Statutory Audit Under Companies Act: Who Needs One, and When

Last reviewed: 24 September 2026. "Statutory audit" and "tax audit" get used almost interchangeably in casual conversation, and that confusion causes real compliance gaps. A statutory audit under the Companies Act applies to every company – private or public, regardless of turnover or profit – the moment it is incorporated. Tax audit under Section 44AB of the Income-tax Act is a completely separate requirement, triggered by turnover thresholds, and applies to a much wider set of taxpayers beyond just companies. A small private company with modest revenue that has never crossed the tax audit threshold still needs a statutory auditor from day one.

Statutory audit versus tax audit: not the same thing

A company can, and often does, need both – a statutory audit because it exists as a company, and a tax audit if its turnover crosses the Section 44AB threshold. We've covered the tax audit side separately in our note on Section 44AB limits and due dates for AY 2026-27; this piece is specifically about the Companies Act obligation that exists independent of turnover.

Appointing the first auditor

The Board of Directors must appoint the company's first auditor within 30 days of incorporation. If the Board fails to do so within this window, the members must appoint the first auditor within 90 days at an extraordinary general meeting. This first auditor holds office until the conclusion of the first AGM – it is a short bridging appointment, not the full 5-year term that follows.

Subsequent appointments: the 5-year term

At the first AGM, the company appoints an auditor (or audit firm) to hold office from the conclusion of that meeting until the conclusion of the sixth AGM – effectively a 5-year term. Since the Companies (Amendment) Act 2017 removed the earlier requirement of annual shareholder ratification, a validly appointed auditor continues for the full term without needing to be re-confirmed by shareholders every year, though the appointment (and any change) still needs to be reported and filed appropriately.

Mandatory rotation for specified companies

Certain classes of companies – listed companies, and other prescribed classes such as public companies with paid-up share capital at or above a specified threshold, or companies (public or private) with public borrowings from banks, financial institutions, or public deposits above a specified threshold – are subject to mandatory auditor rotation. An individual auditor can serve one term of up to 5 consecutive years; an audit firm can serve up to two terms of 5 consecutive years each. After the applicable maximum tenure, a cooling-off period applies before the same auditor or firm (or one sharing common partners, subject to the specific rules) can be reappointed. This rotation requirement does not apply to companies outside the prescribed classes – most small and mid-sized private companies without significant public borrowings are not subject to it.

Worked example. A private limited company with paid-up capital well below the rotation threshold and no material public borrowings appoints an audit firm at its first AGM for the standard 5-year term. Since it falls outside the classes prescribed for mandatory rotation, it can reappoint the same firm for a further term after the first expires, subject to the normal appointment process, without triggering any cooling-off requirement. Contrast this with a public company whose paid-up capital crosses the prescribed threshold – that company's audit firm is capped at two consecutive 5-year terms, after which a mandatory cooling-off period applies before that firm can be considered again.

The ADT-1 filing

Whenever an auditor is appointed – whether the first auditor by the Board, or a subsequent auditor at the AGM – the company must file Form ADT-1 with the Registrar of Companies within 15 days of the appointment, intimating the ROC of the appointment. This is a separate, independent filing obligation from the audit engagement itself and from the company's other annual ROC filings; missing it attracts its own penalty under the Companies Act, regardless of whether the audit was actually completed properly.

Removing an auditor before term

An auditor cannot simply be dropped mid-term at the company's convenience. Removal before the expiry of term requires a special resolution of the company (see our related note on when a special resolution is required) and, additionally, prior approval of the Central Government – a materially higher bar than most other governance decisions, reflecting the legislature's intent to protect auditor independence from arbitrary removal by management.

Common mistakes

• Assuming a dormant or pre-revenue company doesn't need a statutory auditor because it hasn't crossed any turnover threshold – the obligation exists from incorporation, with no revenue trigger.
• Missing the 30-day window for first auditor appointment, then having to fall back on the more cumbersome 90-day members' EGM route.
• Forgetting the ADT-1 filing after a valid appointment at the AGM – the appointment itself can be procedurally correct while the ROC intimation still lapses.
• Assuming rotation rules apply universally, when in fact most private companies without significant public borrowings fall outside the mandatory rotation classes.

Frequently asked questions

This article summarises statutory audit applicability and auditor appointment rules under the Companies Act 2013 as understood on the date of review. General information, not advice on your specific facts – confirm details against the current forms/portal and consult us or your tax advisor before acting. CA Somesh Chandak & Associates, FRN 158694W.