Statutory Audit Under Companies Act: The Process, Start to Finish
The mechanics of Statutory Audit Under Companies Act are what clients ask about once they have decided to proceed. The questions below are the ones raised most often in practice; the full scope of the service is on the Statutory Audit Under Companies Act page.
How is the statutory auditor appointed, and what is the term of appointment?
The first auditor is appointed by the Board of Directors within 30 days of incorporation, holding office until the conclusion of the first AGM. Thereafter, the auditor is appointed by shareholders at the AGM, typically for a term of five consecutive years, subject to conditions under Section 139. The appointment (or reappointment) must be intimated to the Registrar of Companies in Form ADT-1 within 15 days of the AGM at which the appointment was made.
In practice: We track the appointment term for every audit client from Day 1. Many companies lose track of when their auditor's five-year term technically expires, and continue with the same firm without a fresh shareholder resolution — a technical non-compliance we help correct before it becomes an issue in due diligence.
What is CARO 2020, and does it apply to every company?
The Companies (Auditor's Report) Order 2020 (CARO 2020) requires statutory auditors to report on specific matters — fixed asset verification, inventory, loans and guarantees, deposits, cost records, statutory dues, defaults in repayment of loans, utilisation of funds raised through IPO/further issue, fraud reporting, and several other clauses — as an annexure to the main audit report. CARO 2020 applies to most companies but has specific exemptions, including for One Person Companies, small companies (as defined under Section 2(85)), and certain private companies meeting specified paid-up capital, borrowings, and turnover thresholds simultaneously.
In practice: The CARO exemption for private companies requires meeting several conditions together — capital, borrowings, and revenue thresholds — not just being a private company. We check CARO applicability formally at the start of every audit engagement rather than assuming exemption; getting this wrong means an incomplete audit report.
What happens if a company does not appoint a statutory auditor or does not get its accounts audited?
Non-compliance with the audit requirement is a serious default under the Companies Act. Beyond the direct filing consequence, non-audited or non-filed financial statements over multiple years can trigger director disqualification under Section 164(2) and expose the company to MCA strike-off action under Section 248.
In practice: Reconstructing multiple years of audited financials retrospectively, alongside RoC penalty regularisation, is materially more expensive and time-consuming than staying current year by year.
How long does a typical statutory audit take, and when should we start?
The time an audit takes depends on the company's size, the state of its books and reconciliations, and whether it is a first-time audit; the timeline is agreed at engagement. It should be planned backward from your AGM date. Under Section 96, subsequent AGMs must generally be held within 6 months of the financial year end (so by 30 September for a 31 March year-end, subject to any extension the RoC may grant); a company's very first AGM has a longer window — up to 9 months from the end of its first financial year. We recommend starting audit planning well before the intended AGM date. First-time audits, or audits of companies with disorganised books or incomplete reconciliations, need a longer runway.
In practice: A common cause of audit delay is starting the process too close to the AGM deadline, with a trial balance that has never been reconciled to GST returns or TDS filings during the year. Reconciliation issues discovered in week 6 instead of week 1 compress an already tight timeline.
Does a company with no operations or a 'shell' company still need a statutory audit?
Yes. Even a company that has formally obtained dormant company status under Section 455 of the Companies Act (applied for in Form MSC-1) must file a return of dormant company in Form MSC-3 within 30 days of the end of each financial year, with its financial position audited by a practising Chartered Accountant, and pay the annual fee to retain that status. Without that formal status, a company with zero transactions during the year still requires a full statutory audit resulting in nil (or near-nil) financial statements, and the auditor's report and CARO annexure (where applicable) must still be issued and filed.
In practice: A common risk is a company treating itself as 'dormant' without the formal MCA application and skipping audit and filings on that assumption. Without dormant status granted under Section 455, the audit and filing obligations remain fully in force, and penalties accrue as usual.
How does PNPC charge for statutory audit — what determines the fee?
Statutory audit fees are structured based on the complexity and scale of the engagement — transaction volume, number of related party transactions, whether CARO and IFC reporting apply, quality of books provided, number of locations/branches, group structure, and whether this is a first-time or continuing audit. PNPC provides a written scope and fee estimate before the engagement letter is signed — there are no surprise charges once the fee is agreed, except for genuinely out-of-scope work identified and separately agreed during the audit.
In practice: We do not price statutory audits as a race-to-the-bottom commodity service. A properly resourced audit — with real substantive testing, not a rubber-stamp review — costs more than the cheapest available quote, and it is the audit opinion your bank and investors will actually rely on.
What is the Board's responsibility if the statutory auditor resigns mid-year?
If the statutory auditor resigns before completing their term, the outgoing auditor must file Form ADT-3 with the RoC within 30 days, stating the reasons for resignation. The Board must then fill the casual vacancy within 30 days under Section 139(8); where the vacancy arose from the auditor's resignation, the appointment must also be approved by shareholders at a general meeting convened within three months of the Board's recommendation, and the new auditor holds office until the conclusion of the next AGM. (For companies whose auditors are appointed by the Comptroller and Auditor-General of India, the C&AG fills the vacancy.)
In practice: A mid-year auditor resignation, especially one citing reasons like management non-cooperation or disagreement on accounting treatment, is a serious signal that lenders and investors will specifically probe. If your company is going through this, the reason stated in ADT-3 and how promptly the vacancy is filled both matter for how the situation is perceived externally.
Is a statutory audit required for a company that has applied for voluntary strike-off (STK-2)?
Yes, in a modified sense. A company applying for voluntary strike-off under Section 248(2) via Form STK-2 must submit a statement of accounts reflecting assets and liabilities, made up to a date not more than 30 days before the date of application, and this statement must be certified by a Chartered Accountant. While this is not necessarily the full annual statutory audit process, it requires a CA-certified financial position, and any outstanding regular statutory audits for prior years generally need to be current and filed before a clean strike-off application can proceed.
In practice: Companies sometimes attempt strike-off with several years of statutory audits and RoC filings still pending. The strike-off route requires the compliance record to be substantially in order — attempting to skip straight to closure without first regularising past-due audits and filings can lead to an STK-2 application being rejected or delayed.
How does PNPC ensure audit quality and not just compliance box-ticking?
Every PNPC statutory audit follows documented audit planning with risk assessment specific to the client's business, substantive testing sized to actual materiality rather than a fixed template percentage, formal working papers supporting every conclusion in the report, and a partner-level review before any report is signed. We generate UDIN for every signed report on the ICAI portal, maintaining the traceability and accountability the profession requires. We treat the audit as a genuine independent examination — not a formality performed to unlock the AOC-4 filing.
In practice: The market has no shortage of firms willing to sign an audit report for a nominal fee with minimal actual testing. That approach produces a report of little value to a bank or investor conducting real diligence, and it exposes the company (and the signing CA) to real risk if the numbers are later challenged. We do not operate that way.
Where this sits in the wider engagement
Statutory Audit Under Companies Act rarely arrives on its own. The statutory basis and the current requirements are set out on the Statutory Audit Under Companies Act service page, and the related services are grouped under Audit Assurance.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Statutory Audit Under Companies Act we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.