What Is a Statutory Audit in India (2026 Guide)

A statutory audit is an examination of a company’s financial statements that is required by law, carried out by an independent chartered accountant to confirm that the accounts present a true and fair view of the entity’s financial position. In India, the requirement flows mainly from the Companies Act, 2013, though other statutes impose their own audit obligations. This article explains what a statutory audit means, why it matters, who must have one, how it differs from a tax audit, and how the process works in 2026.

Meaning of a statutory audit

The word “statutory” simply means “required by statute”, that is, mandated by law rather than undertaken voluntarily. A statutory audit is therefore an audit that an organisation is legally obliged to complete, irrespective of whether its management or owners want one. It is conducted by an external auditor who is independent of the business and who expresses a formal opinion on the financial statements.

The audit does not certify that the business is well run or profitable. Instead, it provides reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error, and that they comply with the applicable financial reporting framework and accounting standards. The outcome is the auditor’s report, which accompanies the audited financial statements filed with regulators and shared with shareholders.

Objectives of a statutory audit

A statutory audit serves several purposes that go beyond mere legal compliance. Its main objectives include the following.

• To express an independent opinion on whether the financial statements give a true and fair view of the state of affairs, profit or loss, and cash flows of the entity.
• To verify that the books of account are properly maintained and that the financial statements agree with those books.
• To confirm that the accounts comply with applicable accounting standards and the disclosure requirements of the governing law.
• To detect and report material misstatements, including those arising from fraud or error, and to highlight weaknesses in internal financial controls.
• To enhance the credibility of the financial information relied upon by shareholders, lenders, investors, tax authorities and other stakeholders.

Applicability: who must get a statutory audit

Applicability depends on the legal form of the organisation. The rules differ for companies, limited liability partnerships and other entities.

Companies

Under the Companies Act, 2013, every company incorporated in India must have its accounts audited each financial year, regardless of its turnover, capital or profitability. This applies uniformly to private limited companies, public limited companies and one person companies. Even a dormant company or a company with no revenue during the year is required to appoint an auditor and obtain a statutory audit. Certain classes of companies are additionally subject to reporting under the Companies (Auditor’s Report) Order, commonly known as CARO, which requires the auditor to comment on specified matters.

Limited liability partnerships

A limited liability partnership is not automatically required to be audited. Under the LLP Act and the associated rules, a statutory audit becomes mandatory only when the LLP crosses a prescribed threshold. An LLP must have its accounts audited if, in any financial year, either its turnover exceeds Rs. 40 lakh or its contribution exceeds Rs. 25 lakh. If the LLP stays below both of these limits, an audit is not legally required, although partners may still choose to have one for the sake of credibility with banks and other stakeholders.

Other entities

Several other organisations are subject to statutory audit under their own governing laws. Banks, insurance companies and co-operative societies are audited under their respective statutes. Trusts and societies may require audit under the relevant state or central legislation, and organisations registered under the applicable charity or public trust laws are audited in line with those requirements. Where an entity is not a company, the specific statute governing it determines whether, and how, an audit must be conducted.

Statutory audit versus tax audit

Businesses often confuse a statutory audit with a tax audit, but the two are distinct and can apply at the same time. A statutory audit is governed by the Companies Act, 2013 (or another applicable statute) and focuses on the true and fair presentation of the financial statements. A tax audit is governed by Section 44AB of the Income Tax Act, 1961, and its purpose is to verify particulars relevant to the computation of taxable income.

The key differences can be summarised as follows.

• Legal basis: a statutory audit arises under the Companies Act or another statute, while a tax audit arises under the Income Tax Act.
• Applicability: a company must have a statutory audit regardless of turnover, whereas a tax audit is triggered only when turnover or gross receipts cross the limits specified in Section 44AB.
• Purpose: a statutory audit reports on the fairness of the financial statements, while a tax audit reports on compliance with income tax provisions.
• Reporting: a statutory audit results in an auditor’s report attached to the financial statements, whereas a tax audit is reported in the prescribed forms, generally Form 3CA or 3CB together with Form 3CD.

An entity may be subject to both audits in the same year. For example, a private limited company must always have a statutory audit, and if its turnover exceeds the Section 44AB threshold it will also require a tax audit.

