CARO clause 3(x)(a) requires the auditor to report whether moneys raised by way of initial public offer or further public offer, including debt instruments, during the year were applied for the purposes for which those are raised, and if not, details of the amount of application or deviation; this means tracing actual fund deployment against the specific object-wise allocation disclosed in the prospectus or offer document, not against a general sense that the money was used for business purposes, and the exact reporting format should be confirmed against the current order.
Starting point: the offer document's object clause
Every public offer document sets out an object-wise breakup of how proceeds will be used, for example, repayment of borrowings, funding capital expenditure at named locations, working capital, or general corporate purposes, each with a specific rupee allocation. This breakup, not a subsequent board resolution, is the baseline against which utilisation is tested for the year.
Testing approach
- 01Obtain the object-wise allocation from the offer documentExtract the exact rupee amount allocated to each stated object, and the schedule or milestones, if any, by which utilisation was expected.
- 02Trace actual deployment object by objectFollow the proceeds from the monitoring bank account (where a separate escrow or monitoring account was mandated) through to actual spend, matched to invoices, loan repayment records, or capex sanction documents for each stated object.
- 03Reconcile to the monitoring agency's report where applicableIssuers above the prescribed threshold are required to appoint a monitoring agency to report on utilisation; cross-check that report against the auditor's own independent tracing rather than relying on it exclusively.
- 04Quantify any deviationWhere actual utilisation differs from the stated object, by amount, timing or purpose, quantify the deviation and confirm whether shareholder approval or any other required disclosure was obtained for the change in use.
- 05Check unutilised proceeds and their deploymentProceeds not yet utilised at year end should be identifiable and typically parked in instruments consistent with the company's investment policy; confirm they were not used for a purpose outside the stated objects even temporarily.
A general corporate purposes allocation is often used as a catch-all to absorb spending that does not fit any other named object. Confirm the amount actually used under general corporate purposes does not exceed what the offer document permitted for that head, which is often capped as a percentage of total proceeds.
Regulatory requirement
The exact clause wording, the disclosure format for deviations, and the monitoring agency requirement and threshold are set out in the Companies (Auditor's Report) Order and the applicable SEBI regulations as currently in force. Confirm all of these against current source material before drafting the report.
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.
- Bank, cash & treasuryTreasury controls audit checklist for mid-market companiesSegregation of duties over payments, dual signatories, bank mandate review frequency, and whether cash flow forecasting is real or decorative.
- Fixed assets & capexCapital work-in-progress (CWIP) audit proceduresAgeing stalled CWIP, testing the capitalisation trigger, applying Ind AS 23 in practice, and the ageing schedule now required in the financial statements.
- Fixed assets & capexCapex vs revenue expenditure: the audit testThe capitalisation criteria, the repairs-versus-improvement judgement calls that actually come up, and how to sample repairs and maintenance for misclassified capex.
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