The Centre is examining a landmark relaxation that could exempt India's smallest companies from mandatory statutory audits-a move that would mark the first major reconsideration of audit requirements since the Companies Act was revamped. According to officials aware of the discussions, the Ministry of Corporate Affairs (MCA) is likely to allow companies with an annual turnover of up to Rs 1 crore to opt out of statutory audits.
The proposed change, expected to be placed before Parliament in the upcoming Winter Session, would amend Section 139 of the Companies Act. If approved, it would introduce India's first turnover-based carve-out from statutory audit obligations. Currently, every incorporated entity, whether a one-person company, small company, or closely held private firm, is required to appoint an auditor and undergo a statutory audit each financial year.
Officials involved in the deliberations say that audits of micro-enterprises "rarely uncover material discrepancies" and often offer limited value relative to the compliance burden. "Most audit reports for such entities are clean and do not significantly enhance financial oversight," one official said, adding that the cost of annual audits disproportionately affects very small businesses.
However, the proposal has also triggered caution within the accounting community. A former president of the Institute of Chartered Accountants of India (ICAI) warned that aligning statutory audit exemption with the existing Rs 1 crore tax-audit threshold under the Income Tax Act could create a "compliance vacuum." Without statutory audits, he argued, oversight on financial reporting quality in the micro-enterprise segment may weaken, potentially affecting transparency and discipline.
Under the current framework, statutory audits form the backbone of corporate compliance; they support the preparation of financial statements, annual general meetings and filings such as AOC-4 with the Registrar of Companies. Removing the requirement for an entire category of companies would therefore represent a significant structural shift.
The MCA has not officially responded to queries, but sources indicate that the proposal is still under active consideration. The draft amendment is expected to draw substantial scrutiny and debate once tabled in the Winter Session.
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