Decoding Company Audits in India:  A Quick Guide

The ability of a business to succeed largely depends on having a strong hold over finances and operations. This is when audit for companies can prove beneficial.

Audits help companies assess their financial health and gain valuable insights into their operations. Let’s get to know them better.

Requirements & Legal Framework of Audit for Companies In India

In India, auditing is an essential part of corporate governance. The audit requirements and legal framework for companies in India are governed by various laws: 

Companies Act, 2013

It forms the backbone of audit requirements for companies in India. Every company registered in India is required to conduct a statutory audit. 

It is mandatory to have a company’s financial statements and fillings audited by a certified auditor, regardless of size, nature, or line of business. 

• Section 139 – Companies must appoint a statutory auditor at the first annual general meeting (AGM). The appointment is for a term of five years, subject to ratification at every AGM.
• Section 143 – Auditors must report on the true and fair view of the financial statements. They have the right to access books of accounts and other relevant documents. They must report any fraud detected during the audit to the Central Government (if exceeding INR1 crore).
• Section 147 – Companies and auditors face penalties for misconduct, misstatements, or failure to comply with audit regulations.
• Section 148 – Certain companies engaged in manufacturing or service sectors must undergo a cost audit, as prescribed by the government.

Companies (Accounts) Rules, 2014 

It mandates that companies who satisfy certain conditions need to appoint an internal auditor to investigate their activities and functions. 

As of April 1, 2023, the Ministry of Corporate Affairs (MCA) through an amendment has mandated that all companies must maintain an audit trail of every accounting entry and each change made in the books of accounts. 

SEBI Regulations

For listed companies, SEBI prescribes audit requirements, including:

• Quarterly financial reporting
• Annual disclosures and compliance requirements
• Mandatory rotation of auditors

Income Tax Act, 1961

Under Section 44AB, businesses and professionals exceeding specific turnover thresholds must undergo tax audits.

GST Act, 2017

Companies exceeding the prescribed turnover limit must conduct GST audits and file reconciliation statements.

The Chartered Accountants Act, 1949

It defines audit standards, professional ethics, and disciplinary actions for auditors.

Types of Audits for Companies in India

For companies in India, different types of audits apply depending on the nature and size of the business:

1. Statutory Audit:

A statutory audit is mandatory for all companies to verify the accuracy of financial statements and ensure it represents a true and fair view of the company’s finances. 

The auditor submits a report to shareholders and regulators, and listed companies must also comply with SEBI regulations.

2. Tax Audit:

It is required for businesses with turnover above INR1 crore and professionals with receipts over INR 50 lakh.

 A CA examines financial records to prevent misreporting and tax evasion. The audit report is submitted to the Income Tax Department via Form 3CA/3CB and Form 3CD.

3. Internal Audit:

Internal audits assess risk management, internal controls, and operational efficiency. 

They are mandatory for listed companies and large unlisted/private companies. Here, the reports are shared with management, not regulators.

4. GST Audit:

A GST audit is required for businesses with turnover above ₹5 crore to ensure compliance with tax laws and input tax credits (ITC). 

A CA or CMA reconciles GST returns with financial records. Businesses must file GSTR-9C (Reconciliation Statement) with GSTR-9 (Annual Return).

5. Secretarial Audit:

Its main aim is to ensure compliance with corporate laws and SEBI norms. 

It is mandatory for listed and large public companies. Its findings are reported in Form MR-3, submitted to the Board of Directors, and included in the Annual Report.

Why is PKC The Right Choice for Audit for Companies?

• 35+ years of experience delivering trusted audit solutions across India
• Expert guidance through complex Indian audit compliance requirements
• Tailored audit approaches customized for your business 
• Strategic focus on high-impact areas maximizing audit effectiveness
• Proprietary analytics detecting patterns conventional audits often miss
• International best practices applied with deep Indian market knowledge
• Minimally disruptive audit processes respecting your operational priorities
• Complex findings translated into actionable strategic business insights.

PKC’s Effective 5-Step Approach to Conducting Accurate & Reliable Audit for Companies 

Our experts follow the following steps for conducting audits: 

Step 1: Defining objectives and scope of the audit including identifying areas, timeframe and expected outcomes

Step 2: Planning and preparing by developing an audit plan, identifying resources needed, and establishing communication channels with key stakeholders

Step 3: Gathering and analyzing data, interviewing key personnel, and testing the company’s financial and operational processes and procedures

Step 4: Preparing a report of findings and recommendations and presenting it to management. 

Step 5: Implementing recommended changes, monitoring progress, and conducting subsequent audits to ensure continued compliance and improvement

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