Audit · applicability

Statutory audit in India: who needs one, and where to start.

Companies Act 2013 vs LLP and partnership thresholds, the applicability decision points, and a checklist by process area — cash, sales, purchase, payroll, fixed assets.

Reviewed July 2026
7 min read
CA Anil Agarwal & the TatvaBooks team

What is a statutory audit?

A statutory audit is an audit of an entity's financial statements that is mandated by law — not chosen by management, not triggered by a bank or an investor. For companies, it is required under the Companies Act 2013; for LLPs, under the LLP Act and rules; for certain other entities, under their governing statute. The auditor forms an independent opinion on whether the financial statements give a true and fair view, and that opinion is reported to the members/partners, not just handed to management.

This is distinct from a tax audit under the Income-tax Act (a separate law, a separate threshold, a separate report), and from any internal or management audit the entity may commission voluntarily. A business can be subject to more than one of these at the same time.

Who needs a statutory audit — the applicability table

The single biggest source of confusion for articled assistants is assuming turnover decides everything. For companies it doesn't. The trigger depends entirely on the type of entity.

Entity	Audit trigger	Basis
Private / public company	Every company, every financial year	Section 139 read with Section 143, Companies Act 2013 — turnover or profit makes no difference; only a few government/specified companies have a modified regime (CAG appointment for government companies).
One Person Company (OPC) / small company	Every financial year, no threshold exemption	The 'small company' definition affects board-report and other relaxations, not the audit requirement itself — a statutory audit is still mandatory.
LLP	Turnover or contribution beyond the prescribed limit	Limited Liability Partnership Act, 2008 and rules — audit applies once turnover or partners' contribution crosses the notified threshold; below it, audit is optional. Verify the current turnover/contribution limit on the MCA portal.
Partnership firm / proprietorship	No statutory audit under a companies-style law	No Companies Act or LLP Act audit applies. A tax audit under the Income-tax Act may still be triggered by turnover/receipts thresholds — that is a separate audit with a separate law and separate limit.
Trusts / societies / NGOs	Governed by the trust deed, state Act, or Income-tax exemption conditions	Audit requirement usually flows from registration under the relevant state Trusts/Societies Act and, separately, from Section 12A/80G conditions if claiming income-tax exemption.

Note on exact figures: the LLP turnover/contribution threshold, small-company definitions, and any monetary limits referenced above are set by rule and revised periodically. Always verify the current figure on the MCA portal before quoting a specific number to a client.

Applicability decision points — the questions to ask first

Before opening the trial balance, work through these in order. Getting this sequence right avoids re-doing appointment paperwork mid-engagement.

What is the entity type? Company (private/public/OPC), LLP, partnership, proprietorship, trust/society — this alone answers whether audit is mandatory, threshold-based, or not applicable under company law at all.
Is this the first audit or a continuing one? First auditors of a company are appointed by the board within the statutory window from incorporation; subsequent auditors are appointed by the members at the AGM, typically for a multi-year term — the exact tenure, ratification and rotation rules depend on the company type and are amended from time to time, so confirm the current position on the MCA portal or with the Companies Act text before accepting.
Is there a previous auditor to clear with? Check for a resignation filing and obtain the reasons; professional courtesy and the ICAI Code require communicating with the outgoing auditor before accepting a new appointment.
Is the appointment properly documented? Board/member resolution, written consent and eligibility certificate from the auditor under Section 141, and the company-side filing (e.g. Form ADT-1) — confirm these are in place, not just verbally agreed.
Does a second, separate audit also apply? Check independently for tax audit (Section 44AB), GST audit/reconciliation requirements, or any sector regulator's audit (RBI, IRDAI, SEBI) — these run on their own thresholds and don't get skipped just because a statutory audit is already underway.

Checklist by process area

A practical starting checklist for a first-time statutory audit engagement, organised by the process areas that generate the most audit adjustments in a typical SME or private company.

