Company Audit in India – Complete Guide

1. What is a Company Audit?

A company audit is an independent examination of a company’s financial statements and records by a Chartered Accountant (CA) to ensure:

• Accuracy of accounts

• Compliance with Companies Act, 2013

• Proper presentation of financial position

• Detection of fraud or misstatements

Objective: Provide reasonable assurance that the company’s financial statements are free from material misstatement.

2. Legal Provisions Governing Company Audit

• Companies Act, 2013 – Sections 139 to 148

• Companies (Audit and Auditors) Rules, 2014

• Income Tax Act, 1961 – Sections 44AB, 92E (for tax audits)

• Applicable Accounting Standards (Ind AS / AS)

Audit is mandatory for:

3. Types of Company Audits

4. Process of Company Audit

Step 1: Appointment of Auditor

• Board appoints auditor at Annual General Meeting (AGM)

• Audit term for statutory audit: 5 years (cannot be continued for 5 years consecutively)

Step 2: Planning & Risk Assessment

• Understanding the business and internal controls

• Assessing risk of material misstatement

Step 3: Collecting Documents

• Financial statements (Balance Sheet, P&L, Cash Flow)

• Bank statements & reconciliations

• Accounting ledgers & journals

• Board resolutions & minutes

• Contracts, loans, and agreements

Step 4: Verification & Testing

• Physical verification of assets & inventory

• Confirmation of receivables & payables

• Compliance with statutory provisions

• Checking GST, TDS, and other indirect tax compliance

Step 5: Reporting

• Draft Audit Report (Form AOC-3 for ROC filing)

• Auditor expresses opinion:

  • Unmodified / Clean opinion

  • Qualified opinion

  • Adverse opinion

  • Disclaimer of opinion

Step 6: Filing with ROC

• Companies file Form AOC-4 along with audited accounts

• Annual filing deadline: 30th September for private companies, 30th October for public companies

5. Documents Required for Company Audit

• Financial statements: Balance Sheet, P&L, Cash Flow

• Bank statements & reconciliations

• Accounting records & ledgers

• Fixed asset register & depreciation schedule

• Shareholder & director records

• Loan agreements & contracts

• Statutory registers: Board resolutions, minutes, share register

• Tax filings: TDS, GST, Income Tax returns

• Previous audit reports

6. Responsibilities of Auditor

• Conduct audit independently & objectively

• Examine books of accounts & financial statements

• Verify compliance with Companies Act, accounting standards, and other laws

• Report fraud, misstatement, or non-compliance to board

• Issue audit opinion in prescribed format

7. Timeline for Company Audit

🔹 Advisory: Start audit well before filing deadlines to avoid penalties.

8. Penalties for Non-Compliance

• Late filing of audited accounts: ₹1,00,000 + ₹5,000 per day

• Non-appointment of auditor: ₹1,00,000 for company & ₹25,000 for officer

• Misstatement in accounts: Penalty under Companies Act + Auditor can face professional action

• Tax audit non-compliance: Penalty under Income Tax Act (0.5% of turnover)

9. Advisory Notes for Companies

• Maintain proper books of accounts throughout the year

• Appoint qualified auditor on time

• Ensure internal controls and documentation are strong

• Conduct internal audit for large companies to reduce risk

• Keep digital copies of accounts, board resolutions, and supporting documents

10. Advantages of Timely Audit

• Ensures compliance with Companies Act & Income Tax Act

• Helps identify frauds, errors, or misstatements

• Builds trust with investors, banks, and stakeholders

• Avoids penalties, legal action, and reputational damage

• Supports strategic business decision-making based on accurate accounts

11. Advisory Draft for Board / Management

Sample Advisory Notes for Company Audit:

1. Board should appoint auditor at AGM before statutory deadline

2. Maintain updated books of accounts, vouchers, and statutory registers

3. Provide auditors full access to records and supporting documents

4. Ensure all tax and statutory compliances are complete

5. Review audit findings & recommendations and implement corrective measures

6. File audited accounts with ROC on time

12. Checklist for Company Audit

• Appointment of Auditor in AGM

• Complete financial statements for the year

• Bank statements and reconciliations

• Accounting ledgers & vouchers

• Fixed assets register & depreciation schedules

• Loan agreements & contracts

• Board resolutions & statutory registers

• Tax filings (TDS, GST, Income Tax)

• Previous year audit reports

• Audit report (signed by CA) filed with ROC

Additional Information on Company Audit in India

1. Types of Auditors

🔹 Advisory: Companies may appoint multiple auditors depending on the nature of business and compliance requirements.

