The Ministry of Corporate Affairs (MCA) is likely to exempt companies with annual turnover of up to Rs 1 crore from mandatory statutory audit, marking a significant shift in the compliance framework under the Companies Act, people aware of the matter told ETCFO on condition of anonymity.
The exemption, expected to be introduced through an amendment to Section 139 during the Winter Session of Parliament, would be the first turnover-based relaxation to India’s statutory audit regime. At present, every company irrespective of size is required to appoint an auditor and undergo a statutory audit each year.
An official involved in the discussions said audits of micro-enterprises “rarely reveal material issues and add limited practical value,” noting that most reports for such companies “are positive and do not materially strengthen oversight, while increasing compliance costs.”
An email sent by ETCFO to the MCA seeking clarity remained unanswered till the time of publication.
Under the current law, statutory audit forms the basis for preparing financial statements, conducting annual general meetings and filing documents such as AOC-4 with the Registrar of Companies. The audit requirement applies uniformly to one-person companies, small companies and closely held private firms.
A former president of the Institute of Chartered Accountants of India (ICAI) told ETCFO that extending the Rs 1 crore turnover threshold which already applies to tax-audit exemption under the Income-tax Act could create a compliance vacuum. “If companies up to Rs 1 crore are exempt from both tax audit and statutory audit, how will financial reporting integrity be monitored?” he said.
He added that removing statutory audit for micro-firms may reduce visibility on accounting accuracy and weaken compliance discipline at the lower end of the corporate sector.
The proposal remains under active consideration, with the draft amendment expected to draw significant attention once introduced in the Winter Session of Parliament.
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