As per the Company Act, all Indian companies must keep books of accounts and have them audited by a qualified chartered accountant every year after the financial year ends. The tax audit report, as well as the financial statements and annual return, must be filed with the Registrar of Companies in the state where the private limited company is registered.
Private Limited Company Tax Audit Requirements
Following the registration of a private limited company, the Companies Act, 2013 (the “Act”) imposes a number of obligations on the firm. A tax audit is one such obligatory obligation that all businesses must adhere to, regardless of their size or industry.
The checking of a firm’s books of accounts to ensure that they are correct is known as a company audit. To conduct the audit, the firm needs to select an auditor. The purpose of an audit of the financial statements of a firm is for the auditor to provide his or her opinion.
The auditor will examine various books of accounts, vouchers, and bills to ensure that they are correct and well-maintained. The Act and Company Law Rules make an annual audit of a private limited company a legal necessity.
Types of Private Limited Company Audits
There are several sorts of audits that may be performed on a private limited corporation for a variety of reasons. The following are several types of private company audits:
The statutory audit is a required audit that every private limited business, regardless of profit or turnover, must do. A corporation that suffers a loss is required to undergo a statutory audit. According to the Companies (Accounts) Rules, 2014, every private limited company must have its annual accounts audited every financial year.
After evaluating the information in the books of account, bank balance, and financial statements, the statutory audit goal is to assess if a corporation is presenting an accurate depiction of its financial status.
2. Internal Audit
The private limited company’s internal audit is carried out on the advice of the company’s internal management. Prescribed firms must engage an internal auditor to undertake an audit of their operations and functions under the Act and the Companies (Accounts) Rules, 2014. The following private limited firms are required to conduct internal audits:
- Private enterprises with a prior financial year turnover of Rs. 200 crore or more
- Private enterprises with debts or loans from public financial institutions or banks totaling more than Rs. 100 crore
Internal audits are performed to assess the financial health of a firm and its operational effectiveness. They assist internal management in reviewing the finances and making the necessary modifications to improve the efficiency of the company’s operations.
3. Cost Audit
According to the Firms (Cost Records and Audit) Rules, 2014, the following private limited companies are required to conduct cost audits:
Private limited firms that produce items or provide services that are mentioned in Table 3 (A) of the Companies (Cost Records and Audit) Rules and have the following characteristics:
- A total yearly turnover of Rs. 50 crore or higher from all services or products in the preceding financial year.
- A total sale of Rs. 25 crore or more for the specific service or product
Private limited firms that produce items or provide services that are mentioned in Table 3 (B) of the Companies (Cost Records and Audit) Rules and have the following characteristics:
- A total yearly turnover of Rs. 100 crore or more from all services or products in the preceding financial year
- An individual service or product with a total revenue of Rs. 35 crore or higher.
In India, a statutory audit is required
The relevant audit is conducted in India during each financial year, from April 1 to March 31. There are two types of statutory audits that are performed on India’s private limited companies:
1. Tax Audit
According to the tax audit, everyone with a company turnover of more than INR 1 crore or who works in a profession with gross revenues of more than INR 25 lakh should have their accounts audited by an independent chartered accountant.
As a result, tax audit is a significant part of a private limited company’s audit. It is important to remember that tax audits apply to everyone, whether an individual, a partnership firm, a corporation, or any other organization. The tax audit report, on the other hand, must be acquired by September 30 after the end of each fiscal year. Noncompliance with tax audit regulations may result in a penalty of 0.5 percent of revenue or INR 1 lakh, whichever is the lesser of the two options. There is also no provision for the dismissal of tax auditors.
2. Company Audit
The Companies Act, 1956, always has requirements for a company audit in the audit of private limited companies. Every company must have its annual accounts audited every fiscal year, regardless of the type of company or turnover. To do this, the firm and its directors must first appoint an auditor.
As a result, the shareholders of the firm elect an auditor at each annual general meeting (AGM), who will serve from one AGM to the next. The same auditors are not allowed to be appointed for more than one or two periods in individual or partnership businesses. Therefore, the auditor should always be replaced when the term is over.
A company’s auditor can only be an individual chartered accountant or a partnership firm of chartered accountants. According to the Companies Act, the following people are explicitly barred from becoming auditors:
- a legal entity.
- A corporate officer or employee superior, or a business partner with a company employee.
- Any individual who has guaranteed an amount in excess of INR1,000 to a corporation on behalf of another person or who owes a sum in excess of INR1,000 to a firm.
- Anyone who has owned any sort of stock in the firm for more than a year after the Companies Act of 2000 went into effect.
Appointment of an Auditor:
Within 30 days after its registration date, every private limited company must employ an auditor to undertake a statutory audit. The shareholders will ratify the appointment of the first auditor at the company’s first annual general meeting (AGM), who will serve for a five-year period. Only an independent practicing Chartered Accountant (CA), CA firm, or LLP with the majority of partners practicing in India can be appointed as the company’s auditor.
2. Internal Audit
Audits can be carried out by the company’s internal employees or by a third party. The internal auditor must be a chartered accountant, a cost accountant, or another professional as determined by the board. Internal auditors might even be employed by the firm.
3. Cost Audit
Companies that are required to undertake a cost audit under the Companies (Cost Records and Audit) Rules, 2014, shall employ a cost auditor within 180 days of the start of the financial year. To perform the cost audit, the firm can only employ a person who is a practicing cost accountant. In practice, a cost accountant is someone who meets the requirements in Section 2(1)(b) of the Cost and Works Accountants Act, 1959, which includes a partnership or LLP of cost accountants.
Statutory Audit of a Private Limited Company Due Date:
The statutory audit must be completed prior to the company’s AGM. Also, the statutory auditor must deliver the audit report to the board. The audit report should be filed with the ROC together with the company’s financial statements. The following are the deadlines:
- Within 30 days following the AGM, the audit report must be attached to Form AOC-4 (financial statement) and lodged with the ROC.
- Within 60 days following the AGM, the form MGT-7 (annual return of the firm) must be filed.
- Every year, the AGM must be held before or on September 30th.
2. Internal Auditing:
There is no deadline for performing an internal audit. Before the AGM, the internal auditor must provide a report to the board.
3. Cost Audit:
Every year, by the 30th of September, the board must receive a cost audit report on Form CRA-3. After receiving the cost audit report, the board will review and analyse it. Within 30 days of obtaining the cost audit report in Form CRA-4, the board shall also send the cost report to the Central Government with all relevant information.
Tax Audit Requirements ROC Forms
The following are the ROC forms that a private limited business must complete in order to meet the audit requirements:
The Purpose of the Form
Form ADT-1: Appointment of Auditors
Form AOC-4: Annual filing of company financial statements
Form MGT-7: Filing of the Annual Return
Form CRA-2: Appointment of Cost Auditor
Form CRA-3: Records of cost audits are submitted to the board
Form CRA-4: Filing of a Cost Audit Report
Form MGT-14: Filing of Resolutions with MCA for Approval of the Board Report and Annual Accounts
A penalty will also be imposed if the aforesaid forms are not filed with the ROC and the statutory audit report and cost audit report are not submitted. As a result, a private limited company is required to undertake a statutory audit. When they meet the conditions outlined in the guidelines, companies must additionally perform an internal audit and a cost audit.