Which audits does a private limited company need?
Every private limited company needs a statutory audit of its financial statements under the Companies Act. A tax audit is a second report, under section 44AB, and it applies only when turnover crosses the limit in that section. An internal audit and a cost audit apply only to the companies the rules name.
Which audit applies to every company?
The statutory audit. The auditor is a chartered accountant in practice. The board appoints the first auditor within 30 days of incorporation. The members appoint the later auditor at the annual general meeting, for a term that runs until the sixth annual general meeting, and the company files ADT-1 within 15 days of that appointment. The detail is on the auditor page.
There is no turnover floor. A small company, and a company with no sales, still has this audit. The audited statements go to the annual general meeting and then into AOC-4, on the timetable on the annual compliances page.
When does a tax audit apply?
Section 44AB requires a tax audit of a business when total sales, turnover, or gross receipts exceed ₹1 crore. The limit is ₹10 crore when cash receipts are not more than 5 percent of all amounts received, and cash payments are not more than 5 percent of all payments. A cheque or draft that is not account-payee counts as cash.
A company whose accounts are already audited under the Companies Act files Form 3CA with Form 3CD, not Form 3CB. The profession limit of ₹50 lakh is not the test for a company. Crossing ₹1 crore does not, by itself, change the company’s income-tax rate.
When do an internal audit and a cost audit apply?
An internal audit under section 138 applies to a private company only when, in the preceding financial year, turnover was ₹200 crore or more, or outstanding loans or borrowings from banks or public financial institutions were ₹100 crore or more at any time. The board appoints the internal auditor. The report goes to the board. It is not a substitute for the statutory audit, and it is not AOC-4.
A cost audit under section 148 applies only to a company in a class the Central Government specifies. The cost auditor is a cost accountant in practice. The report to the board is CRA-3, within 180 days of the financial year end. The company then files CRA-4. Most private companies are outside that class.
Which date is which?
For a year ending 31 March, keep the reports apart.
- The statutory audit is finished in time for the board to approve the statements and for the annual general meeting, which is due by 30 September.
- AOC-4 is 30 days after that meeting. MGT-7 is 60 days after it.
- The tax audit report, where section 44AB applies and the return is due on 31 October, is due on 30 September. That report is filed on the income-tax portal.
The private-company compliance note lists the Registrar forms. It does not turn a tax audit into an MCA form.
Frequently asked questions
Four questions cover a small company, the two reports, AOC-4, and internal audit.
Can a small company skip the statutory audit?
No. Section 139 applies to every company. Paid-up capital and turnover change MGT-7A and the number of board meetings. They do not remove the statutory audit.
Is the tax audit the same report as the statutory audit?
No. The statutory audit is the opinion on the financial statements under the Companies Act. The tax audit is Form 3CA with Form 3CD under section 44AB, and only when that section applies.
Is the tax audit report filed with AOC-4?
No. AOC-4 is the Registrar filing of the financial statements. The tax audit report is filed on the income-tax portal. A company whose return is due on 31 October files that report by 30 September.
Does every private company need an internal audit?
No. Section 138 applies when the private company crosses the turnover or borrowing limit in the Accounts Rules.
Sources
The company audit is section 139. The tax audit is section 44AB. Internal audit is section 138.