Audit processes are vital to maintaining financial transparency and accountability in any organisation. But often, businesses—especially growing ones—confuse internal audits with statutory audits. Both serve different yet equally critical functions, and understanding their distinctions is essential for effective governance and compliance in India.
What is an Internal Audit?
An internal audit is an ongoing process conducted by a company’s own team or outsourced internal auditors to assess internal controls, operational efficiency, risk management, and compliance. It is typically not legally mandated but is considered a best practice for strong corporate governance, especially in mid to large-sized enterprises.
Key Features:
Conducted by internal employees or consultants
Covers financial and non-financial operations
Aims to improve internal processes
Frequency is flexible—quarterly, half-yearly, or annually
Reports to management or the board
What is a Statutory Audit?
A statutory audit, on the other hand, is a mandatory external audit conducted by a Chartered Accountant (CA) registered with the Institute of Chartered Accountants of India (ICAI). It is required under the Companies Act, 2013 and applies to companies that exceed certain turnover or capital thresholds.
Key Features:
Conducted by an independent external auditor
Legally required for companies as per Indian laws
Focuses strictly on financial statements and statutory compliance
Conducted annually at the end of the financial year
Auditor submits a report to shareholders and regulatory authorities
Internal Audit vs Statutory Audit: A Comparison
| Feature | Internal Audit | Statutory Audit |
|---|---|---|
| Purpose | Improve internal efficiency & control | Verify true & fair view of financials |
| Mandated by Law? | No (except for certain companies) | Yes, under Companies Act, 2013 |
| Conducted by | Internal employees or consultants | External Chartered Accountant (CA) |
| Reporting Authority | Management / Board of Directors | Shareholders / Regulators |
| Scope | Broad—includes operations, HR, IT, risk, etc. | Financial records and statutory compliance |
| Frequency | Ongoing or periodic | Once a year (financial year-end) |
When is Internal Audit Mandatory in India?
According to Rule 13 of the Companies (Accounts) Rules, 2014, internal audits are mandatory for:
Listed companies
Unlisted public companies with:
Turnover > ₹200 crore
Outstanding loans/debts > ₹100 crore
Private companies with:
Turnover > ₹200 crore
Outstanding borrowings > ₹100 crore
Statutory audits, on the other hand, are compulsory for all companies, LLPs, and certain partnership firms under specified conditions.