Statutory Audit for Companies in India: Who Needs It, What It Covers, and How to Prepare

Statutory audit is the mandatory, independent examination of a company's financial records by a Chartered Accountant. It is required under Section 139 of the Companies Act 2013 for every company registered in India — regardless of turnover or whether it is profit-making or loss-making.

Who Is Exempt from Statutory Audit?

Unlike income tax audit (which depends on turnover), statutory audit under the Companies Act is mandatory for all companies — there is no exemption based on turnover. However:

• LLPs require audit only if turnover exceeds ₹40 lakh or partner contribution exceeds ₹25 lakh
• Proprietorships and partnership firms require tax audit (under Section 44AB of the Income Tax Act) only when turnover exceeds ₹1 crore (₹10 crore if cash transactions below 5%), but no statutory audit

Appointing a Statutory Auditor

• First auditor: Board of Directors must appoint within 30 days of incorporation; file Form ADT-1 within 15 days
• Subsequent auditors: Appointed at the first AGM for a term of 5 consecutive years; file ADT-1 within 15 days of appointment
• Rotation: Listed and larger companies (turnover above ₹250 crore) must rotate auditors every 5 years
• The auditor must be a practising CA; a firm of CAs may also be appointed

What the Statutory Audit Covers

Financial Statement Verification

• Balance Sheet — assets, liabilities, and equity position
• Profit & Loss Account — revenue, expenses, and net profit/loss
• Cash Flow Statement
• Notes to Accounts — disclosures required under Companies Act

Internal Controls and Compliance

• Whether books of accounts are maintained as per Section 128
• Whether loans and advances comply with Sections 185 and 186
• Whether related party transactions are disclosed (Section 188)
• Whether TDS, GST, PF, and ESIC have been properly deducted and deposited
• Whether director disqualification status has been checked

CARO 2020 (Companies Audit Report Order)

For most companies, the auditor must also provide a separate report under CARO 2020 covering 21 specific matters including: fixed assets, inventory, loans to directors, internal audit adequacy, undisclosed income, and fraud reporting. Small companies (with turnover below ₹10 crore, borrowing below ₹1 crore) are exempt from CARO.

Timeline for Statutory Audit

• April 1: Financial year ends March 31; accounts to be finalized
• April–May: Trial balance, ledger reconciliation, and preliminary books preparation
• May–June: Auditor reviews books, requests documents, and raises audit queries
• June–July: Management responds to queries; adjustments if any
• July–August: Auditor signs audit report and CARO report
• August: Board meeting to approve financial statements
• September 30: AGM — financial statements presented to shareholders
• October 30: File AOC-4 (financial statements) with ROC

How to Prepare for a Smooth Audit

• Maintain day-to-day books throughout the year — do not leave bookkeeping to year-end
• Reconcile bank statements monthly; every entry should have a corresponding document
• Keep GST returns, TDS challans, and PF/ESIC payment proofs organized by month
• Maintain fixed asset register with addition/disposal dates and depreciation workings
• Document all loans to/from directors with board resolutions
• Ensure stock records match the physical inventory count done at year-end
• All board meeting minutes and resolutions should be signed and kept in the minute book

Common Audit Findings and How to Avoid Them

• TDS deducted but not deposited on time — set up a monthly TDS payment reminder
• Personal expenses routed through company accounts — maintain strict separation between personal and business finances
• Loans to directors without board approval — get board resolutions for all inter-company transactions before they happen, not after
• GST and book turnover mismatch — reconcile GSTR-1 with the income ledger quarterly, not at year-end

GSRC and Associates provides statutory audit services for Private Limited companies and LLPs in Ghaziabad and Delhi NCR. Our team ensures your audit is completed on time, with minimal disruption to your business operations.