Appointment of the auditor

Only a practising chartered accountant, or a firm of chartered accountants, is eligible to act as a statutory auditor of a company. The Companies Act also lays down disqualifications to protect the auditor’s independence, so that a person with a specified financial or business relationship with the company cannot be appointed.

For companies, the appointment process under Section 139 broadly works as follows.

1. The first auditor is appointed by the board of directors within 30 days of incorporation. If the board fails to do so, the members appoint the first auditor within 90 days at an extraordinary general meeting.
2. At the first annual general meeting, the company appoints an auditor who normally holds office until the conclusion of the sixth annual general meeting, that is, for a term of five years, subject to the provisions on ratification and rotation.
3. Specified classes of companies must rotate their auditors, replacing an individual auditor after one term of five years and an audit firm after two terms of five years each.
4. A casual vacancy, such as one caused by the resignation of the auditor, is filled in the manner prescribed by the Act.

For LLPs and other entities that require audit, the auditor is appointed in accordance with the LLP agreement or the relevant governing statute.

The statutory audit process

While every engagement is tailored to the size and nature of the business, a statutory audit generally follows a structured sequence.

1. Engagement and planning: the auditor is appointed, the scope and timeline are agreed, and the auditor develops an understanding of the business, its industry and its accounting systems.
2. Assessment of internal controls: the auditor evaluates the design and operation of internal financial controls to identify areas of higher risk.
3. Substantive testing: transactions and balances are examined through vouching, verification of assets and liabilities, confirmations, analytical procedures and sampling.
4. Verification of compliance: the auditor checks that the accounts comply with applicable accounting standards and the disclosure requirements of the governing law.
5. Review and conclusion: findings are discussed with management, adjustments are agreed where necessary, and the auditor forms an opinion.
6. Reporting: the auditor issues the audit report, which may be unmodified or modified, and the audited financial statements are then adopted and filed with the relevant authorities.

Penalties for non-compliance

Failing to comply with statutory audit obligations carries consequences under the governing law. Under the Companies Act, 2013, a company that does not comply with the audit and related provisions, and the officers in default, are liable to monetary penalties. An auditor who contravenes the relevant provisions is also exposed to penalties, and to more serious consequences where the non-compliance is wilful or intended to deceive.

Beyond the direct penalties, non-compliance can lead to difficulties in filing annual returns, disqualification of directors in certain cases, adverse remarks that affect the company’s standing with lenders and investors, and reputational damage. For an LLP that crosses the audit thresholds, failure to have the accounts audited can attract penalties under the LLP framework and complicate its annual filings.

Frequently asked questions

Is a statutory audit compulsory for a company with no turnover?

Yes. Every company incorporated under the Companies Act, 2013 must appoint an auditor and complete a statutory audit each year, even if it has nil turnover, is dormant, or has made a loss. The obligation is linked to the company’s legal status, not to its level of activity.

Does a small LLP always need a statutory audit?

No. An LLP is required to have its accounts audited only if its turnover exceeds Rs. 40 lakh or its contribution exceeds Rs. 25 lakh in a financial year. An LLP below both limits is not legally required to be audited, though partners may still choose to do so voluntarily.

Can the same chartered accountant carry out both the statutory audit and the tax audit?

In many cases the same firm can conduct both, subject to independence requirements and any applicable ceiling on the number of audits an auditor may accept. The two audits remain separate exercises with different objectives and reporting formats, even where they are performed together.

Who is eligible to be appointed as a statutory auditor?

Only a chartered accountant holding a certificate of practice, or a firm where the majority of partners are practising chartered accountants, can be appointed as the statutory auditor of a company. The person must also be free from the disqualifications set out in the Companies Act to ensure independence.

What is the difference between an audit opinion that is unmodified and one that is modified?

An unmodified opinion indicates that, in the auditor’s judgement, the financial statements give a true and fair view in accordance with the applicable framework. A modified opinion, such as a qualified, adverse or disclaimer of opinion, signals that the auditor has identified material issues or was unable to obtain sufficient evidence.

At TAXAJ, our team supports companies and LLPs with statutory audit, assurance and related compliance so that your financial statements are accurate, timely and fully aligned with the law. If you are unsure whether a statutory audit applies to your organisation, our professionals can help you assess your obligations and manage the process end to end.