What are the requirements for conducting a statutory audit under Section 139 of the Companies Act, 2013, and how does it differ for small companies?

Detailed Legal Analysis

Conducting a statutory audit under Section 139 of the Companies Act, 2013, is mandatory for all companies registered in India, subject to certain exceptions for small companies.

Here are the key requirements for conducting a statutory audit:

• Appointment of Auditor: The first auditor of a company must be appointed by the Board of Directors within 30 days from the date of registration of the company. If the Board fails to appoint, the members shall appoint within 90 days at an extraordinary general meeting (Section 139(6)).
• Tenure: An auditor is appointed for a term of five consecutive years, subject to ratification by the members at every annual general meeting (Section 139(1)). However, the requirement for ratification was removed by the Companies (Amendment) Act, 2017.
• Eligibility and Qualifications: The auditor must be a chartered accountant and must not be disqualified under Section 141 of the Companies Act, 2013. This includes criteria such as not being an officer or employee of the company, not having a business relationship with the company, etc.
• Audit Report: The auditor must prepare an audit report and submit it to the company. This report should provide an opinion on the financial statements and compliance with accounting standards.
• Filing with Registrar: The auditor's report must be filed with the Registrar of Companies along with the annual return and financial statements of the company (Section 137).

For small companies, the requirements differ in the following ways:

• Exemption from Audit: As per Section 2(85) of the Companies Act, 2013, a small company is defined as a company with paid-up share capital not exceeding ₹2 crores or turnover not exceeding ₹20 crores. If a company qualifies as a small company, it is exempt from statutory audit unless it is a subsidiary of a company that is not a small company.
• Alternative Compliance: Small companies may not need to adhere to some strict regulatory requirements that larger companies face, making their compliance more straightforward.

In summary, while the statutory audit is a critical part of corporate governance for most companies, small companies enjoy certain exemptions that simplify their compliance obligations under the Companies Act, 2013.