Government Reviewing Proposal to Exempt Audit for Small Companies
The government is reconsidering a proposal to end the mandatory statutory audits for companies with a turnover below Rs 1 crore. This proposal was a part of draft changes to the Companies Act.
At present, all companies in India, whether large or small, are required to appoint an auditor to conduct audits. If the proposal is accepted, then the small companies will no longer be required to conduct the annual audit.
However, many professionals have opposed the idea of removing the audit for small companies, as this would increase the number of frauds. This exemption would give rise to shell companies, and watching them would become difficult.
Reports say that this proposal will either be refused or the turnover limit will be reduced in the final amendments.
The business with annual sales of up to Rs 1 crore is already exempted from tax audits under section 44AB. Now, the corporate affairs ministry has proposed to align the audit requirement with these rules, claiming that it would reduce compliance costs for the companies.
As per the proposals, the audits of small companies rarely show any huge lapses, and the audit adds extra compliance costs to the company.
On the other hand, several stakeholders highlighted the importance of statutory audits even in small companies to avoid any fraud. They have warned that even a small negligence can prompt fake entities to misuse the law.
The Institute of Chartered Accountants of India (ICAI) has also raised issues with the ministry.
