CARO's clause 3(viii) requires the auditor to report whether any transactions not recorded in the books of account have been surrendered or disclosed as income during the year in tax assessments under the Income Tax Act (including as a result of search or survey proceedings), and if so, whether the previously unrecorded income has been properly recorded in the books during the year. The clause is specifically about the second step — recording the disclosed income in the company's own books — not just whether a disclosure to the tax department happened, which is the easier and more commonly checked half of the requirement.
What triggers this clause
- 01Review correspondence and orders from any income tax search, survey or assessment proceedings during the yearThe source of most instances this clause addresses — a search or survey often surfaces income or assets the company hadn't recorded, which gets surrendered as part of the proceedings.
- 02Check for any voluntary disclosure of previously unrecorded income made during the assessment processSeparate from a search — a company might disclose unrecorded income during a routine assessment without any search having occurred.
- 03Confirm the amount and nature of what was surrendered or disclosedFrom the actual order or correspondence, not from management's summary of it.
The step that actually needs checking
| Event | What confirms it |
|---|---|
| Income surrendered/disclosed to tax authorities | The assessment order, search report, or disclosure letter itself |
| Income recorded in the company's own books of account | An actual journal entry or ledger posting recording the previously unrecorded income — not simply paying the resulting tax liability without ever recording the underlying income or asset |
A company that pays the tax demand arising from a search but never actually books the underlying unrecorded income or asset into its financial statements has only completed half of what this clause checks — the tax liability might be recorded, but the income or asset itself remains outside the books, which is specifically the gap CARO requires reporting on.
Common practice, not a requirement
Where no search, survey or disclosure of previously unrecorded income occurred during the year, the clause response is simply that no such transactions arose — a straightforward negative confirmation, but one that still requires an actual inquiry (of management, and a review of correspondence with tax authorities) rather than being assumed by default.
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 data & extractsTrial balance mapping for audit softwareMapping a client's idiosyncratic ledgers to a standard chart of accounts is the step that decides whether analytics and disclosures work at all, and the one most firms rush.
- Audit documentationAudit trails: the client's, and your ownThe edit log the Companies Act now requires in the client's software, and the record of what the audit team did to its own file. What each must show, and how to test the first.
Free tools, no signup
Each one reads a file entirely in your browser — or, for two of them, just answers a few questions — and nothing is ever uploaded.
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