How to Make Your Company's Books Audit-Ready: A Practical Checklist

Get the system right

Since 1 April 2023, companies using accounting software must use software with an audit trail (edit log) of every change, recording the date of the change, and the trail cannot be disabled. The auditor reports on this. Electronic books must be accessible in India at all times, with daily backups on servers physically located in India. Choose software and settings that meet both rules, and document who has access.

Reconcile everything

Auditors test balances against independent evidence such as bank statements and government portals, so reconciliations are the core of audit readiness. Prepare them monthly and finalise them at year end, with the person who prepared and the person who reviewed each one noted on it.

• Bank accounts to statements, with balance confirmations
• GST: books vs GSTR-1, GSTR-3B and GSTR-2B
• TDS receivable vs Form 26AS/AIS; TDS payable vs challans and returns
• Customer and vendor ledgers with confirmations for large balances
• Payroll vs PF, ESI and PT challans
• Inter-company and related party balances
• Share capital vs register of members and MCA filings

Prepare schedules and registers

Prepare a schedule for every line in the balance sheet and profit and loss account, tied to the trial balance. Maintain a fixed asset register with dates, costs, locations and depreciation, and carry out physical verification. Record inventory counts if you hold stock. Prepare an ageing of receivables and payables, a list of related parties and transactions, and a list of MSME vendors with amounts outstanding beyond 45 days, which must be disclosed.

Know what the auditor will report

The auditor reports on the financial statements and, where applicable, under the Companies (Auditor's Report) Order, 2020 (CARO). CARO does not apply to small companies, one person companies and private companies that meet specified limits on paid-up capital and reserves, borrowings and revenue, so check whether it applies. Reporting on internal financial controls is also exempt for private companies below specified turnover or borrowing limits. Ask the auditor for their requirement list at the start.

Documents to keep ready

Keep supporting documents organised by month and ledger so the auditor's samples can be pulled quickly. Books and vouchers must be preserved for at least eight years under section 128 of the Companies Act.

• Sales and purchase invoices
• Contracts, leases and loan agreements
• Board and general meeting minutes
• Payroll records and appointment letters
• Tax returns, challans and assessment orders
• ESOP grant letters and valuation reports

Timeline for a smooth audit

Plan backwards from the AGM, which must be held by 30 September for a March year end. Book closing in April, reconciliations and schedules in May, fieldwork in June or July and board approval in August leaves room for the tax audit report and the October income tax return. For FY 2025-26, tax audits still use Forms 3CA, 3CB and 3CD; the consolidated Form 26 applies from tax year 2026-27.

Common mistakes

Startups often record investor money as income, book personal expenses of founders, skip depreciation, leave suspense accounts uncleared, ignore ESOP accounting and turn off the audit trail feature. Each of these leads to audit qualifications or delays and can show up in due diligence.

Step by step

1. 1Configure software

   Enable audit trail and India-based daily backups.

2. 2Close monthly

   Book all transactions and accruals each month.

3. 3Reconcile

   Complete bank, GST, TDS, payroll and ledger reconciliations.

4. 4Update registers

   Maintain fixed asset, share capital and related party records.

5. 5Prepare schedules

   Tie every balance to the trial balance with support.

6. 6Collect confirmations

   Get balance confirmations from banks, customers and vendors.

7. 7Share with auditor

   Provide the trial balance, schedules and documents early.