Auditing Requirements of Private Limited Company (2024)

After registering a private limited company, there are many compliances that the company has to follow under the Companies Act, 2013 (‘Act’). One such mandatory requirement a company must follow is to conduct an audit irrespective of its turnover or nature.

A company audit means the inspection of its books of account to ensure that they are correct. The company must appoint an auditor to conduct the audit. The objective of an audit of the company’s financial statements is to allow the auditor to express his/her opinion.

The auditor will have to check various books of accounts, vouchers and bills to check if they are accurate and properly maintained. The audit of a private limited company is an annual compliance requirement under the Act and Company Law Rules.

Types of Audit Of A Private Limited Company

There are different types of audits of a private limited company carried out for various purposes. A few important types of audit of a private company are as follows:

Statutory Audit

The statutory audit is a mandatory audit that every private limited company must conduct irrespective of its profit or turnover. A company incurring loss must also conduct a statutory audit. Every private limited company must compulsorily get their annual accounts audited each financial year as per the Act and the Companies (Accounts) Rules, 2014.

The objective of the statutory audit is to determine if a company is providing an accurate representation of its financial situation after examining the information in the books of account, bank balance and financial statements.

Internal Audit

The internal audit of the private limited company is conducted as per the suggestion of its internal management. The Act and the Companies (Accounts) Rules, 2014, provides that the prescribed companies must appoint an internal auditor to conduct an audit of their activities and functions. The prescribed private limited companies that need to conduct internal audits are:

• Private companies having a turnover of Rs.200 crore or more during the previous financial year
• Private companies having outstanding borrowings or loans from Public Financial Institutions or banks exceeding Rs.100 crore or more

Internal audits are done to check the status of the company’s finances and analyse its operational efficiency. They help the internal management review the finances and make the required changes to increase efficiency in its operations.

Cost Audit

The Companies (Cost Records and Audit) Rules, 2014 prescribes that the following private limited companies must perform cost audit:

• Private limited companies engaged in the production of goods or providing services listed in table 3(A) of the Companies (Cost Records and Audit) Rules and having:
  • An annual turnover in the previous financial year of Rs.50 crore or more from all its services or products
  • An aggregate turnover of the individual service or product of Rs.25 crore or more
• Private limited companies engaged in the production of goods or providing services listed in table 3(B) of the Companies (Cost Records and Audit) Rules and having:
  • An annual turnover in the previous financial year of Rs.100 crore or more from all its services or products
  • An aggregate turnover of the individual service or product of Rs.35 crore or more

Appointment of an Auditor

Statutory Auditor

Every private limited company must appoint its first auditor to conduct the statutory audit of the company within 30 days from its registration date. At the company’s first Annual General Meeting (AGM), the shareholders will confirm the appointment of the first auditor who will hold the office of auditor for a term of five years. The company can appoint only an independent practising Chartered Accountant (CA), CA firm or LLP with the majority of partners practising in India as its auditor.

Internal Auditor

The company’s internal audit can be performed by the company’s internal staff or an independent party. The internal auditor must either be a CA, cost accountant, or such other professional as the board decides. The internal auditor can even be the company employee.

Cost Auditor

The private limited companies that must conduct the cost audit as per the Companies (Cost Records and Audit) Rules, 2014 must appoint a cost auditor within 180 days of the commencement of the financial year. The company can appoint only a person who is a cost accountant in practice to conduct the cost audit. A cost accountant in practice means a person who fits the definition provided in Section 2(1)(b) of the Cost and Works Accountants Act, 1959 and includes a firm or LLP of cost accountants.

Due Date Of Private Limited Company Audit

Statutory Audit: The statutory audit must be done before the AGM of the company is conducted. The statutory auditor needs to submit the audit report to the board before the conduct of AGM. The audit report should be attached with the company’s financial statements and filed with the ROC. The due dates are as follows:

• The audit report must be attached to Form AOC-4 (financial statement) and filed with the ROC within 30 days of the AGM.
• The form MGT-7 (annual return of the company) must be filed within 60 days of the AGM.
• The due date for holding AGM is before or on 30 September every year.

Internal Audit: There is no due date for conducting the internal audit. The internal auditor is required to submit a report to the board before the conduct of AGM. The auditor's report must be filed together with Form AOC-4.

Cost Audit: The cost audit report is to be submitted to the board within 30 September every year in form CRA-3. After receiving the cost audit report, the board will consider and examine the cost report. The board must submit the cost audit report with relevant information to the Central Government within 30 days of receiving the cost audit report in form CRA-4.

ROC Forms for Audit Requirements

The ROC forms that a private limited company must file in relation to the audit requirements are as follows:

Non-filing of the above forms with the ROC and non-submission of the statutory audit report and cost audit report will attract a penalty. Thus, a private limited company must mandatorily conduct the statutory audit. They also need to conduct the internal audit and cost audit when they fulfil the requirements mentioned in the respective rules.

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