Statutory Audit and Tax Audit: Understanding the Difference

What is a statutory audit?

A statutory audit is an examination of a company’s financial statements that is legally required under the Companies Act, 2013, or other applicable law, rather than one undertaken voluntarily. Its purpose is to provide an independent opinion on whether the financial statements present a true and fair view of the entity’s financial position and performance, in accordance with the applicable financial reporting framework and auditing standards.

Statutory audit applies broadly across companies, subject to the specific thresholds and exemptions set out in the governing law from time to time, and the appointed auditor reports to the shareholders through the audit report attached to the financial statements.

What is a tax audit?

A tax audit is a separate, distinct requirement under the Income-tax Act. It examines a taxpayer’s books of account for compliance with tax law — verifying that income, deductions and disclosures required under the Act have been correctly reported — and applies where a taxpayer’s turnover, receipts or other specified criteria cross the thresholds prescribed under the Act. The tax auditor issues a report in the prescribed format, which is filed with the tax authorities.

Key differences

• Governing law: statutory audit arises from company law (or other constituting statute); tax audit arises from income-tax law.
• Purpose: statutory audit opines on the financial statements as a whole; tax audit focuses specifically on compliance with tax provisions.
• Applicability: statutory audit applies to companies (and certain other entities), in most cases regardless of turnover; tax audit applies once prescribed turnover or receipt thresholds are crossed, and can apply to individuals, firms and other non-corporate taxpayers as well.
• Reporting: statutory audit produces a report annexed to the financial statements; tax audit produces a report filed electronically with the income-tax department in the prescribed form.

Can the same firm carry out both?

Many businesses engage the same firm for both statutory and tax audit, subject to the independence and eligibility conditions prescribed under the relevant laws and professional standards. The two audits are planned and executed separately, since they serve different legal purposes, but coordinating them can reduce duplication of effort in gathering records and explanations.

This article is for general information only and does not constitute professional advice. Applicability and thresholds should always be confirmed against the current law for the relevant financial year.