"Not applicable" isn't an answer: how to document what doesn't apply to a client

Open almost any small-company audit file and you will find a row of "N.A." marks: CARO N.A., cash flow N.A., IFC N.A., CSR N.A. Each one is a conclusion that a legal requirement does not apply to this client this year — and in most files there is nothing behind it. If a reviewer asks "why is CARO not applicable?", the answer is in someone's head, or in last year's file, or nowhere. This guide shows how to document each common applicability decision in one line: the test, the figures, the source, and a model working-paper note.

Why "N.A." is not enough

SA 230 requires audit documentation sufficient to enable an experienced auditor, having no previous connection with the audit, to understand the significant matters arising, the conclusions reached on them, and the significant professional judgments made in reaching those conclusions (paragraph 8). Deciding that CARO or internal financial controls reporting does not apply changes what you report in the audit report — that is a conclusion, and an experienced reviewer cannot understand it from two letters.

SA 230 also explains when a requirement is genuinely "not relevant": when the entire standard is not relevant (its example: no internal audit function, so SA 610 is not relevant), or when a requirement is conditional and the condition does not exist (paragraph A19). Both are facts about the client — and facts can be recorded.

A good applicability note records the test (section and limit), the figures compared with it and which year they come from, the evidence (signed statements, trial balance, bank statement, management confirmation), and who concluded and reviewed it, and when.

Small company, cash flow, CARO and IFC

These four depend on each other: small company status drives the cash flow and CARO exemptions and is one route to the IFC exemption.

Two points are easy to miss. First, G.S.R. 583(E) added a condition to all the private company exemptions in the 2015 notification it amended: they apply only to a private company that has not committed a default in filing its financial statements under section 137 or its annual return under section 92. That covers the IFC exemption and the start-up cash flow exemption, so check the MCA filing status and record it. Second, the ICAI Guidance Note on CARO 2020 explains that a fluctuating cash credit counts: if on any day the balance with other bank borrowings exceeded ₹1 crore, the exemption is lost. A year-end trial balance cannot show that — look at the bank statements or the drawing-power statements.

Model notes (illustrative figures):

• "Small company: Yes. Paid-up capital ₹1.5 cr at 31.03.2026 (limit ₹10 cr, G.S.R. 880(E)); turnover FY 2024-25 ₹38.2 cr per signed P&L (limit ₹100 cr); not a holding or subsidiary — register of members and MRL. s.2(85)."
• "CARO 2020: N.A. — small company (para 1(2)(iv)). See small-company note."
• "IFC reporting: N.A. — private company, small company (G.S.R. 583(E), entry 9A). No default in AOC-4 / MGT-7 filings — MCA master data seen on [date]."
• "Cash flow: not included — small company, s.2(40) proviso."

CSR, internal audit, secretarial audit and Ind AS

For most small-firm clients these are all "no", which is why they often get ticked without a figure. Each tests the previous year (or the latest audited statements), so the note should quote last year's numbers.

Model note: "CSR, internal audit, secretarial audit, Ind AS: none applies. FY 2024-25 (signed): net worth ₹6.1 cr, turnover ₹38.2 cr, PBT ₹0.9 cr; bank borrowings highest ₹2.4 cr (cash credit statement); unlisted private company, not part of an Ind AS group (MRL). s.135(1); r.13; r.9; Ind AS Rules r.4." One line, four conclusions.

Tax audit for FY 2025-26

The Income-tax Act, 2025 applies from tax year 2026-27. Accounts for FY 2025-26 are still audited under section 44AB of the Income-tax Act, 1961, so cite that section for this season's files.

• Business: audit if total sales, turnover or gross receipts exceed ₹1 crore. The limit is ₹10 crore where cash receipts do not exceed 5% of total receipts and cash payments do not exceed 5% of total payments — both conditions, for the whole year.
• Profession: audit if gross receipts exceed ₹50 lakh.
• Presumptive schemes (44AD, 44ADA, 44AE): the answer depends on the scheme, the entity's eligibility and the profit rate declared — record all three.

