Audit & controls
Short answer
A statutory audit is required by the Companies Act for every company, examines the financial statements and is signed by an independent Chartered Accountant. A tax audit is required by Section 44AB of the Income-tax Act once turnover crosses prescribed thresholds, and reports in Form 3CD. An internal audit is about the company's own controls and processes, is required only for prescribed classes of company, and reports to the board rather than to shareholders.
Statutory audit
Required by the Companies Act for every company, whatever its size or turnover — including a dormant one. The auditor is appointed by the shareholders, must be independent of the company, and reports to the shareholders on whether the financial statements give a true and fair view.
Independence is the operative constraint: the firm keeping your books cannot also audit them.
Tax audit
Required under Section 44AB of the Income-tax Act once turnover or gross receipts cross the prescribed thresholds, which differ for business and profession and are relaxed where cash transactions are minimal. The output is Form 3CD, a detailed statement of particulars filed with the income-tax return.
It is not a second opinion on the accounts. It is a structured disclosure designed to let the department see specific tax-relevant facts without opening an assessment.
Internal audit
Required under Section 138 only for prescribed classes of company, based on turnover, borrowings and paid-up capital. Unlike the other two, its subject is the business rather than the financial statements: whether controls exist, whether they operate, and where the process leaks.
Many companies below the threshold commission it voluntarily — usually after something has gone wrong, occasionally before.
Can one firm do all three?
No, and the restriction is deliberate. The Companies Act prohibits a statutory auditor from providing internal audit services to the same company, along with a list of other services, precisely because auditing your own work destroys the independence the audit rests on.
In practice a company will have a statutory auditor, and a separate firm for internal audit and advisory. Tax audit is commonly done by the statutory auditor, though it need not be.
This article is general information, current at the date shown, and is not advice on your specific facts. Tax and corporate law change, and thresholds and deadlines are amended regularly — check the position before you act on it, or ask us.
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