First published on 24 September 2025. Laws, rates and forms may have changed since, including the move from the Income Tax Act, 1961 to the Income-tax Act, 2025 from 1 April 2026. This guide is general information, not advice on your facts; check the current position or talk to us before you act.
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 recognised under Indian law.
1. Statutory audit
- Mandatory for all companies under the Companies Act, 2013.
- Conducted by an independent auditor to confirm that the financial statements give 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 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 above the 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 check compliance with corporate and securities laws.
Appointment of auditors
Section 139 lays down the procedure for appointing auditors:
- The first auditor is appointed by the Board within 30 days of incorporation and holds office until the end of the first Annual General Meeting (AGM).
- At the first AGM, an auditor is appointed to hold office until the end of the sixth AGM.
- The appointment must follow Rule 3 of the Companies (Audit and Auditors) Rules, 2014.
Steps in the 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.
How ProLead helps
- 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.