Model note: "Tax audit u/s 44AB(a), IT Act 1961: required. Turnover FY 2025-26 ₹3.4 cr (exceeds ₹1 cr); cash receipts 7.8% of total receipts, so the ₹10 cr limit is not available (working at W/P T-2)." Where you rely on the ₹10 crore limit, keep the working that shows both percentages.

Accounting Standards for firms, LLPs and proprietors

For accounting periods beginning on or after 1 April 2024, ICAI classifies non-company entities as either MSMEs or Large entities (replacing the earlier four levels). An MSME is not listed or in the process of listing, not a bank, financial institution or insurer, has turnover (excluding other income) not exceeding ₹250 crore in the immediately preceding accounting year, has had no borrowings above ₹50 crore at any time in that year, and is not a holding or subsidiary of a non-MSME.

• AS 3, AS 17, AS 20 and AS 24 do not apply to any MSME.
• AS 18 and AS 28 also do not apply where preceding-year turnover is up to ₹50 crore and borrowings never exceeded ₹10 crore in that year (and the entity is not a holding or subsidiary of an MSME outside those limits).
• An entity that becomes an MSME after being Large gets the relaxations only after it has been an MSME for two consecutive years.
• An MSME that uses the relaxations must disclose in a note that it is an MSME and has complied with the Standards as applicable to an MSME.

Model note: "AS level: MSME (ICAI criteria, periods from 1.4.2024). FY 2024-25 turnover ₹18.6 cr, highest borrowings ₹4.1 cr; not listed, not part of a large group. AS 3, 17, 18, 20, 24, 28 not applied; MSME note given at Note 1."

Which year's figures?

Often the slip is not the limit but the year. A quick reference:

"Latest audited statements" and "preceding year" are usually the same accounts — but not for a first-year company or a client whose previous audit is still unsigned. In those files, write the year into the note.

"Not applicable" steps in the work programme

The same applies inside the audit programme. Under SA 230 paragraph A19, a step is not relevant only when the area does not exist or its condition is absent. So:

• Write the fact, not the label. "No inventory at either year end — service business" or "No borrowings in either trial balance", not "N.A."
• Do not delete the step. Leave it in the programme with the reason, so a reviewer can see it was considered and not forgotten.
• Reopen it when the facts change. If a revised trial balance brings in a term loan, the borrowings steps become relevant again.
• Distinguish "done elsewhere" from "not applicable". A GST reconciliation filed with the tax audit working is done, not N.A. — say where it is filed.
• Have the reviewer look at the N.A. column. It is the shortest part of the programme to review, and an omission recorded as N.A. is easy to miss.

Do it fresh every year

Applicability is a decision for each year, on that year's figures. A company that was small last year may not be this year, and the limits themselves change — the small company limits have been raised three times since 2021. Copying last year's N.A. column is an easy way to claim an exemption that has lapsed. Write the figures each year, and the note checks itself.

Frequently asked questions

Sources

• ICAI — SA 230 Audit Documentation (paras 8, A19)
• Companies Act, 2013 — sections 2(40), 2(85), 135, 138, 143(3)(i), 204 (India Code)
• Small company limits — G.S.R. 880(E), 1 December 2025 (Gazette)
• Exemptions to private companies — G.S.R. 583(E), 13 June 2017 (Gazette)
• Corrigendum to G.S.R. 583(E) — S.O. 2218(E), 13 July 2017 ("statement or" read as "statement and")
• CARO 2020 — paragraph 1(2); ICAI Guidance Note on CARO 2020 (Revised 2022 Edition)
• Companies (Accounts) Rules, 2014 — rule 13
• Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 — rule 9, as amended by G.S.R. 13(E), 3 January 2020
• Companies (Indian Accounting Standards) Rules, 2015 — rule 4
• ICAI — Revised criteria for classification of non-company entities (periods from 1 April 2024)
• Income-tax Act, 1961 — section 44AB

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