Auditing Requirements of Private Limited Companies

Minakshi Bindhani

23 Mar, 2023

The Companies Act of 2013 made audits mandatory for companies irrespective of their turnover or the company’s nature. All Private Limited Companies must maintain their books of accounts regardless of size, stature, or nature of the business. The company’s directors are responsible for getting their books of accounts audited. Company for purpose Private Limited Audit must appoint a practising Chartered Accountant for auditing. The Ministry of Corporate Affairs(MCA) has mentioned company incorporation by introducing one day. Auditing requirements must be met not to violate the Companies Act 2013^[1] and ensure companies accurately represent their financial position.

The process of compliance also involves the appointment of an auditor. The auditor evaluates the accounts and also produces the Audit report. The Audited financial statements are filed with the respective area’s Registrar of Companies (ROC). The Private Limited Auditing process is an annual procedure that comes under the compliance requirements of the companies.

Types of audit of a Private Limited Company

Different types of audits in a private limited company are carried out for various purposes. The types of audits of a private company are given below:

• Statutory audit
  The statutory audit is mandatory for every private limited company to conduct an audit irrespective of its turnover. Any company incurring loss is also required for a statutory audit. Every private limited company is required compulsorily audit their annual accounts in each financial year as per the Companies (Accounts) Rules, 2014 and the Companies Act. The primary objective of the audit is to determine that a company is providing an accurate representation of its financial statement after examining the information in the books of account, financial statement and bank balance.
• Internal audit
  Its internal management team conducts the private limited company’s internal audit. The Companies (Accounts) Rules, 2014 provide that companies appoint an internal auditor to audit their function and activities. The private limited companies that need to conduct internal audits are:
  • Private limited companies having an overall turnover worth of Rs.200 crore/more during the previous financial year;
  • Private limited companies having outstanding loans and borrowings from Public Financial Institutions/banks exceeding Rs.100 crore;
  • Internal audits are done to verify the status of the company’s finances & analyse its operational efficiency. It helps the internal management to review the finances and make the necessary changes to increase efficiency in its operations.
• Cost audit
  The Companies Rules, 2014 provide that the following private limited companies must perform cost audit:
  • Private limited companies that are engaged in the production of goods or providing services having an annual turnover in the last financial year of Rs.50 crore or more;
  • An aggregate turnover of the individual product or service of Rs.25 crore or more;
  • Private companies involved in the production of goods/providing various services listed in table 3(B) of the company’s rules and having an annual turnover of Rs.100 crore or more in a previous financial year;
  • An aggregate turnover of the individual product or service of Rs.35 crore or more

Appointment of an auditor

• Statutory auditor
  Every private limited company appoints an auditor to conduct the company’s statutory audit within 30 days from its registration date. In the company’s first Annual General Meeting (AGM), the shareholders confirmed the appointment of the 1st auditor, who will hold the office of auditor for five years. The company appoint only an independent practising Chartered Accountant (CA), CA firm or LLP as an auditor.
• Internal auditor
  The company’s internal audit is performed by the company’s internal team or by an independent party. The board decides that the auditor must be a  CA or a professional. The internal auditor can be a company employee with experience working as an auditor.
• Cost auditor
  The private limited companies, as per the Companies Rules, 2014, must hire a cost auditor within 180 of the starting of the financial year. The company appoints only a person or an individua who is a cost accountant in practice to conduct the audit. A cost accountant is a person who is included in section 2(1)(b) of the cost & works accountants Act, 1959 and includes an LLP or firm of cost accountants.
• Due date of private limited company audit
  A statutory audit is done before the AGM of the company. The auditor must submit the audit report to the board, which must be attached to the company’s financial statements.
  The due dates are as follows:
  • The audit report is attached to form AOC-4 (financial statement) & filed with the ROC within 30 days before the annual general meeting;
  • The annual form return of the company (MGT-7)is filed within 60 days before the annual general meeting;
  • The due date for holding an annual general meeting is before or on 30 September every year;
• Internal Audit:
  The internal auditor must submit a report to the board before the annual general meeting.
• Cost audit:
  The cost audit report is submitted to the board within 30 September every year in the form of CRA-3.
  The board scrutinise the report and submits the cost report with required information to the Central Government within 30 days of receiving the audit report cost in form CRA-4.
• Auditing requirements
  The  audit requirements filed in ROC forms in  a private limited company  are as follows:
  • Form AOC-4- annual filing of company financial statements;
  • Form MGT-7- filing of company annual return;
  • Form ADT-1- appointment of company auditor;
  • Form CRA-3- submission of cost audit records to the board;
  • Form CRA-2- appointment of cost auditor;
  • Form CRA-4- filing of a cost audit report.

Conclusion

In case of non-filing of the above forms with the ROC & non-submission of the statutory and cost audit reports attracted a penalty. Thus, a private limited company is mandatorily conducting the statutory audit. They also need to conduct internal and cost audits when they fulfil the requirements mentioned in the rules.

Also Read:
Important Checklist for Internal Audit of Private Limited
Effective Steps of Performing an Internal Audit Successfully
The future of Internal Audit: Analysis, insights and prospectus