Every company registered in India is expected to maintain accurate financial records and present them for independent verification. This process of verification, known as a statutory audit, is one of the most fundamental compliance obligations under the Companies Act, 2013. If you own or manage a private limited company, an LLP, or any other registered entity, understanding the statutory audit requirement is not optional. It is a legal necessity.
A statutory audit is conducted by an external, independent chartered accountant who examines the company's financial statements, books of accounts, and supporting records. The objective is to provide an honest opinion on whether the financial statements present a true and fair view of the company's affairs. For founders and compliance managers, getting this right each year ensures regulatory peace of mind and builds credibility with investors, lenders, and other stakeholders.
What is a Statutory Audit
A statutory audit is a legally mandated examination of a company's financial records. Unlike an internal audit, which is voluntary and conducted for management's benefit, a statutory audit is required by law. In India, Section 139 of the Companies Act, 2013 governs the appointment of auditors, while Sections 141 to 148 lay down the qualifications, duties, and responsibilities of statutory auditors.
The statutory auditor reviews the balance sheet, profit and loss statement, cash flow statement, and notes to accounts. They assess whether the financial statements comply with the applicable accounting standards and whether they reflect the actual financial position of the company. The audit culminates in an auditor's report, which is presented at the Annual General Meeting and filed with the Registrar of Companies.
Who Needs a Statutory Audit in India
The statutory audit requirement applies to a wide range of entities. Here is a breakdown of which businesses must undergo this mandatory audit for private limited companies and other entities.
Private Limited Companies
Every private limited company registered under the Companies Act, 2013 must get its accounts audited by an independent chartered accountant, regardless of turnover or profit. There is no exemption based on size. Whether your company earned Rs. 1 lakh or Rs. 100 crore in revenue, the mandatory audit for private limited companies remains applicable from the very first financial year.
Public Limited Companies
All public companies are required to conduct a statutory audit. Given the higher regulatory scrutiny and public interest involved, the audit requirements for public companies are more stringent, with additional reporting obligations under CARO (Companies Auditor's Report Order).
One Person Companies
An OPC is also subject to statutory audit requirements, similar to a private limited company. The only relaxation is exemption from CARO reporting for OPCs that fall below certain thresholds.
Limited Liability Partnerships
LLPs face a slightly different framework. Under the LLP Act, 2008, a statutory audit is mandatory if the LLP's annual turnover exceeds Rs. 40 lakh or if its capital contribution exceeds Rs. 25 lakh. LLPs below these thresholds are exempt from the audit requirement, though they must still maintain proper books of accounts and file annual returns as part of their compliance obligations.
Statutory Audit Applicability: At a Glance
| Entity Type | Statutory Audit Required | Conditions |
| Private Limited Company | Yes, always | No turnover or size exemption |
| Public Limited Company | Yes, always | Additional CARO reporting applies |
| One Person Company (OPC) | Yes, always | CARO exemption for small OPCs |
| LLP | Conditional | Turnover above Rs. 40 lakh or capital above Rs. 25 lakh |
| Section 8 Company | Yes, always | Same as private limited companies |
How to Appoint a Statutory Auditor
The process of appointing a statutory auditor is governed by Section 139 of the Companies Act, 2013. The first auditor of a company must be appointed by the board of directors within 30 days of incorporation. This initial appointment holds until the conclusion of the first Annual General Meeting (AGM).
At the first AGM, the shareholders appoint the statutory auditor for a term of five consecutive years. The auditor's consent and eligibility certificate must be obtained in Form ADT-1, which is filed with the ROC within 15 days of the AGM. The auditor must be a practicing chartered accountant or a firm of chartered accountants registered with the Institute of Chartered Accountants of India (ICAI).
Certain individuals and firms are disqualified from being appointed as auditors. For instance, a person who holds securities in the company, is indebted to the company, or has a business relationship with the company cannot serve as its statutory auditor. These disqualification provisions ensure independence and objectivity in the audit process.
Key Due Dates for Statutory Audit Compliance
Meeting statutory audit deadlines is critical. Missing them can attract penalties and trigger regulatory scrutiny. Here are the important timelines every company should mark on its compliance calendar.
| Compliance Activity | Due Date |
| Appointment of first auditor | Within 30 days of incorporation |
| Filing ADT-1 (auditor appointment) | Within 15 days of AGM |
| Completion of statutory audit | Before the AGM (within 6 months of FY end) |
| Filing AOC-4 (financial statements) | Within 30 days of AGM |
| Filing MGT-7 (annual return) | Within 60 days of AGM |
| Tax audit report (if applicable) | 30th September of the assessment year |
Documents Required for a Statutory Audit
To ensure a smooth audit process, the company should prepare and organise the following records before the auditor begins the engagement. Having these documents ready reduces back-and-forth communication and helps complete the audit within the stipulated timeframe.
The auditor will typically request the balance sheet, profit and loss account, cash flow statement, trial balance, general ledger, bank statements, bank reconciliation statements, invoices and receipts, tax filings including GST and TDS returns, fixed assets register, loan agreements, payroll records, previous audit reports, and debtor and creditor lists. Additionally, board meeting minutes and AGM minutes must be made available for review.
Companies that also need a GST audit or tax audit should coordinate all three audit processes to avoid duplication of effort and ensure consistency across reports.
Penalties for Non-Compliance with Statutory Audit Requirements
Failing to meet the statutory audit requirement carries serious consequences. If a company does not get its accounts audited, it cannot file its financial statements with the ROC. This triggers a cascading series of non-compliance issues, including penalties on the company and its directors.
Under Section 147 of the Companies Act, 2013, if the auditor acts in a fraudulent manner, they can face a fine ranging from Rs. 1 lakh to Rs. 25 lakh. For the company, failure to file audited financial statements on time attracts additional fees of Rs. 100 per day of delay. Prolonged non-compliance can lead to the company being marked as "active non-compliant" on the MCA portal, which restricts its ability to make changes to its records or file other forms.
Directors of a defaulting company may also face disqualification under Section 164(2) of the Act. This is particularly damaging for entrepreneurs who serve as directors in multiple companies, as the disqualification applies across all directorships.
Statutory Audit vs Tax Audit: Understanding the Difference
Many business owners confuse the statutory audit with a tax audit. While both involve examination of financial records, they serve different purposes and are governed by different laws.
| Parameter | Statutory Audit | Tax Audit |
| Governing Law | Companies Act, 2013 | Income Tax Act, 1961 (Section 44AB) |
| Applicability | All companies (mandatory) | Based on turnover thresholds |
| Purpose | True and fair view of financials | Tax compliance verification |
| Report Filed | Auditor's report with AOC-4 | Form 3CA/3CB and 3CD |
| Due Date | Before AGM | 30th September |
Conclusion
The statutory audit requirement is a cornerstone of corporate compliance in India. Whether you run a startup, a growing SME, or a well-established business, getting your accounts audited on time protects you from penalties, enhances your credibility, and ensures your financial records stand up to scrutiny. For private limited companies, this is a mandatory audit that begins from the very first year of incorporation, with no exemptions.
If you haven't appointed a statutory auditor yet or need guidance on preparing for your annual audit, consult a qualified chartered accountant or company secretary. Professional support ensures your audit is thorough, compliant, and completed well before the deadline.