2. Audit Committees

• Mandatory for:

  • Listed companies

  • Public companies with share capital > ₹10 crore

• Roles:

  • Oversight of financial reporting

  • Oversight of internal audit & risk management

  • Review of quarterly / half-yearly / annual financial statements

• Composition:

  • Minimum 3 directors, mostly independent

• Documentation: Minutes of Audit Committee meetings must be maintained.

3. Risk-Based Audit Approach

• Modern audits are risk-focused, not just verification of books.

• Key areas of audit focus:

  1. Revenue recognition

  2. Inventory and fixed assets valuation

  3. Related-party transactions

  4. Fraud detection & internal control weaknesses

  5. Compliance with statutory provisions (GST, TDS, PF/ESIC, Companies Act)

Advisory: Companies should maintain internal controls to reduce audit risks and qualify for clean audit opinion.

4. Audit of Special Companies

5. Auditor Rotation & Independence

• Statutory auditor cannot hold office for more than 5 years continuously.

• After 5 years, reappointment requires cooling-off period of 5 years.

• Ensures auditor independence and avoids conflict of interest.

• Auditor must not have any financial or personal interest in the company.

6. Audit Report – Types of Opinions

Advisory: Companies should take corrective actions before audit finalization to avoid adverse opinions.

7. Audit of Related Party Transactions (RPT)

• Companies Act Section 188 & Ind AS 24

• Auditor verifies:

  • Proper approval of RPTs by board / shareholders

  • Disclosure in financial statements

  • Fairness of terms & compliance with law

• Critical for listed companies and large private companies

8. IT & Digital Compliance in Audit

• Many auditors now perform IT-enabled audits

• Use of ERP & accounting software for verification

• Data analytics for identifying anomalies in transactions

• Ensures faster, more accurate, and fraud-resistant audits

9. Audit of Internal Controls

• Internal audit evaluates:

  • Operational efficiency

  • Risk management

  • Compliance with statutory requirements

  • Accuracy of accounting systems

• Helps management identify gaps before statutory audit

10. Audit under Income Tax Act

• Tax Audit under Section 44AB

  • Businesses with turnover > ₹1 crore (cash system threshold: ₹2 crore)

  • Professionals with gross receipts > ₹50 lakh

• Purpose: Ensure accounts are correct for income tax assessment

• Tax auditor issues Form 3CA/3CB & 3CD

Advisory: Statutory audit and tax audit may be conducted by the same CA, but separate reporting forms are required.

11. Audit for Compliance with Corporate Governance

• Listed companies must follow Clause 49 / SEBI LODR

• Auditor reviews:

  • Board composition & meetings

  • Related party disclosures

  • Whistleblower mechanism

  • Shareholder rights

12. Penalties & Consequences of Non-Compliance

• Companies Act penalties: Non-appointment, delay in filing audited accounts, misstatements

• Income Tax penalties: Late tax audit filing → 0.5% of turnover

• Professional liability: CA can be penalized by ICAI for negligence

13. Advisory Notes for Management

1. Start audit preparation early to avoid last-minute issues

2. Maintain complete & updated books of accounts

3. Separate personal & company finances

4. Conduct internal audit or pre-audit review for large companies

5. Respond to auditor queries promptly with supporting documents

6. Review audit report & management letter for actionable recommendations

7. Ensure audit findings are addressed in board meetings

14. Audit Checklist – Advanced

• Appointment of statutory & internal auditors

• Annual financial statements (BS, P&L, Cash Flow)

• Accounting records & vouchers

• Bank statements & reconciliations

• Fixed assets & inventory verification

• Loans, contracts, and agreements

• Board resolutions & statutory registers

• Tax filings (Income Tax, GST, TDS)

• Related Party Transactions disclosures

• Audit report signed & filed with ROC

• Management response to audit recommendations

Company Audit Complete Package

1. Audit Workflow – Step by Step

Step 1: Auditor Appointment

• Statutory auditor appointed in AGM / Board meeting.

• Term: Maximum 5 consecutive years; cooling-off period 5 years.

• Ensure auditor independence (no financial/personal interest).

