What is a company audit?
A company audit is the examination of a company’s financial statements by a chartered accountant in practice, so the auditor can say whether they give a true and fair view. Every company has this audit. Turnover does not switch it off.
What is audited?
The financial statements for the year: the balance sheet, the statement of profit and loss, and the notes. The auditor signs the report. Which other audits can apply, including a tax audit, is on the page that separates those audits. Appointment and ADT-1 are on the auditor page.
Where are the books kept?
Section 128 requires books of account on the accrual basis and the double-entry system, giving a true and fair view. They are kept at the registered office. The board may keep them at another place in India, and the company then files a written notice of that address with the Registrar within seven days.
The books are preserved for eight years. When the company uses accounting software, the software has to keep an audit trail. A bank reconciliation is how the cash book is agreed to the bank statement. It is not itself a form filed with the Registrar.
Who may be the auditor?
A chartered accountant holding a certificate of practice. A firm may be appointed if a majority of its partners practising in India are qualified to be appointed, and only a chartered-accountant partner signs for the firm.
The board appoints the first auditor within 30 days of incorporation. That auditor holds office until the first annual general meeting. If the board does not appoint, the members do so within 90 days at an extraordinary general meeting. Later appointments, and ADT-1, follow the auditor page. The old 120-day figure is not the rule.
Which return follows the audit?
The audited statements go to the annual general meeting and then into AOC-4, with the annual return on the annual compliances page. Every company also files an income-tax return, including a company with no sales. The return is due on 31 October, or on 30 November if a transfer-pricing report applies. There is no 31 August date for a company.
Frequently asked questions
Four questions cover a nil year, the first auditor, the return date, and where the books sit.
Can a company skip the audit in a nil year?
No. The Companies Act requires a statutory audit whether or not the company had sales. A tax audit under section 44AB is a separate test and depends on turnover.
Do the members have 120 days to appoint the first auditor?
No. The board appoints the first auditor within 30 days of incorporation. If the board does not, the members appoint the auditor within 90 days at an extraordinary general meeting.
Is a company’s income-tax return due on 31 August?
No. A company files its return by 31 October. The date is 30 November when the company has an international transaction that needs a transfer-pricing report.
Can the books be kept away from the registered office?
Yes, at another place in India, if the board decides and the company files notice of that address with the Registrar within seven days.
Sources
The books are section 128. The auditor is section 139. The return date is section 139 of the Income-tax Act.