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Owners of new companies often do not know that an audit is compulsory or what the auditor will ask for.
Every company under the Companies Act 2013 is audited yearly; the auditor tests the books and reconciliations and reports an opinion under Section 143.
A finalised trial balance, bank reconciliations, party balance confirmations, TDS records, the fixed asset register and board minutes.
A signed audit report attached to the financial statements filed with the Registrar of Companies.
A statutory audit is the yearly independent audit that company law requires. A chartered accountant examines your books and gives an opinion on whether the financial statements give a true and fair view of your profit and your financial position. In India, every company registered under the Companies Act 2013 needs one, whatever its size.
The word “statutory” simply means “required by statute”, that is, by law.
Which businesses need one?
| Business type | Statutory audit under company or LLP law? | Tax audit under income-tax law? |
|---|---|---|
| Private or public limited company | Yes, every year | Also, if turnover crosses the tax audit limit |
| One Person Company | Yes, every year | Also, if over the limit |
| LLP | Yes, if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh | Also, if over the limit |
| Partnership firm | No | Only if over the limit |
| Proprietor | No | Only if over the limit |
The tax audit limit for a business is turnover above ₹1 crore, raised to ₹10 crore where cash receipts and cash payments each stay within 5 percent of the total. Under the 1961 Act this is Section 44AB; under the Income-tax Act 2025 it is Section 63.
Who appoints the statutory auditor, and for how long?
- The board appoints the first auditor within 30 days of incorporation.
- After that, shareholders appoint the auditor at the annual general meeting, under Section 139, for a term of five years.
- For listed companies and certain larger classes, rotation applies: an individual can serve one five-year term and a firm two five-year terms before a five-year gap.
- Removing an auditor before the term ends needs a special resolution and central government approval.
Worked example: a ₹3,20,00,000 turnover company
Rao Foods Pvt Ltd closes its year on 31 March 2026 with turnover of ₹3,20,00,000.
- April: the accountant closes the books and produces a trial balance.
- May: the auditor sends a document list: bank statements for all 3 accounts, bank reconciliations at 31 March, confirmations from the top 10 debtors and creditors, TDS returns and challans, the fixed asset register and board minutes.
- June to July: the auditor tests samples, vouches large payments, gets a bank confirmation directly from the bank and checks that the TDS deducted in the books matches the TDS returns.
- August: draft accounts and the audit report are discussed with the directors.
- September: the board approves the accounts and the auditor signs, before the AGM, which must be held within six months of the year-end, that is, by 30 September.
Because turnover is above ₹1 crore, Rao Foods also needs a tax audit, unless its cash transactions stay within the 5 percent condition, which lifts the limit to ₹10 crore.
What does the audit report say?
The report, under Section 143, states the auditor’s opinion:
- Unmodified (clean): the accounts give a true and fair view.
- Qualified: true and fair except for a specific matter.
- Adverse: the accounts do not give a true and fair view.
- Disclaimer: the auditor could not get enough evidence to form an opinion.
A clean opinion gives reasonable assurance. It does not mean every entry was checked.
Which reconciliations will the auditor test?
Almost every statutory auditor asks for three: the bank reconciliation at year-end, party balance reconciliations for debtors and creditors, and the TDS tie-out between books and returns. Having these ready, with every reconciling item explained, is the single biggest thing that shortens an audit.
TransactIG matches bank statement lines to the books with an exception queue and audit-ready exports, and its TDS reconciliation ties TDS in the books to the returns.
What to read next
- Statutory audit vs tax audit vs internal audit: what is the difference?
- Statutory audit reconciliation checklist
- Statutory audit execution for CA firms
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →