Statutory Audit Applicability: How to Know If Your Business Requires a Mandatory Audit

A statutory audit is a legally mandated examination of a business's financial records to verify their accuracy and compliance with applicable laws. Whether a statutory audit is required depends on the type of business entity and, in some cases, prescribed turnover, contribution or receipt thresholds. 

Unlike an internal audit driven by management decisions, a statutory audit must be conducted by a qualified chartered accountant (CA) or CA firm appointed in accordance with the relevant legal requirements.

What is a statutory audit?

A statutory audit is an independent examination of a company's books of accounts and financial statements conducted to verify their accuracy and compliance with applicable laws. For companies in India, the governing legislation is the Companies Act, 2013, with Sections 139 to 147 dealing with auditor appointment, the scope of their duties, their powers and the consequences of non-compliance.

A statutory auditor's work extends beyond numerical verification. It includes assessing compliance with applicable accounting standards, reviewing the integrity of financial records and evaluating whether there are signs of material misstatement or financial irregularity.

A statutory audit under the Companies Act, 2013 is separate from a tax audit under Section 44AB of the Income Tax Act (ITA), 1961. The two serve different purposes, arise under different laws and neither substitutes for the other.

Which business types require a statutory audit?

Whether a statutory audit is required depends on the legal structure of the business. For companies registered under the Companies Act, 2013, a statutory audit is mandatory regardless of turnover. For Limited Liability Partnerships (LLPs), a statutory audit applies once thresholds are met; for partnership firms and sole proprietorships, the threshold-based requirement is a tax audit under the Income Tax Act rather than a statutory audit.

The table below provides a quick overview:

Note: For LLPs, the threshold-based audit is a statutory audit under the LLP Act. Partnership firms and sole proprietorships are not subject to a statutory audit under a separate business law. The requirement that applies to them is the tax audit under Section 44AB of the Income Tax Act, 1961, when the prescribed thresholds are crossed.

Do companies registered under the Companies Act, 2013 require a statutory audit?

Yes. Every company, whether a private limited company, public limited company or One Person Company (OPC), must undergo a statutory audit each financial year without exception. There is no minimum turnover threshold. A newly incorporated company with zero revenue must still comply, as must a company operating at a loss.

When does an LLP require a statutory audit?

An LLP must get its accounts audited if its annual turnover exceeds ₹40 lakh or its contribution exceeds ₹25 lakh. Under Section 34(4) of the LLP Act, 2008, read with Rule 24 of the LLP Rules, 2009, a statutory audit is not required if both figures remain within these limits.

When do partnership firms, sole proprietorships and professionals require an audit?

Partnership firms, sole proprietorships and professionals become subject to audit requirements when they cross the applicable thresholds prescribed under Section 44AB of the Income Tax Act, 1961.

For businesses, a tax audit is required if turnover exceeds ₹1 crore in a financial year. This threshold increases to ₹10 crore when cash receipts and cash payments together account for no more than 5% of total transactions.

For professionals such as doctors, lawyers and consultants, the threshold is ₹50 lakh in gross receipts. Under Section 44ADA, the presumptive taxation limit increases to ₹75 lakh where cash receipts do not exceed 5% of total receipts.

Which ROC forms are associated with audit compliance?

Companies subject to audit requirements must file specific ROC forms relating to auditor appointments, audited financial statements, annual returns and, where applicable, cost audits. 

The key forms are listed below: 

What are the penalties for non-compliance

Non-compliance with statutory audit requirements can result in financial penalties, additional filing fees and, in serious cases, consequences for the auditor. Under the Companies Act, 2013, both the company and the auditor may be held accountable for violations.

• Fine for the company: Under Section 147(1), if audit provisions are violated, the company may be fined between ₹25,000 and ₹5 lakh.
• Fine for the auditor: Under Section 147(2), an auditor who violates compliance requirements may be fined between ₹25,000 and ₹5 lakh, or up to four times their remuneration, whichever is lower.
• Delayed ROC filings: Forms such as AOC-4 and MGT-7, if filed after the prescribed deadline following the annual general meeting (AGM), attract additional fees through the Ministry of Corporate Affairs (MCA) portal.
• Auditor disqualification: If an auditor is found to have acted fraudulently or colluded in fraud with the company, they may be barred from conducting audits for five years under Section 140(5).

Conclusion

The most important step in statutory audit compliance is determining whether the requirement applies to your business and acting on it early. While companies are subject to mandatory audits regardless of turnover, LLPs, partnership firms, sole proprietorships and professionals must assess the thresholds applicable to them under the relevant law.

Once the requirement is identified, timely auditor appointments, accurate financial records and prompt statutory filings help reduce compliance risks and avoid unnecessary penalties. With TallyPrime, businesses can maintain organised accounting records and financial data throughout the year, making it easier to support audit requirements, meet filing obligations and approach audits with confidence.