Statutory Audit vs Internal Audit Under the Companies Act: Applicability and Differences
Statutory vs internal audit: every company needs a statutory audit; internal audit applies to private firms at ₹200 crore turnover or ₹100 crore loans.
Short answer
Every company needs a statutory audit by an independent chartered accountant who reports to shareholders. Internal audit under section 138 is mandatory only for listed companies and companies above prescribed thresholds, such as private companies with turnover of ₹200 crore or bank borrowings above ₹100 crore. Below those levels, internal audit is optional but useful for controls.
- Statutory audit law
- Sections 139 and 143, Companies Act
- Internal audit law
- Section 138 and Rule 13, Companies (Accounts) Rules
- Private company internal audit trigger
- Turnover ₹200 crore or borrowings above ₹100 crore
- Statutory auditor term
- 5 years, appointed at AGM
- Internal auditor
- CA, cost accountant or other professional; may be an employee
- Statutory auditor restriction
- Cannot provide internal audit to the same company
How do the two audits differ?
The statutory audit is an external, independent examination of financial statements. The auditor is appointed by shareholders, generally for a five-year term, and gives an opinion on whether the accounts present a true and fair view, along with a CARO report where applicable. The report goes to members and is filed with the Registrar in AOC-4.
Internal audit is a management tool. The board appoints the internal auditor to review processes, controls, risk management and compliance throughout the year. Reports go to the board or audit committee, are not filed with the Registrar, and their scope is set by the company.
Side-by-side comparison
The table compares both audits for a private company. The internal audit thresholds come from Rule 13 of the Companies (Accounts) Rules 2014, applied on the figures for the preceding financial year.
| Factor | Statutory audit | Internal audit |
|---|---|---|
| Mandatory for | All companies | Listed companies and companies above thresholds |
| Private company trigger | Always | Turnover ₹200 crore or more, or borrowings above ₹100 crore |
| Unlisted public company trigger | Always | Paid-up capital ₹50 crore, turnover ₹200 crore, borrowings above ₹100 crore, or deposits ₹25 crore |
| Appointed by | Shareholders (first auditor by board) | Board |
| Who can act | Chartered accountant or firm | CA, cost accountant or other professional decided by board |
| Independence | Must be independent | Can be an employee |
| Scope | Fixed by law and auditing standards | Decided by board or audit committee |
| Report goes to | Shareholders, filed with ROC | Board or audit committee |
| Frequency | Annual | Usually periodic through the year |
What are the key compliance points?
The first statutory auditor is appointed by the board within 30 days of incorporation, and later auditors by shareholders at the AGM, with Form ADT-1 filed within 15 days. Section 144 prohibits the statutory auditor from providing internal audit services to the same company, so the two roles must be held by different people or firms.
A company that crosses the Rule 13 thresholds must appoint an internal auditor through a board resolution and file the resolution where required. Proposed amendments in the Corporate Laws (Amendment) Bill 2026 would let certain companies skip auditor appointment; until enacted, every company must still appoint a statutory auditor.
What does each audit cost and involve?
Statutory audit fees depend on the size and complexity of the company and are approved by shareholders. Auditors follow the Standards on Auditing, examine controls and transactions on a test basis, and report under the Companies (Auditor's Report) Order 2020 unless the company is exempt, as small companies and OPCs are.
Internal audit is usually priced as a retainer for periodic reviews. Scope can be targeted to high-risk areas such as purchase, payroll, inventory, revenue leakage or statutory compliance. A good internal audit makes the statutory audit smoother because control gaps are found and fixed during the year.
Which do you need?
Apply the thresholds to the previous year's audited figures, not the current year's estimates. These rules cover the usual cases for private companies and smaller unlisted public companies in India.
- Any company: statutory audit, every year.
- Private company with turnover below ₹200 crore and borrowings up to ₹100 crore: internal audit optional.
- Private company crossing either threshold: appoint an internal auditor for the following year.
- Startup preparing for institutional funding: a voluntary internal audit can strengthen controls before due diligence.
- Listed company: both, plus audit committee oversight.
Related services
Sources
- Internal audit applicability for private companies in India (TaxGuru)
- Internal audit applicability under section 138 (CalcGuru)
- Corporate Laws (Amendment) Bill 2026 (PRS Legislative Research)
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Is internal audit mandatory for small private companies?
No. It is required only when a private company's turnover reaches ₹200 crore or its borrowings from banks or financial institutions exceed ₹100 crore.
Can the statutory auditor act as internal auditor?
No. Section 144 of the Companies Act prohibits the statutory auditor from providing internal audit services to the same company.
Can an employee be the internal auditor?
Yes. Section 138 allows the internal auditor to be an employee, as well as an external chartered accountant or cost accountant.
Who appoints the statutory auditor?
The board appoints the first auditor within 30 days of incorporation. Thereafter shareholders appoint the auditor at the AGM, generally for a five-year term.