Statutory, Internal and Tax Audit: What Is the Difference?
Business owners often use "audit" as a single word for three quite different exercises. They are governed by different laws, answer to different readers, and are triggered by different thresholds.
Statutory audit
Required by: the Companies Act, for every company — private or public, profitable or dormant. LLPs are required to be audited once turnover or contribution crosses the prescribed limits.
Reports to: the shareholders.
Question answered: do the financial statements give a true and fair view of the state of affairs and the profit or loss for the year?
The auditor is appointed by the members, is independent of management, and reports on the financial statements as a whole. A private company with no revenue still needs a statutory audit — this surprises people every year.
Tax audit
Required by: the Income-tax Act, under Section 44AB, once turnover or gross receipts cross the applicable thresholds — or where presumptive taxation provisions are triggered.
Reports to: the income tax department.
Question answered: are the particulars relevant to computing taxable income correctly stated?
This is not an opinion on the financial statements. It is a detailed statement of particulars in Form 3CD covering disallowances, cash transactions, TDS compliance, related party dealings and much else. We have covered the thresholds in Tax Audit under Section 44AB.
Internal audit
Required by: the Companies Act for prescribed classes of companies, based on turnover, borrowings, deposits and paid-up capital thresholds. Voluntary for everyone else.
Reports to: the board or the audit committee — that is, to management, not to outsiders.
Question answered: are our internal controls, processes and risk management actually working?
Internal audit is the only one of the three that is forward-looking. It exists to find weaknesses before they cause a loss, not to certify what already happened.
How they overlap in practice
A mid-sized private company can easily need all three in the same year: statutory audit because it is a company, tax audit because turnover crossed ₹1 crore, and internal audit because it crossed the prescribed thresholds. They are separate engagements with separate reports, though the same firm may not be able to do all of them — independence rules restrict a statutory auditor from providing certain other services to the same client.
What this means for you
Start with your entity type and your numbers, not with what you did last year:
- Any company — statutory audit, always
- Turnover past the 44AB threshold — tax audit as well
- Past the internal audit thresholds — internal audit too
- Proprietorship or partnership below the thresholds — possibly none of the three, though good records still matter
The cost of finding out late is not just the fee. A statutory audit completed after the AGM deadline, or a tax audit filed after the specified date, brings penalties that dwarf the audit cost itself.
Not sure which audits apply to your business this year? Talk to Kunal P Shah & Co — we provide statutory, tax and internal audit services across Navi Mumbai.