MCA Set to Exempt Firms with Turnover Up to ₹1 Crore from Statutory Audit

MCA Set to Exempt Firms with Turnover Up to ₹1 Crore from Statutory Audit

Issue: To provide substantial compliance relief for India’s smallest companies by exempting those with low annual turnover from the mandatory requirement of a statutory audit under the Companies Act, 2013.

Facts:

• The Ministry of Corporate Affairs (MCA) is weighing a landmark relaxation to the statutory audit mandate.

• The proposed exemption would cover companies with an annual turnover of up to ₹1 crore.

• Currently, every company, irrespective of size, is required to appoint an auditor and undergo a statutory audit each year.

• The amendment is expected to be introduced to Section 139 during the upcoming Winter Session of Parliament.

Decision:

The MCA is moving toward exempting companies with an annual turnover threshold of up to ₹1 crore from the mandatory requirement of undergoing a statutory audit.

Key TakeDowns:

• Compliance Relief for Micro-Enterprises: This marks the first turnover-based relaxation to the statutory audit regime and is aimed at significantly reducing the compliance cost and administrative burden on micro-enterprises.

• Limited Value of Audits: Officials involved in the discussions noted that audits of micro-enterprises “rarely reveal material issues and add limited practical value,” while still increasing compliance costs.

• Potential Compliance Vacuum: A former ICAI President expressed concern that exempting companies up to the ₹1 crore threshold from both tax audit (under the Income-tax Act) and statutory audit could create a compliance vacuum, potentially weakening oversight on financial reporting accuracy at the lower end of the corporate sector. * Impacted Processes: Statutory audit forms the basis for preparing financial statements, conducting AGMs, and filing documents like AOC-4 with the Registrar of Companies.