CARO's clause 3(xvii) requires the auditor to report whether the company has incurred any cash losses in the financial year and in the immediately preceding financial year, and if so, the amount involved. A cash loss, for this purpose, is not simply the net loss figure reported in the statement of profit and loss — it's the accounting loss adjusted to add back non-cash charges, most significantly depreciation and amortisation, and other non-cash provisions, to arrive at the actual cash shortfall the business generated (or consumed) for the period.
Why the two figures diverge
| Amount | |
|---|---|
| Net loss as per statement of profit and loss | ₹50 lakh |
| Add back: depreciation and amortisation (non-cash) | ₹70 lakh |
| Add back: other significant non-cash provisions (e.g. an impairment provision, if not already excluded elsewhere) | ₹10 lakh |
| Cash profit / (loss) for the purpose of this clause | ₹30 lakh — a cash PROFIT, despite an accounting loss |
Common practice, not a requirement
A company reporting an accounting loss driven primarily by a large depreciation charge on recently capitalised assets may well be cash-profit-positive once depreciation is added back — the clause specifically exists to surface that distinction, since a company can sustain an accounting loss for extended periods without the underlying cash position actually deteriorating.
Why two years, not one
The clause requires reporting on both the current year AND the immediately preceding year — a single year's cash loss is a data point; two consecutive years of cash losses is a pattern that carries more weight for a reader assessing the company's trajectory, and connects naturally to the separate going-concern evaluation under SA 570 where the pattern is significant enough to raise doubt about the company's ability to continue operating.
A company with two consecutive years of genuine cash losses — not just accounting losses — is exactly the kind of fact pattern that should feed directly into the going-concern assessment, not be reported in the CARO clause as an isolated figure disconnected from the broader conclusion on the entity's ability to continue operating.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- CARO & Companies ActCARO 2020 reporting checklist for statutory auditorsThe topic areas CARO reporting covers, what evidence each one needs, and how the clauses fit together across the audit file.
- Audit workflow & automationSA 570: going concern, and when it actually changes the audit reportMost going-concern evaluations end exactly where they should: no material uncertainty, no change to the report. The standard is about the minority of cases where that's not true.
- Bank, cash & treasuryBank reconciliation audit procedure for statutory auditWhat a BRS must reconcile, the red flags that separate a timing difference from a cover-up, and how many months you actually need to review.
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