The CARO clause dealing with property, plant and equipment asks the auditor to report on whether proper records of fixed assets are maintained showing full particulars including quantitative and situation details, whether physical verification was carried out by management at reasonable intervals, whether title deeds of immovable property are held in the company's name, and whether any revaluation of assets took place and on what basis. A closely related point covers physical verification of inventory and how discrepancies against book records were treated. The exact clause lettering should be confirmed against the current order; what follows describes the testing approach regardless of how it is numbered this year.
Fixed asset records: what "proper" means in practice
CARO does not just ask whether a fixed asset register exists. It asks whether the register shows full particulars, including quantitative details and situation (location) of each asset. A register that has only a description, a cost and a depreciation rate, with no location field and no asset tag reference, does not meet this on a literal reading even if it ties out to the trial balance.
- Check the register has an identifiable asset tag or serial reference that can be physically traced to the asset.
- Check the location field is populated and current, particularly for assets moved between branches or sites during the year.
- Reconcile the register total to the fixed asset schedule in the financial statements and to the trial balance gross block.
- For assets fully written down but still in use, confirm they remain on the register rather than being dropped once depreciated to nil.
Physical verification of fixed assets
The clause asks whether physical verification was conducted by management, not by the auditor, at reasonable intervals, and whether discrepancies were properly dealt with. The auditor's job is to evaluate management's verification exercise, not to replace it with an independent full count, though test checks of a sample during the audit are normal practice.
- 01Obtain management's physical verification reportAsk for the date, scope (which locations and asset classes), and who performed it. A verification exercise covering only the head office when the company has six plants is not reasonable coverage.
- 02Assess the interval against the asset baseWhat counts as a reasonable interval depends on the nature and value of the assets; high-value or high-movement asset classes generally warrant more frequent verification than low-value fixed items. There is no single fixed cycle mandated; use judgement and document the basis.
- 03Trace reported discrepancies to the accounting treatmentWhere management's verification found shortages or assets not traceable, confirm these were written off or otherwise adjusted in the books, not left as an open item in a verification report nobody actioned.
- 04Perform an independent sample checkSelect a sample of register entries and physically locate them, and separately select a sample of assets observed on site and trace them back to the register, to test both directions of completeness.
Title deeds of immovable property
This point requires the auditor to report, for all immovable property other than properties where the company is a lessee and the lease agreement is duly executed, whether the title deeds are held in the name of the company. Where they are not, the company is generally required to disclose details including description, gross carrying value, held in the name of, and the reason the title is not in the company's name.
| Step | What to check |
|---|---|
| Build the property schedule | List every immovable property on the fixed asset register with gross carrying value, independent of whether management has flagged any issue |
| Obtain and inspect title documents | Sale deed, conveyance deed or allotment letter for each property, checking the name on the document against the company's registered name exactly |
| Flag name mismatches | A property still in the name of a predecessor entity, a promoter, or a merged company that was never transferred is the most common finding |
| Check leasehold classification | Properties held on lease are excluded from this point only where the lease agreement is properly executed; an expired or unexecuted lease does not qualify for the exclusion |
A property acquired through a merger or amalgamation is the most common source of a title mismatch, because the legal transfer of title often lags the accounting entry by years. Check every property acquired through a corporate restructuring specifically, rather than assuming the merger scheme automatically transferred title.
Revaluation of assets
Where the company has revalued its property, plant and equipment, intangible assets, or both, during the year, the auditor is generally expected to report whether the revaluation was based on the valuation by a registered valuer, and whether the resulting change exceeds a specified threshold against the net carrying value before revaluation. The exact percentage threshold should be confirmed against the current order before being quoted in a report; do not carry forward a remembered figure without checking it.
Inventory physical verification
The related inventory point asks whether physical verification was conducted by management at reasonable intervals and whether any discrepancies of a specified materiality were properly dealt with in the books of account.
- Attend at least part of the physical count where inventory is material, and review the count instructions management issued.
- Reconcile the count sheets to the perpetual inventory records and to the year-end stock figure in the financial statements.
- Quantify variances by value, not just by line count, and trace each material variance to its accounting adjustment.
- Where the company uses a cycle-count approach rather than a single year-end count, assess whether the cycle covers all locations within a reasonable period.
Regulatory requirement
The precise wording, clause lettering and materiality thresholds for fixed asset and inventory reporting are set out in the Companies (Auditor's Report) Order as currently in force. Confirm these against the current order text rather than relying on the description above, which is deliberately non-specific about clause numbers and thresholds.
How we think about this
The register reconciliation, the title-deed-name match, and the count-to-book variance are all exact comparisons that should be run across the whole population, not sampled: every property name against every title document, every register line against the trial balance. Deciding whether a title mismatch is a paperwork lag or a real ownership problem, and whether a verification interval was reasonable for that asset class, stays a judgement call for the auditor.
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.
- CARO & Companies ActCARO clause on loans, advances and investmentsTesting loans, advances and investments given by the company for CARO reporting, including the overdue-loan-renewal pattern the clause is designed to surface.
- CARO & Companies ActCARO default in repayment of loans: audit testingTesting repayment schedules against actual payment dates, using bank confirmations as the independent check, and where the line sits between a minor delay and a reportable default.
- Fixed assets & capexFixed asset register audit: completeness and accuracy checksWhat a fixed asset register must contain, how to tie it to the general ledger, and the gaps that quietly survive year after year if nobody checks for them.
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