The CARO point on statutory dues asks the auditor to report whether the company is regular in depositing undisputed statutory dues, including goods and services tax, provident fund, employees' state insurance, income tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues, with the applicable authorities, and separately to disclose particulars of dues that are in dispute and have not been deposited, along with the forum where the dispute is pending. Testing this requires reconciling each head of dues from the general ledger through to actual payment evidence, not just to a provision balance, and the exact clause reference and materiality carve-outs should be confirmed against the current order.
Why this clause is tested, not just disclosed
It is tempting to treat this point as a disclosure exercise: ask the client for a statutory dues schedule and sign off on what they provide. The clause actually requires the auditor to form a view on regularity of deposit, which means tracing amounts deducted or collected through to the date they were actually paid to the authority, for every material head of dues, not just reviewing a summary the client prepared.
The heads of dues to cover
| Head of dues | Source records | What timely deposit means |
|---|---|---|
| GST (output and reverse charge) | GSTR-3B returns, electronic cash and credit ledgers, bank payment advices | Tax for a return period paid by the due date for that period, with late fee or interest if paid after |
| TDS (various sections) | TDS challans, Form 26Q/24Q filings, TRACES portal data | Tax deducted during a month deposited by the statutory due date for that month |
| Provident fund | PF challans, ECR filings on the EPFO portal | Contribution for a wage month remitted by the due date, both employer and employee portions |
| ESI | ESI challans, monthly contribution filings | Contribution remitted by the due date for the contribution period |
| Income tax (advance tax, self-assessment) | Challan records, Form 26AS | Instalments paid by the due dates prescribed for advance tax |
| Professional tax, labour welfare fund and other local levies | State-specific challans and filings | Varies by state; confirm the applicable due dates for each jurisdiction the company operates in |
Testing approach
- 01Build a head-wise ledger reconciliationFor each head of dues, reconcile the amount deducted or collected per the ledger, the amount remitted per challans, and the closing payable balance, for every period in the year, not just the year-end balance.
- 02Trace a sample of payments to actual bank debit or challan acknowledgementA provision being cleared in the ledger is not the same as the money having left the bank account on time. Match challan date and amount to the bank statement, not just to the challan copy, which can be generated after the fact.
- 03Compute delay against the statutory due date for each periodEven a single day's delay on GST or TDS attracts interest and should be flagged; the clause asks about regularity, and a pattern of small delays across many months is itself a reportable observation even if no single amount is large.
- 04Check for arrears outstanding at year end beyond six monthsCARO generally requires separate disclosure of dues that remained unpaid for a specified period past their due date as at the balance sheet date; confirm the exact period against the current order and quantify any such arrears.
- 05Identify disputed dues and their forumDues under appeal, under a show-cause notice contested by the company, or subject to a stay order are disputed rather than undisputed and are disclosed separately with the amount and the forum, rather than folded into the regularity assessment.
A statutory dues ledger that nets debit and credit entries within the year can hide a real delay: a late payment in month six can be obscured by an early payment in month eight if the reconciliation is done only at the annual level. Reconcile period by period, not just at the year-end balance.
Where this overlaps with other audit sections
Most of the underlying evidence for this clause is produced elsewhere in the audit and should not be regenerated. The GST reconciliation work for the financial statements already establishes output tax liability and input credit; the payroll audit already tests PF and ESI contribution computation. The CARO-specific addition is the timing test: taking numbers already verified as correct and checking when they were actually paid, and separating disputed from undisputed amounts.
- From the GST reconciliation: monthly output liability and input credit figures, carried forward into the timeliness test rather than recomputed.
- From the payroll audit: PF and ESI contribution base and computed liability, carried forward into the remittance timing test.
- New for CARO: challan-to-bank-debit tracing, delay computation against due dates, and the disputed-dues schedule with forum references.
Regulatory requirement
The exact list of statutory dues covered, the arrears period that triggers mandatory disclosure, and the clause numbering for this point are set out in the Companies (Auditor's Report) Order as currently in force, and the statutory due dates for each head of dues are set by their respective governing laws. Confirm all of these against current source material before drafting the report; none of the figures above should be treated as a cited threshold.
How we think about this
The reconciliation from deducted amount to challan to bank debit, repeated for every period and every head of dues, is exactly the kind of exhaustive cross-check that should run on the full population every time rather than on a sample reviewed once a year. Classifying a contested demand as disputed rather than undisputed, and judging whether a pattern of small delays is worth separate comment, is where the auditor's judgement still has to sit.
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 ActMSME disclosure testing under Section 22 and CAROIdentifying MSME vendors, testing 45-day payment tracking and interest disclosure, and why the vendor master needs Udyam enrichment before this test is even possible.
- 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.
- Payroll & employee costPF and ESI compliance testing in a statutory auditApplicability, challan matching, due-date testing, and the employer-versus-employee contribution reconciliation — the PF and ESI compliance checks a payroll audit needs.
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