Statutory Audit

A statutory audit is the legally mandated independent examination of a company's books of account and financial statements, so called because the Companies Act, 2013 requires it rather than the company choosing it voluntarily. Every company incorporated in India, irrespective of turnover, profit or size, must have its annual accounts audited by an independent Chartered Accountant who confirms that the financial statements give a true and fair view of the company's affairs and comply with applicable accounting standards.

Legal basis

• Section 139 governs the appointment of auditors and their tenure.
• Section 141 sets eligibility: only a practising Chartered Accountant, or a firm of CAs, holding a valid certificate of practice from the ICAI may be appointed.
• Section 143 lays down the auditor's powers, duties and the required contents of the audit report.

Appointment and tenure

The Board appoints the first auditor within 30 days of incorporation under Section 139(6); if it fails to, the members do so at an extraordinary general meeting within 90 days. Subsequent auditors are appointed at the annual general meeting to hold office from the conclusion of that AGM until the conclusion of the sixth AGM, i.e. a five-year term. The earlier requirement of annual ratification was omitted by the Companies (Amendment) Act, 2017. The company files the appointment with the Registrar of Companies in Form ADT-1 within 15 days. Listed and other prescribed classes of companies must also rotate auditors under Section 139(2).

Filing with the ROC

The audited financial statements, together with the auditor's report, are filed with the MCA in Form AOC-4 within 30 days of the AGM. A statutory audit is distinct from a tax audit under Section 44AB of the Income-tax Act, which is triggered only above turnover thresholds.