Statutory audit and CARO

When an incorporated business must be audited, the CARO report, and how it differs from a tax audit

A statutory audit under the Companies Act is mandatory for every company, of any size, there is no small-company exemption from the audit itself (only from the additional CARO reporting). An LLP, by contrast, needs a statutory audit only if its contribution exceeds Rs 25 lakh or its turnover exceeds Rs 40 lakh, which is the one real compliance advantage of an LLP over a company. CARO 2020 (a 21-clause auditor's report) applies on top of the audit, but small companies, OPCs and a defined class of private companies are exempt from it. The statutory audit is separate from the income-tax audit under Section 44AB, where the accounts are already audited under the Companies Act, the tax auditor reports in Form 3CA rather than 3CB.

Last reviewed: 29 May 2026

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Who must be audited

Under the Companies Act (Sections 139-143), every company must have its accounts audited by a Chartered Accountant each year, regardless of turnover or size, there is no small-company escape from the statutory audit. An LLP only requires a statutory audit if its contribution exceeds Rs 25 lakh or its turnover exceeds Rs 40 lakh; below both, an LLP is not required to be audited, which is a genuine compliance saving compared with a company. So the audit obligation is one of the practical differences between incorporating as a company and forming an LLP.

CARO 2020 and its exemptions

On top of the audit opinion, the auditor of most companies must report under the Companies (Auditor's Report) Order 2020, a 21-clause statement covering fixed assets, inventory, loans and investments, statutory dues, defaults, fund use, frauds, related parties and going concern, among others. But CARO does not apply to small companies, OPCs, banking, insurance and Section 8 companies, and a private company is exempt if it is not a subsidiary or holding of a public company and its paid-up capital and reserves are within Rs 1 crore, its bank or financial-institution borrowings within Rs 1 crore, and its total revenue within Rs 10 crore. So many small private companies still have a statutory audit but escape CARO. Auditor rotation (a 5-year term for an individual, two 5-year terms for a firm, with a 5-year cooling-off) applies only to listed and certain larger companies, not to ordinary small private companies.

tipA small private company within the limits (capital and reserves and borrowings each under Rs 1 crore, revenue under Rs 10 crore) still has a statutory audit but is exempt from the 21-clause CARO report, and from auditor rotation.

Statutory audit vs tax audit

The Companies Act statutory audit and the income-tax audit under Section 44AB are different things with different purposes. The statutory audit examines the financial statements under the Companies Act and accounting standards and gives the audit opinion (with CARO and the report on internal financial controls). The tax audit checks the accounts for income-tax purposes and reports in Form 3CD. Where a company is already audited under the Companies Act, the tax auditor uses Form 3CA (relying on the statutory audit); where there is no statutory audit (for example a proprietor or a small LLP over the tax-audit threshold but under the LLP audit threshold), the tax auditor uses Form 3CB. So an incorporated business can face both audits, related but distinct.

Companion guides

Source / notes

Companies Act 2013 ss.139-143 (statutory audit, appointment, rotation) + s.143(11) (CARO 2020) + s.143(12) (fraud reporting)
LLP Act 2008 + Rules (LLP audit thresholds Rs 25 lakh contribution / Rs 40 lakh turnover)
Income-tax Act 1961 s.44AB (tax audit; Form 3CA where statutory audit exists, else 3CB)

Frequently asked questions

Does a small company need a statutory audit?+

Yes. Every company must have a statutory audit under the Companies Act regardless of size or turnover, there is no small-company exemption from the audit itself. Small companies are exempt from the additional CARO report and from auditor rotation, but not from the audit. This is different from an LLP, which only needs a statutory audit above Rs 25 lakh contribution or Rs 40 lakh turnover.

Does an LLP need to be audited?+

Only if its contribution exceeds Rs 25 lakh or its turnover exceeds Rs 40 lakh. Below both thresholds, an LLP is not required to have a statutory audit, which is a real compliance and cost advantage over a company (which is always audited). It is one of the practical reasons a smaller business might prefer an LLP to a private limited company.

What is CARO 2020?+

The Companies (Auditor's Report) Order 2020, a 21-clause report the auditor of most companies must give on top of the audit opinion, covering matters like fixed assets, inventory, loans, statutory dues, defaults, fund utilisation, frauds and going concern. Small companies, OPCs, banking, insurance and Section 8 companies are exempt, as is a private company within the prescribed capital, borrowing and revenue limits.

Is a statutory audit the same as a tax audit?+

No. The statutory audit under the Companies Act examines the financial statements and gives the audit opinion (with CARO); the income-tax audit under Section 44AB checks the accounts for tax and reports in Form 3CD. Where a company is already audited under the Companies Act, the tax auditor uses Form 3CA; where there is no statutory audit, Form 3CB. An incorporated business can be subject to both.