Statutory Audit of a Private Limited Company in India

A statutory audit is not optional, and it does not depend on turnover, profit or even whether the company did any business during the year. Every private limited company incorporated under the Companies Act, 2013 must have its books examined by an independent chartered accountant each financial year, and the resulting report goes to the members at the annual general meeting and, through Form AOC-4, to the Registrar of Companies.

This guide sets out how the first auditor is appointed, how ADT-1 and the five-year term work after that, when rotation applies, what CARO 2020 asks the auditor to report on, and the practical steps that keep a company audit-ready through the year rather than only in the weeks before the auditor arrives.

Appointing the first auditor

The board of directors appoints the company's first auditor within thirty days of incorporation. If the board does not act in time, the members step in and appoint the first auditor within ninety days, at an extraordinary general meeting called for that purpose. Either way, the first auditor holds office only until the conclusion of the company's first annual general meeting, not for a fixed term.

Many companies also file Form ADT-1 for this first appointment, even though the filing requirement is written primarily around the appointment that happens at an AGM. Filing it anyway costs little and creates a clean public record of who the first auditor was and when they were appointed, which is useful the day a bank or an investor asks for it.

The auditor appointed at the AGM, and ADT-1

At the first AGM, the members appoint an auditor who then holds office from the conclusion of that meeting until the conclusion of the sixth AGM - in effect, a five-year term. Since the Companies (Amendment) Act, 2017 took effect, that appointment no longer needs to be ratified by members at every AGM in between; once appointed for the five-year term, the auditor continues unless removed, resigns, or becomes disqualified.

Form ADT-1 must be filed with the Registrar within fifteen days of the meeting at which the auditor is appointed or reappointed. It is a short form, but it is also one of the filings companies most often forget once the appointment itself feels settled.

Auditor term and rotation basics

Section 139(2) forces a change of auditor after a period, but only for certain companies: all listed companies, unlisted public companies with paid-up share capital of Rs 10 crore or more, private limited companies with paid-up share capital of Rs 50 crore or more, and any company, public or private, with public borrowings from banks, financial institutions or public deposits of Rs 50 crore or more.

Within that group, an individual auditor can serve one term of five consecutive years, and an audit firm can serve two terms of five consecutive years each - ten years in total. Either way, a five-year cooling-off period follows before the same auditor or firm can be reappointed. A private company below all three thresholds is free of the rotation requirement, though many choose to rotate anyway as a matter of practice.

CARO 2020: who it applies to

The Companies (Auditor's Report) Order, 2020 adds a long list of reporting requirements in addition to the standard audit report - on fixed assets, inventory, related-party loans, statutory dues and more. It applies to most companies, but the Order carves out banking and insurance companies, section 8 companies, one person companies, and small companies as the Companies Act defines them.

A separate, narrower exemption covers private companies that are not a subsidiary or holding company of any public company, provided paid-up capital and reserves do not exceed Rs 1 crore as on the balance sheet date, borrowings from any bank or financial institution do not exceed Rs 1 crore at any point in the year, and total revenue for the year does not exceed Rs 10 crore. Cross any one of those three lines and CARO applies in full.

What the auditor will ask for

Most of the audit timeline is spent waiting on documents rather than on the fieldwork itself, so the fastest audits are the ones where the company already has everything assembled before the auditor asks.

• Board and committee resolutions and signed minutes for the year
• Bank statements and balance confirmations, reconciled to the books
• GST returns reconciled to the books, and input tax credit matched to GSTR-2B
• TDS deducted and deposited, reconciled to Form 26AS and the AIS
• Related-party transactions with the approvals and pricing evidence behind each one
• Fixed asset register, with additions, disposals and physical verification notes
• Stock records and the basis of inventory valuation
• Loan and investment confirmations, and the signed management representation letter

Staying audit-ready through the year

Audit readiness is built month by month, not in the final week. A monthly close that reconciles the bank, GST credit and TDS as the transactions happen leaves far less to re-check later, and related-party approvals documented at the time avoid the scramble to reconstruct board approval after the fact.

A short pre-audit checklist, run about a month before the year end, catches most of what would otherwise surface as an audit observation: registers not updated, physical stock not verified, confirmations not obtained. None of this removes the audit; it just means the audit finds a clean file instead of a list of open items.

Frequently asked questions

Is a statutory audit mandatory for every private limited company?

Yes. It applies regardless of turnover, profit or activity level - even a dormant or loss-making company needs its accounts audited every financial year under the Companies Act.

What is the difference between a statutory audit and a tax audit?

A statutory audit under the Companies Act covers every company and reports on whether the financial statements are true and fair. A tax audit under section 44AB of the Income-tax Act applies only once turnover or receipts cross specified limits, and reports on tax particulars. Our separate guide on tax audit under section 44AB covers that in depth.

Can the statutory auditor also sign the company's tax audit report?

Generally yes. Section 144 of the Companies Act bars the statutory auditor from providing specific non-audit services, such as bookkeeping, internal audit and investment advisory, to the company it audits, but a tax audit under the Income-tax Act is not on that restricted list.

What happens if a company does not get its accounts audited on time?

Without a signed audit report, the company cannot finalise accounts for the AGM or file Form AOC-4 on time, which starts the additional-fee clock and raises questions with lenders and investors. Treat an audit that is running late as urgent, not routine.

Related guides

• Tax audit under section 44AB: who needs one
• Audit readiness before a fundraise or SME IPO
• Startup compliance calendar for India
• Audit and assurance services