CARO's clause 3(xix) requires the auditor to state, on the basis of financial ratios, ageing and expected dates of realisation of financial assets and payment of financial liabilities, whether material uncertainty exists as on the date of the auditor's report that the company is capable of meeting its liabilities existing at the balance sheet date as and when they fall due within a period of one year from the balance sheet date. This is a narrower, more specifically scoped question than the SA 570 going-concern evaluation: it looks at a defined one-year window, uses a stated analytical basis (ratios, ageing, expected realisation/payment dates), and its conclusion doesn't by itself determine the going-concern basis of accounting, though the two assessments clearly inform each other.
How CARO 3(xix) and SA 570 going concern relate
| CARO clause 3(xix) | SA 570 going concern | |
|---|---|---|
| Time horizon | One year from the balance sheet date, specifically | At least twelve months from the date the financial statements are APPROVED — a later starting point, often a somewhat longer effective window |
| Stated analytical basis | Financial ratios, ageing, and expected realisation/payment dates — named explicitly in the clause | A broader range of events and conditions, financial and non-financial, per SA 570's own list |
| What it determines | A specific factual conclusion on liability-meeting capability, reported in the CARO annexure | Whether the going-concern basis of accounting itself remains appropriate, and whether a material uncertainty requires a separate report paragraph |
What actually gets computed
- 01Build a maturity profile of financial liabilities falling due within one yearBorrowings, trade payables, and other financial liabilities, each with their contractual due dates.
- 02Build a corresponding profile of expected realisation of financial assetsReceivables ageing, expected collection patterns, available cash and credit facilities, and other sources expected to be available within the same window.
- 03Compute relevant liquidity and coverage ratiosCurrent ratio, quick ratio, and any entity-specific measures relevant to the company's actual liability structure.
- 04Assess whether the combination indicates material uncertaintyA genuinely integrated judgment across the ratios, the ageing, and the expected cash flow timing — not a mechanical pass/fail on a single ratio threshold.
A conclusion of "no material uncertainty" under this clause doesn't automatically mean the going-concern basis is unquestionably appropriate under SA 570, or vice versa — the two conclusions should be consistent with each other given they're assessing related facts, but they're separate judgments with separate stated bases, and the file should show both were actually reached rather than one copied from the other without independent consideration.
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
- 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.
- CARO & Companies ActCARO clause 3(xvii): cash losses, and why it's measured over two years, not oneA cash loss and an accounting loss aren't the same figure. The clause is specifically about one of them, measured across two consecutive years.
- 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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