Statutory Audit under Companies Act

• Every Indian subsidiary, whether private or public, must undergo a statutory audit.
  
• The audit must be conducted by a Chartered Accountant or a firm registered with the Institute of Chartered Accountants of India (ICAI).
  
• The statutory auditor must be appointed within 30 days of incorporation.
  
• Financial statements must be audited annually and approved by the board before submission to the Registrar of Companies (ROC).
  
• The auditor’s report must be attached to the financials filed in Form AOC-4.
  

Appointment and Tenure of Auditor

• The first auditor is appointed by the board of directors for a term of up to 5 years.
  
• Shareholders must ratify the appointment at each Annual General Meeting.
  
• Rotation of auditors is mandatory for listed and certain prescribed unlisted companies.
  
• Auditor’s consent and eligibility declaration in Form ADT-1 is filed with the ROC.
  
• Reappointment or change in auditor must comply with the Companies Act provisions.
  

Audit of Consolidated Financial Statements

• If the subsidiary has further subsidiaries or associates, consolidated financial statements must be prepared.
  
• The parent company may require audited financials from the Indian subsidiary for group consolidation.
  
• Subsidiary must provide audited financial data to the holding company as per timeline.
  
• Differences in accounting standards must be reconciled during consolidation.
  
• Intercompany transactions and balances must be properly disclosed.
  

Internal Audit Requirements

• Internal audit is mandatory for certain categories of companies based on turnover and paid-up capital.
  
• It must be conducted by a Chartered Accountant, Cost Accountant, or other qualified professionals.
  
• Applicability includes companies with turnover exceeding ₹200 crores or borrowings above ₹100 crores.
  
• Internal audit helps in evaluating risk management and internal control systems.
  
• Findings must be reviewed by the audit committee or board.
  

Tax and Transfer Pricing Audit

• Subsidiaries engaging in specified domestic or international transactions must undergo a transfer pricing audit.
  
• Form 3CEB must be certified by a Chartered Accountant and submitted along with the income tax return.
  
• Tax audit under Section 44AB of the Income Tax Act is applicable if turnover exceeds ₹1 crore (or ₹10 crores if digital transactions exceed 95%).
  
• Tax audit report must be filed in Form 3CD and Form 3CA/3CB.
  
• Non-compliance may attract penalties and interest.