Query on applicability of Small Company, CARO & IFC
This query is : Resolved
Quick Summary
27 December 2025
a private company is a subsidiary of company incorporated outside India and its turnover is only Rs 40000 and paid up capital is Rs 1 lakh .
small company definition exclude to a subsidiary company so it means it is not a small company .
for caro since it is pvt company and satisfy the condition of exemption so caro will not apply.
For IFC(Internal financial control) also satisfy exemption limit so ifc also does not apply. being a subsidiary of a foreign company does not affect exemption of CARO and IFC.
Kindly confirm if the above understanding is correct for the purpose of audit report.
small company definition exclude to a subsidiary company so it means it is not a small company .
for caro since it is pvt company and satisfy the condition of exemption so caro will not apply.
For IFC(Internal financial control) also satisfy exemption limit so ifc also does not apply. being a subsidiary of a foreign company does not affect exemption of CARO and IFC.
Kindly confirm if the above understanding is correct for the purpose of audit report.
28 December 2025
Small Company Status
Your understanding that the entity is not a small company is correct, but not just because it is a subsidiary of a foreign company. A company cannot be classified as a 'small company' if it is a holding or a subsidiary company, regardless of its capital or turnover.
Your understanding that the entity is not a small company is correct, but not just because it is a subsidiary of a foreign company. A company cannot be classified as a 'small company' if it is a holding or a subsidiary company, regardless of its capital or turnover.
28 December 2025
CARO 2020 Applicability
Your understanding that CARO 2020 does not apply is correct. A private company is exempt from CARO 2020 if it meets all of the following conditions:
Is not a holding or subsidiary of a public company.
Paid-up capital plus reserves is not more than Rs 1 crore.
Borrowings do not exceed Rs 1 crore at any point during the financial year.
Total revenue does not exceed Rs 10 crore during the financial year.
The company in question is a subsidiary of a foreign company (which is a body corporate, not necessarily a public company in India for this purpose), has a paid-up capital of Rs 1 lakh, and a turnover of Rs 40,000. It meets all the private company exemption criteria as its metrics are well below the limits. The fact that its parent is a foreign company does not affect this specific exemption, as the exclusion applies to subsidiaries of public companies.
Your understanding that CARO 2020 does not apply is correct. A private company is exempt from CARO 2020 if it meets all of the following conditions:
Is not a holding or subsidiary of a public company.
Paid-up capital plus reserves is not more than Rs 1 crore.
Borrowings do not exceed Rs 1 crore at any point during the financial year.
Total revenue does not exceed Rs 10 crore during the financial year.
The company in question is a subsidiary of a foreign company (which is a body corporate, not necessarily a public company in India for this purpose), has a paid-up capital of Rs 1 lakh, and a turnover of Rs 40,000. It meets all the private company exemption criteria as its metrics are well below the limits. The fact that its parent is a foreign company does not affect this specific exemption, as the exclusion applies to subsidiaries of public companies.
28 December 2025
Internal Financial Controls Applicability
Your understanding that the auditor's reporting on IFC does not apply is also correct. Private companies are exempt from the auditor's reporting on the adequacy and operating effectiveness of internal financial controls over financial reporting (under Section 143(3)(i)) if they meet specific criteria, which includes:
Turnover is less than Rs 50 crore in the last audited financial statement; or
Aggregate borrowings from banks or financial institutions or any body corporate is less than Rs 25 crore at any point during the financial year.
The company's turnover (Rs 40,000) and likely borrowings (zero or minimal, based on the low capital/turnover) are far below these thresholds.
Your understanding that the auditor's reporting on IFC does not apply is also correct. Private companies are exempt from the auditor's reporting on the adequacy and operating effectiveness of internal financial controls over financial reporting (under Section 143(3)(i)) if they meet specific criteria, which includes:
Turnover is less than Rs 50 crore in the last audited financial statement; or
Aggregate borrowings from banks or financial institutions or any body corporate is less than Rs 25 crore at any point during the financial year.
The company's turnover (Rs 40,000) and likely borrowings (zero or minimal, based on the low capital/turnover) are far below these thresholds.
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