CARO 2020 Clause 3(i) is often treated as a fixed-asset-register check, but it is broader. It covers records for Property, Plant and Equipment (PPE) and intangible assets, management’s physical verification, title deeds of immovable property, revaluation of PPE including Right of Use assets, and proceedings relating to benami property. For a covered company, the safest approach is to treat Clause 3(i) as a five-part audit programme.
The current professional reference is ICAI’s Guidance Note on the Companies (Auditor’s Report) Order, 2020 (Revised 2022 Edition). ICAI’s current Guidance Notes index also lists the revised CARO 2020 guidance, while a detailed copy is available through the Comptroller and Auditor General of India portal. The Guidance Note states that CARO 2020 applies for audits of financial year 2021-22 and onwards, subject to the Order’s applicability and exemptions.
1. Records under Clause 3(i)(a)
Clause 3(i)(a)(A) requires reporting on whether the company maintains proper records showing full particulars, including quantitative details and the situation of PPE. Clause 3(i)(a)(B) separately covers proper records for intangible assets.
Do not stop at a year-end gross block schedule. Reconcile the underlying PPE and intangible-asset registers to the general ledger and financial statements, test additions and disposals, and confirm that material assets can be identified by location and description. For intangible assets, the absence of a physical location is not a reason to omit the register.
2. Physical verification under Clause 3(i)(b)
Clause 3(i)(b) asks whether PPE has been physically verified by management at reasonable intervals and whether material discrepancies were properly dealt with in the books. ICAI’s Guidance Note explains that the verification programme should consider factors such as the number and nature of assets, value, location and relative importance.
Where annual verification of all assets is impracticable, the Guidance Note says the programme should cover all assets at least once in every three years. That is professional guidance for judging the programme, not a separate statutory deadline written into the clause itself.
Obtain management’s verification instructions, count sheets or system reports, review evidence, and discrepancy reconciliations. Test selected assets from register to floor and, where useful, from floor back to the register. If a discrepancy is material, evaluate both its cause and whether the accounting treatment is proper.
3. Title deeds under Clause 3(i)(c)
Clause 3(i)(c) asks whether title deeds of immovable properties disclosed in the financial statements are held in the company’s name. It excludes properties where the company is the lessee and the lease agreements are duly executed in favour of the lessee. If relevant deeds are not in the company’s name, CARO requires detailed reporting in the prescribed format.
ICAI’s Guidance Note recommends identifying immovable properties from the PPE records, verifying title deeds and reconciling them with the register. Where originals are mortgaged with a bank or financial institution, the auditor may obtain confirmation from that institution and may also consider available State-level online records.
Common title-deed problems
- Land remains in a promoter’s or predecessor entity’s name after acquisition or restructuring.
- The PPE register does not agree with the legal deed on area, location or ownership details.
- Management cannot establish where an original deed is held.
- A lease is assumed to be outside Clause 3(i)(c) even though the lease agreement is not duly executed in favour of the company.
4. Revaluation under Clause 3(i)(d)
Clause 3(i)(d) asks whether the company revalued PPE, including Right of Use assets, or intangible assets during the year and, if so, whether the revaluation is based on valuation by a Registered Valuer. It also requires the amount of change to be specified when the change is 10% or more in the aggregate of the net carrying value of each class of PPE or intangible assets.
Retain the valuation report, valuer credentials, management approval, accounting entries and a class-wise computation supporting the percentage change. The 10% test should be assessed by the relevant class rather than by netting unrelated classes into one overall percentage.
5. Benami-property proceedings under Clause 3(i)(e)
Clause 3(i)(e) requires reporting where proceedings have been initiated or are pending against the company for holding benami property under the Benami Transactions (Prohibition) Act, 1988 and related rules. Where such proceedings exist, the auditor must also consider whether the company has appropriately disclosed the details in its financial statements.
Include benami proceedings specifically in legal confirmations, management inquiries and the litigation tracker. If a matter is identified, read the relevant notices or orders and cross-check the financial-statement disclosure instead of relying on a generic “no litigation” representation.
Worked illustration
Assume a manufacturer has a detailed plant register, but one remote warehouse has not been physically verified for four years. A parcel of freehold land is still registered in the founder’s name because transfer documentation is incomplete. During the year, the company also revalued a class of factory buildings; the class-wise net carrying value increased by 12% and a Registered Valuer issued the report.
These are three separate CARO questions. The four-year verification gap should be evaluated against the reasonableness of management’s programme and ICAI’s guidance, considering materiality and the significance of the warehouse assets. The land-title mismatch requires Clause 3(i)(c) analysis and prescribed reporting if the deed is not in the company’s name. The building revaluation requires Clause 3(i)(d) attention because the class-wise change exceeds 10%, including verification of the Registered Valuer basis and accounting entry.
Working-paper checklist
- Confirm CARO applicability before running the clause checklist.
- Reconcile PPE and intangible-asset records to the financial statements.
- Document management’s physical-verification programme and test evidence of actual verification.
- Investigate material discrepancies and their accounting treatment.
- Prepare a complete immovable-property list and reconcile each item to title evidence or duly executed lease documentation.
- For mortgaged deeds, obtain appropriate external evidence rather than relying only on management representation.
- Identify revaluations, verify Registered Valuer involvement where required and perform the class-wise 10% test.
- Ask specifically about benami-property proceedings and link any identified matter to financial-statement disclosure.
- Cross-reference each conclusion to the final CARO wording so that no sub-clause rests only on a generic representation.
Practical takeaway
Clause 3(i) is best audited as five distinct questions: are asset records reliable, is physical verification reasonable, do immovable-property titles support ownership, has revaluation been properly supported and reported, and are benami-property proceedings appropriately addressed? A strong file maps evidence to each sub-clause separately instead of treating the entire area as one fixed-asset reconciliation.
