Comprehensive Guide to Audit Regulations in India

kanumillinagakarth
Sep 23
3 min read

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.
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.
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.
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.
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) Rules, 2014.

Steps in Appointment

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.
Shareholders approve by ordinary resolution.

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.

Takeaway: Audits are not just about legal compliance—they’re about building credibility. If you’re running a company in India, make sure you understand which audits apply to you, appoint the right professionals, and treat the audit process as a tool for growth, not just an obligation.