Step 2: Planning

• Auditor reviews company profile, business operations, risk areas.

• Sets audit scope & timeline.

Step 3: Document Collection

• Financial statements (Balance Sheet, P&L, Cash Flow)

• Accounting ledgers & journals

• Bank statements & reconciliations

• Fixed asset & inventory records

• Loan agreements, contracts, and legal documents

• Board minutes & statutory registers

Step 4: Field Audit & Verification

• Verify cash, bank, inventory, fixed assets

• Test transactions and internal controls

• Confirm receivables & payables

• Check statutory compliance: GST, TDS, PF/ESIC

Step 5: Audit Report Drafting

• Auditor issues opinion: Clean / Qualified / Adverse / Disclaimer

• Highlights issues & corrective actions (Management Letter)

Step 6: Filing

• File AOC-4 with ROC along with financial statements

• Tax audit reports (Form 3CA/3CB & 3CD) if applicable

• Deadlines:

  • Private Companies: 30th September

  • Public Companies: 30th October

  • LLP: 30th October (Form 8)

2. Document Checklist for Clients

Mandatory Documents

• Financial statements (BS, P&L, Cash Flow)

• Bank statements & reconciliations

• Accounting ledgers & vouchers

• Fixed assets register & depreciation schedule

• Shareholder & director records

• Loan agreements & contracts

• Board resolutions & minutes

• Previous year audit report (if any)

• Tax filings (TDS, GST, Income Tax)

Optional / Additional

• Internal audit reports

• Related-party transaction documentation

• Risk assessment reports

• ERP or accounting software reports

3. Sample Board / Management Advisory Draft

Purpose: Ensure smooth audit process and compliance

Draft Advisory Notes to Board:

1. Appoint statutory auditor before AGM deadline.

2. Maintain updated and accurate books of accounts.

3. Provide auditors complete access to records & contracts.

4. Ensure all statutory compliances (TDS, GST, PF, ESIC) are fulfilled.

5. Review auditor queries promptly with supporting documents.

6. Review audit report and management letter, implement recommendations.

7. File audited accounts with ROC and tax audits on time.

8. Maintain records of all board meetings approving accounts.

4. Audit Report Templates

A. Statutory Audit (Form AOC-3 / AOC-4)

• Includes:

  • Auditor’s opinion

  • Financial statements verification

  • Compliance with Companies Act & accounting standards

  • Observations / qualifications (if any)

B. Tax Audit (Income Tax Form 3CA/3CB & 3CD)

• Includes:

  • Verification of books for tax purposes

  • TDS, GST, and other statutory checks

  • Disclosure of related party transactions

  • Schedule for income computation

5. Audit Compliance Checklist – Quick View

• Appointment of statutory auditor in AGM / Board

• Internal audit (if applicable) and internal controls check

• Complete financial statements prepared

• Bank statements & reconciliations ready

• Accounting ledgers & vouchers updated

• Fixed assets & inventory verification

• Loans, contracts, and agreements documented

• Board minutes & statutory registers maintained

• Tax filings (Income Tax, TDS, GST) up to date

• Related Party Transactions disclosed and approved

• Audit report signed & filed with ROC (AOC-4)

• Management letter & corrective actions implemented

6. Advanced Advisory Notes

• Start audit 2–3 months before ROC filing deadlines.

• Conduct pre-audit internal review for large companies.

• Maintain digital copies of all documents for transparency & convenience.

• Ensure ERP/accounting system reconciliations match physical records.

• For related-party transactions, obtain board approval before year-end.

• Implement audit committee recommendations promptly.

• Track tax audit and statutory deadlines in a compliance calendar.

7. Benefits of Following This Package

• Ensures full statutory compliance under Companies Act & Income Tax Act.

• Prevents penalties and legal issues due to delayed or incorrect filings.

• Helps detect frauds or misstatements early.

• Builds trust with shareholders, banks, investors, and stakeholders.

• Provides management insights via audit report and recommendations.

8. Optional Add-ons for Filing By

1. Step-by-step Audit Workflow PDF – Ready to share with clients.

2. Audit Document Checklist PDF – Simplifies preparation.

3. Sample Board Advisory Draft – Editable for client use.

4. Audit Report Templates – Statutory (AOC-3/AOC-4) and Tax (3CA/3CB & 3CD).

5. Audit Compliance Calendar – Track deadlines for filings and renewals.