In today’s business environment, audits are more than just a compliance requirement—they’re essential for building trust with investors, ensuring transparency, and strengthening corporate governance. In India, audit regulations are governed primarily by the Companies Act, 2013, along with specific rules and notifications issued by the government
This guide breaks down the essentials of audit regulations in India—covering types of audits, appointment procedures, qualifications, auditor duties, penalties, and more.
Types of Audits in India
Before diving into the legal provisions, it’s important to understand the different kinds of audits recognized under Indian law:
- Statutory Audit
- Mandatory for all companies under the Companies Act, 2013.
- Conducted by an independent auditor to ensure that financial statements present a true and fair view.
2. Internal Audit
- Governed by Section 138 of the Companies Act, 2013.
- Focuses on operational efficiency, risk management, and internal controls.
- Conducted by a chartered accountant, cost accountant, or another professional appointed by the Board.
3. Cost Audit
- Covered under Section 148 of the Companies Act, 2013.
- Required for certain companies engaged in manufacturing and regulated sectors.
- Conducted by a cost accountant to verify cost records and pricing practices.
4. Tax Audit
- Governed by Section 44AB of the Income Tax Act, 1961.
- Mandatory for businesses exceeding prescribed turnover limits.
- Conducted to verify compliance with tax laws.
5. Secretarial Audit
- Required for listed companies and certain large public companies under Section 204 of the Companies Act, 2013.
- Conducted by a Company Secretary (CS) to ensure compliance with corporate and securities laws.
Appointment of Auditors:
Section 139 lays down the procedure for appointing auditors:
- First auditor appointed at the first Annual General Meeting (AGM).
- Tenure continues until the sixth AGM.
- Appointment must follow the process in Rule 3 of the Companies (Audit & Auditors) Rul
Steps in Appointment:
- Shareholders approve by ordinary resolution.
- The Board assesses qualifications of the proposed auditor.
- The Audit Committee (where applicable) recommends a name.
- The Board forwards its proposal to shareholders at the AGM.
Removal and Resignation of Auditors
- Removal (before expiry of term) → requires special resolution + prior approval from the Central Government (Section 140, Rule 7).
- Resignation → auditor must file Form ADT-3 within 30 Days (Rule 8)
Eligibility, Qualifications & Disqualifications
As per Section 141:
- Only a Chartered Accountant (individual or firm) can be appointed.
- Disqualifications include:
- Being an officer/employee of the company.
- Having financial interests in the company.
- Providing prohibited services (Section 144).
- Rule 10 further restricts securities held by auditor’s relatives.
Powers & Duties of Auditors
Auditors enjoy extensive rights and responsibilities (Section 143):
- Right to access books of accounts and vouchers.
- Right to seek information from officers.
- Duty to inquire into loans, investments, and transactions.
- Responsibility to report financial truth and fairness.
Additional rules include:
- Rule 10A: Report on internal financial controls.
- Rule 11: Report on pending litigations, fund usage, etc.
- Rule 13: Duty to report fraud to the Central Government.
Why This Matters for Businesses
Audit regulations in India may feel detailed and overwhelming, but they serve a bigger purpose: transparency, accountability, and trust.
For growing companies, having a smooth relationship with auditors—and taking compliance seriously—not only prevents penalties but also builds investor confidence. At the end of the day, a good audit process can strengthen governance and help businesses scale with confidence.
With ProLead, you get:
- End-to-End Support – from incorporation to annual compliance.
- Expertise in Multiple Domains – Company Law, Income Tax, GST, RBI/FEMA laws, and Contract Drafting.
- Peace of Mind – so you can focus on growing your business while ProLead ensures you remain compliant.