Cash

✓ Physical cash count matches the cash book on the balance sheet date
✓ Cash payments above the disallowance limit under Section 40A(3) flagged
✓ No negative cash balance on any date in the ledger
✓ Petty cash imprest reconciled and vouched

Sales

✓ Sales register ties to GSTR-1/GSTR-3B for the year
✓ Sample invoices vouched for rate, HSN/SAC and place of supply
✓ Credit notes and sales returns supported and within time limits
✓ Revenue cut-off at year-end — invoices dated after year-end not included

Purchase

✓ Purchase register reconciled to GSTR-2B; ITC claimed only on matched invoices
✓ Vendor master and PAN/GSTIN validated for related-party purchases
✓ Purchase cut-off — goods received but not invoiced (GRNI) provided for
✓ Reverse charge liability identified and self-invoiced where applicable

Payroll

✓ Salary register agrees to PF/ESI challans and Form 26Q/24Q TDS returns
✓ Statutory dues (PF, ESI, PT, LWF) paid within the due date — late payment noted for disallowance
✓ Full & final settlements and gratuity provisioning checked for exits during the year
✓ Director remuneration within Companies Act limits, board/shareholder approval on file

Fixed assets

✓ Fixed asset register agrees to the Schedule III note and depreciation schedule
✓ Additions vouched to invoices; capitalisation date and useful life per Schedule II checked
✓ Physical verification of major assets done and discrepancies reconciled
✓ Disposals/write-offs approved and profit/loss on sale correctly recognised

Common pitfalls for a practising CA

Assuming an LLP or partnership is automatically exempt. An LLP crosses into mandatory audit once it breaches the turnover/contribution limit — check every year, not just at incorporation, since a growing LLP can cross the threshold mid-life without anyone flagging it.
Treating tax audit and statutory audit as one exercise. They have different objectives, different reports, and can have different due dates — plan working papers and staffing for both separately even when the same firm does both.
Skipping the independence check when the firm also does bookkeeping. If your firm (or a network firm) maintains the client's books, confirm the same firm can still be the statutory auditor under the current restricted-services rules before accepting the audit engagement — do not rely on last year's assumption.
Missing appointment-paperwork deadlines. Late filing of the appointment form or a lapsed resolution can call the validity of the audit itself into question — track these dates the same way you track the audit report deadline.
Not reconciling GST and books before starting substantive testing. A large share of adjusting entries in Indian SME audits trace back to sales/purchase not agreeing with GSTR-1/2B/3B — reconciling this first shortens the rest of the fieldwork materially.

Where TatvaBooks fits

Most of the fieldwork above is slower than it needs to be when books are maintained on a desktop tool with no live GST reconciliation. TatvaBooks keeps GSTR-2B matching, the fixed asset register, payroll statutory challans and Schedule III-ready statements in one place — so when your audit team opens the client's books, the sales/purchase-to-GST tie-out and the depreciation schedule are already there instead of being rebuilt from scratch every year. See what's included on the for Chartered Accountants page.

Frequently asked questions

Does a private limited company need a statutory audit even if it has no turnover?

Yes. Every company registered under the Companies Act 2013 — private, public, or an OPC — must have its accounts audited every financial year regardless of turnover, profit, or whether it has traded at all. There is no small-company or nil-turnover exemption from the audit requirement itself, though a small company gets relaxations elsewhere (like an abridged board report).

What is the turnover limit for statutory audit of an LLP?

An LLP needs its accounts audited once its turnover or the partners' contribution crosses the limit prescribed under the LLP Act and rules. Below that limit, audit is optional — the designated partners can choose not to get the accounts audited. Because this limit is set by rule and can be revised, verify the current figure on the MCA portal before advising a client.

Is statutory audit the same as tax audit under Section 44AB?

No — they are two different audits under two different laws, and a business can be liable for one, both, or neither. Statutory audit under the Companies Act or LLP Act looks at whether the financial statements are true and fair. Tax audit under the Income-tax Act looks at whether the return is supported by accounts and disallowable expenses have been correctly added back, and it applies once turnover/receipts cross the Section 44AB threshold — including for partnerships and proprietorships that have no companies-style audit obligation at all.

Can the same CA firm do the statutory audit and also maintain the client's books?

Generally no, for companies falling under the independence requirements of Section 144 of the Companies Act (and the ICAI Code of Ethics) — the same auditor is barred from certain non-audit services, including bookkeeping/accounting, for the entity they statutorily audit. Firms typically ring-fence audit and accounting engagements for the same client between separate teams or separate firms rather than rely on internal exceptions; confirm the current restricted-services list before structuring an engagement.

What's a practical first step when starting a statutory audit for a new client?

Confirm applicability and appointment validity first — check the entity type, prior-year auditor's resignation/NOC if any, and that the appointment resolution and Form ADT-1 (for companies) are in order — before touching the trial balance. Only then move to the process-area checklist: cash, sales, purchase, payroll and fixed assets are usually where the largest number of adjusting entries surface.

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