Company Audit Checklist: Applicability, Limit & More
To run a company in India is not just about managing the daily operations, growing sales or satisfying customers. Along with business growth comes the responsibility of ensuring compliance with various legal and financial regulations. One of the most critical compliance requirements under the Companies Act, 2013 is conducting a company audit.
A company audit is more than a legal formality—it is a process that builds trust, ensures accuracy in financial records and enhances the credibility of a business before stakeholders, investors, banks and regulatory authorities.
In this blog, we will explain everything you need to know about a company audit checklist, including company audit applicability, company audit limits, company audit requirements for companies and the penalties for non-compliance.
What is a Company Audit?
A company audit is an independent examination of the financial records and statements of a business by a qualified auditor (Chartered Accountant). The auditor verifies whether the accounts present a true and fair view of the financial position of the company.
Objectives of a Company Audit:
To ensure compliance with statutory requirements under the Companies Act, 2013.
- Verifying correctness of financial statements and accounting records.
- Detecting errors, fraud or misstatements.
- Enhancing credibility with banks, investors and government authorities.
- Promoting financial transparency and discipline.
Company Audit Applicability
The first question every business owner ask is: Is a company audit applicable to my business?
The answer is simple—yes, for all companies.
1. Under Sections 139 and 143 of the Companies Act, 2013, every company registered in India must conduct a statutory audit, regardless of:
- Turnover
- Profit or loss
- Size of the business
2. This includes:
Even if a company is dormant (no business activity) or is incurring losses, it must still get its financial statements audited every financial year.
Note: For partnership firms and proprietorships, statutory audit under the Companies Act does not apply. Instead, tax audit requirements under the Income Tax Act, 1961 (Section 44AB) are applicable depending on turnover limits.
Company Audit Limit
Audit limits are important to understand both from a company’s perspective and from the perspective of auditors.
1. Audit Requirement for Companies
- For companies, audit is compulsory and there is no turnover threshold.
2. Audit Limit for Auditors
- As per Section 141(3)(g) of the Companies Act, 2013:- An auditor cannot audit more than 20 companies.- Of these, not more than 10 can be public companies.- This ensures auditors do not take on an excessive number of audits that may affect quality.
3. Tax Audit Limits under Income Tax Act (Non-Company Entities)
As per Section 44AB of the Income Tax Act, 1961:
- Businesses: Tax audit is required if turnover exceeds ₹1 crore.- This limit increases to ₹10 crore if at least 95% transactions are digital.
- Professionals: Tax audit is required if the gross receipts exceed ₹50 lakh.
Company Audit Requirements for Companies
Every company has to follow specific statutory requirements relating to audit. These include:
1. Appointment of Auditor
- First Auditor: To be appointed within 30 days of incorporation by the Board of Directors (Section 139).
- Subsequent Auditors: Appointed for a term of 5 years through a resolution passed in the AGM.
- Filing Requirement: Form ADT-1 must be filed with ROC for auditor appointment.
2. Maintenance of Books of Accounts
- As per Section 128, every company must maintain books of accounts relating to:- Income and expenses- Assets and liabilities- Balance Sheet- Profit & Loss Account- Cash Flow Statement
3. Preparation of Financial Statements
- As per Section 129, companies must prepare financial statements in accordance with Indian Accounting Standards (Ind AS).
4. Conducting Statutory Audit
- Audit must be carried out by a Chartered Accountant (CA) in practice.
- The auditor will issue a statutory audit report.
5. Filing with Registrar of Companies (ROC)
- Form AOC-4 (Financial Statements) → To be filed within 30 days of AGM.
- Form MGT-7 (Annual Return) → To be filed within 60 days of AGM.
Company Audit Checklist
Here’s a step-by-step audit checklist to ensure smooth compliance:
1. Verify Appointment of Auditor
- Check whether auditor is properly appointed.
- File Form ADT-1 with ROC.
2. Review Books of Accounts
- Ensure proper recording of transactions.
- Verify invoices, vouchers and supporting bills.
3. Check Statutory Registers & Records
- Maintain Register of Members, Register of Directors and Register of Charges.
- Record minutes of board and general meetings.
4. Compliance with Accounting Standards
- Ensure statements comply with Ind AS.
- Maintain consistency in accounting policies.
5. Verification of Financial Statements
- Cross-check Balance Sheet, P&L Account and Cash Flow Statement.
- Ensure disclosure of loans, related party transactions and contingent liabilities.
- 6. ROC Filings
- File AOC-4 within 30 days of AGM.
- File MGT-7 within 60 days of AGM.
- Attach Director’s Report and Auditor’s Report.
7. Tax Compliance
- Verify payment of TDS, GST and Advance Tax.
- Check that Income Tax Returns (ITR) and GST returns are filed correctly.
8. Internal Controls Review
- Assess fraud prevention measures and approval processes.
- Strengthen internal control systems.
9. Auditor’s Report
- Review remarks, qualifications or adverse opinions.
- Attach report with financial statements.
10. Post-Audit Compliance
- Implement auditor’s recommendations.
- Rectify gaps and non-compliances.
Penalties for Non-Compliance with Audit Provisions
Failure to comply with audit requirements can attract strict penalties under the Companies Act, 2013:
1. Failure to Appoint Auditor (Section 147):
- Company: Fine between ₹25,000 and ₹5,00,000.
- Officers: Fine between ₹10,000 and ₹1,00,000.
2. Auditor’s Non-Compliance:
- Auditor may be fined between ₹25,000 and ₹5,00,000.
- In cases of wilful intent to deceive, imprisonment up to 1 year may apply.
3. Delay in Filing Forms (AOC-4, MGT-7):
- ₹100 per day of delay (no maximum cap).
Clearly, timely compliance is far more cost-effective than paying penalties later.
Benefits of a Company Audit
A statutory audit is not just about legal compliance. It provides real advantages to businesses:
- Builds credibility with banks, investors and lenders.
- Helps detect frauds, errors or misstatements.
- Improves corporate governance and transparency.
- Ensures compliance with tax and corporate laws.
- Provides accurate data for strategic business decisions.
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Conclusion
A company audit is a cornerstone of corporate governance in India. Since audit applicability extends to all companies irrespective of turnover, businesses must treat this responsibility with seriousness.
By following a structured company audit checklist, businesses can ensure smooth compliance, avoid penalties and build trust with stakeholders. Moreover, to understand the audit limits and statutory requirements helps companies to operate transparently and within the law. For any professional help in audit, do contact to CRSPL Business Consultants, they will guide in whole process and make it smooth.
To avoid compliance risks and strengthen financial credibility, it is advisable to engage a qualified Chartered Accountant who can handle audits and statutory filings professionally.
