Statutory Audit Under the Companies Act, 2013 — For Pune Companies, MNC Subsidiaries, and Listed Entities

The statutory audit under the Companies Act, 2013 is the annual independent examination of a company’s financial statements by a Chartered Accountant appointed as the Statutory Auditor. Every company registered under the Companies Act — regardless of its size, turnover, sector, or ownership structure — must have its annual accounts audited. This includes: the Rs. 5 lakh seed-funded startup in Baner incorporated three months ago; the Rs. 200 crore private limited company manufacturing auto parts in Chakan; the Indian subsidiary of a US NASDAQ-listed technology company in Hinjewadi; the public limited company listed on the NSE; and the not-for-profit Section 8 company running an educational institution in Kothrud. The statutory audit produces an Audit Report under Section 143 of the Companies Act, addressing whether the financial statements give a true and fair view of the company’s financial position and performance in accordance with applicable accounting standards (Ind AS or AS, depending on the company’s classification) and the requirements of the Companies Act. For companies above specified thresholds, the audit report also includes the CARO 2020 Report — a detailed additional opinion covering fixed assets, inventories, loans, statutory dues, fraud, related party transactions, and other matters.

N D Savla & Associates, Chartered Accountants in Baner, Pune, conducts statutory audits for companies across Pune’s manufacturing belt, technology sector, healthcare, real estate, education, and services industries. Our statutory audit practice is designed around the specific characteristics of Pune’s business ecosystem: the CARO 2020 requirements for cost records maintenance (mandatory for Pune’s auto ancillary and pharmaceutical manufacturers); the transfer pricing implications of intragroup transactions for MNC subsidiaries (a critical CARO 2020 Clause 3(xiii) area); the Ind AS implementation challenges for companies transitioning from AS to Ind AS as they cross the threshold; and the SOX integration requirement for Indian subsidiaries of US-listed companies, where the Indian statutory audit must be coordinated with the US parent’s SOX 404 testing programme. For the broader audit and assurance overview, see our Audit & Assurance Overview hub

Who Must Get a Statutory Audit? — Every Company, No Exceptions

Section 139 of the Companies Act mandates the appointment of a Statutory Auditor for every company. There is no turnover threshold, no activity threshold, and no exemption based on size:

• Private Limited Companies: the most common company structure in Pune. All Pvt Ltd companies — from pre-revenue startups to large private conglomerates — must have a statutory audit every year from the date of incorporation
• One Person Companies (OPCs): single-member companies are specifically required to have accounts audited annually
• Public Limited Companies (listed and unlisted): subject to statutory audit with additional requirements for listed entities (Audit Committee, Secretarial Audit, enhanced CARO disclosures, and SEBI compliance requirements)
• Section 8 Companies (NGOs incorporated as companies): required to have a statutory audit; in addition, the income tax audit under Section 12AB and Charity Commissioner submissions apply
• Dormant Companies: even companies with zero activity that have applied for Dormant Status under Section 455 must have accounts audited, unless specifically exempted through the Dormant Status process

CARO 2020 — The Auditor’s Additional Report for Pune Businesses

CARO 2020 applies to all companies EXCEPT private limited companies that SIMULTANEOUSLY meet ALL of: paid-up capital and reserves ≤ Rs. 1 crore; loans from banks and FIs ≤ Rs. 1 crore; turnover ≤ Rs. 10 crore. Any Pune company that exceeds even one of these thresholds falls within CARO 2020:

Auditor Appointment and Rotation — Section 139

Appointment Process for New or Growing Pune Companies

• Board of Directors appoints the first auditor within 30 days of incorporation (or shareholders at a General Meeting within 90 days if the Board fails to do so)
• At the first AGM: shareholders ratify the continuing auditor OR appoint a new auditor for a 5-year term
• Form ADT-1: Auditor Appointment form filed on MCA at mca.gov.in within 15 days of appointment. Late ADT-1 filing: Rs. 100 per day additional fee
• Change of auditor mid-year: outgoing auditor files ADT-3 (resignation) → Board passes resolution for new appointment → ADT-1 filed for new auditor → NOC from previous auditor obtained (ICAI requirement)

Statutory Audit for MNC Subsidiaries in Pune — Special Considerations

Ind AS vs AS — Which Accounting Standards Apply?

The applicable accounting standard depends on whether the company meets the Ind AS (Indian Accounting Standards) threshold:

• Mandatory Ind AS: all listed companies; unlisted companies with net worth >Rs. 250 crore; subsidiaries, associates, and joint ventures of listed or large unlisted companies
• For most MNC subsidiaries in Hinjewadi: if the parent is listed (in India or abroad), the Indian subsidiary is typically a listed entity’s subsidiary — Ind AS applies regardless of the subsidiary’s own size
• Ind AS 110 (Consolidated Financial Statements) and Ind AS 28 (Investments in Associates): relevant for subsidiaries that are also holding companies for other Indian entities in the group
• GAAP convergence: where the Indian subsidiary prepares accounts under Ind AS for local statutory purposes AND contributes to US GAAP consolidated accounts for the US parent’s SEC filings, our audit addresses both standards simultaneously

SOX 404 Integration with Indian Statutory Audit

For Indian subsidiaries of US-listed companies, the statutory audit must be coordinated with the SOX (Sarbanes-Oxley Act) Section 404 compliance programme. SOX 404 requires management of US public companies to assess and report on the effectiveness of Internal Controls over Financial Reporting (ICFR), with the external auditor attesting to the assessment. For Indian subsidiaries that are material to the consolidated SOX assessment:

• ICFR testing: N D Savla & Associates works with the US parent’s internal audit and SOX compliance team to test the Indian subsidiary’s controls during the same period as the statutory audit
• Walkthroughs and control testing: our team performs walkthroughs of key business processes (Order-to-Cash, Procure-to-Pay, Record-to-Report) and tests the design and operating effectiveness of controls
• SOX deficiency reporting: any control deficiencies identified during testing are classified (control deficiency, significant deficiency, material weakness) and reported to the US parent for consolidation into the Group SOX 404 assessment
• Audit committee communication: for Indian entities with audit committees (or as part of the US parent’s audit committee communication), we prepare the required communications on fraud, independence, and significant accounting matters

For the detailed SOX audit and compliance framework, see our SOX Audit and Compliance guide

The Statutory Audit Process — From Engagement to Report

Pre-Year-End Procedures

• Engagement planning: risk assessment based on understanding of the business, industry, and internal controls; determination of materiality; identification of significant risk areas
• Interim audit: review and testing of internal controls during the year (October–February for March year-end companies)
• Inventory observation: for companies with significant inventory (mandatory for CARO 2020 companies), attendance at the physical inventory count before or at year-end
• IT audit: assessment of IT general controls and application controls for companies using ERP systems (SAP, Oracle, Microsoft Dynamics, Tally Prime)

Year-End and Final Procedures

• Substantive testing: verification of significant financial statement items against underlying documentation (invoices, contracts, bank statements, third-party confirmations)
• Bank confirmations: direct confirmation of bank balances from all banks at the year-end date
• Debtors/creditors confirmations: independent confirmation of receivable and payable balances for significant counterparties
• Management Representation Letter: written representation from management on the completeness and accuracy of information provided to the auditor
• Subsequent events review: identification of events after the balance sheet date (up to the audit report date) that require disclosure or adjustment

Reporting

• Draft audit report shared with management for response; final audit report signed; report submitted to shareholders at the AGM; AOC-4 filed on the MCA portal at mca.gov.in within 30 days of AGM