(c) | Title deeds of immovable property are held in the name of the company, with details of any that are not |
| 3(i)(d) | The company revalued property, plant and equipment or intangible assets, whether a registered valuer was used, and any change of 10% or more in the net carrying value of a class |
| 3(i)(e) | Proceedings have been started or are pending against the company for holding benami property |
“Full particulars” in practice means each asset can be identified: description, asset code, quantity, location, cost, date of acquisition, depreciation and net book value. A register that only holds totals by class makes both verification and reporting difficult.
How often should fixed assets be physically verified?
CARO 2020 does not fix a frequency. The auditor judges whether the interval is reasonable given the number, nature and location of assets. High-value, portable or theft-prone items such as laptops, tools and instruments are often verified every year. Large fixed plant can be covered by a programme that verifies every asset at least once over a planned cycle, often of up to three years, with a set share covered each year.
Whatever interval you choose, write it into an approved verification policy and follow it. An auditor looks for the plan, the evidence that it was carried out and the treatment of what was found.
Step-by-step physical verification process
- Freeze the register: take a dated extract of the fixed asset register for the locations in scope.
- Plan the campaign: decide locations, dates, teams and who approves results. Keep counters independent of the asset custodians where possible.
- Tag every asset: fix a unique label, such as a QR code, so each item can be matched to one register line.
- Count and record: scan or note each asset found, its location, condition and custodian, and photograph damaged items.
- Reconcile: match what was found with the register and list every difference.
- Investigate: trace missing items, record found items that are not in the register, and correct locations.
- Approve and adjust: get approval for write-offs, transfers and register corrections, and pass accounting entries where needed.
- File the evidence: keep count sheets, reconciliation, approvals and a summary report for the auditor.
How to classify and deal with discrepancies
| Result | Assets | Typical action |
|---|---|---|
| Found at the recorded location | 1,142 | No action |
| Found at a different location | 38 | Update the location and custodian after confirmation |
| Not found | 14 | Investigate; if not traced, approve a write-off and remove from the books |
| Found but not in the register | 6 | Trace the purchase record and capitalise, or record why it is excluded |
In this example 1,180 of 1,200 register lines (98.3%) were traced, 14 were missing and 6 extra items were found. Whether a discrepancy is material is a judgement for management and the auditor, based on value and nature. Even small differences should be resolved and recorded, because an unexplained list of missing assets is itself a control finding.
Common audit findings on fixed assets
- A register that does not show location or asset-level detail, so verification cannot be traced.
- Verification done, but no record of who counted, when, or how differences were resolved.
- Missing assets left in the books year after year without investigation or approval.
- Assets disposed of physically without a disposal record or accounting entry.
- Title deeds for immovable property not held in the company’s name after a merger or name change.
General information, not professional advice. This guide summarises the rules as we understand them on the date shown. Laws, notifications and thresholds change, and their application depends on your facts. Check the official sources below and consult a chartered accountant or tax adviser before acting on it.
How OrbitPi Assets helps
OrbitPi Assets keeps the fixed asset register with QR tags, runs physical verification campaigns by branch, splits the work between counters and records how every variance was resolved. It also produces gross block, accumulated depreciation and net block at any date.
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