An audit is an independent examination of an entity's financial statements or records, carried out to give users reasonable assurance that they are free from material misstatement and, in a company audit, that they give a true and fair view. In India the auditor is a Chartered Accountant, and the work follows the Standards on Auditing issued by ICAI.
Facts checked: 10 October 2026. The objective of an audit as set out in SA 200 (reasonable assurance, fraud or error, report and communicate) was checked against ICAI study material. The auditor's eligibility under section 141 of the Companies Act, 2013 and the Chartered Accountants Act, 1949 was checked against secondary commentary, not the statute text. Items marked as from standards (assertions, materiality, working papers) describe their general meaning; check the SA texts for exact wording.
The meaning and the objective
An audit is not the preparation of accounts. Management keeps the books and prepares the statements. The auditor, who is independent of management, tests them and reports an opinion.
SA 200 gives the auditor two overall objectives:
- To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, so the auditor can express an opinion on whether they are prepared in all material respects in accordance with the applicable financial reporting framework.
- To report on the financial statements and communicate as the Standards require, in line with the auditor's findings.
Reasonable assurance is high, but not absolute. Audit evidence is persuasive rather than conclusive. For companies the framework is Ind AS or the Accounting Standards, and the opinion speaks to a true and fair view.
Who can audit
A company auditor must be a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949, holding a certificate of practice, and a firm may be appointed with only its partners who are CAs acting. Section 141 of the Companies Act, 2013 also lists disqualifications. The statutory audit itself is covered in what is a statutory audit.
The main types of audit
| Type | One-line meaning | Read more |
|---|---|---|
| Statutory audit | Required by law, such as the Companies Act; opinion on annual financial statements | Statutory audit |
| Tax audit | Required under section 44AB of the Income-tax Act for businesses and professions above set limits | Income tax audit |
| Internal audit | Ongoing review of controls and processes for management and the board | Internal audit |
| Concurrent audit | Checks transactions close to the time they occur, common in banks | Concurrent audit |
| Stock audit | Verifies inventory and its valuation, often for a lender | Stock audit |
| Forensic audit | Investigates suspected fraud or misuse, to build evidence | Forensic audit |
| Cost audit | Audit of cost records for prescribed companies under the Companies Act | Types of audit |
| Secretarial audit | Review of compliance with company law and related laws by a practising Company Secretary | Types of audit |
| GST audit | Departmental audit by tax officers under the GST law; the earlier CA audit requirement was replaced by self-certification | Types of audit |
Differences between the three most common are laid out in internal vs statutory vs tax audit.
Key terms
- Assertions. The claims in the financial statements that the auditor tests, such as occurrence, completeness, accuracy, cut-off, existence and valuation.
- Materiality. The size of misstatement that could influence users' decisions. The auditor sets it for planning and performance. The materiality calculator shows the arithmetic.
- Audit evidence. The information the auditor uses to reach conclusions: documents, confirmations, recalculation, observation and inquiry.
- Working papers. The auditor's record of work done, evidence obtained and conclusions.
- Sampling. Testing less than 100% of items. See the audit sampling calculator.
More terms are in the audit glossary.
The audit process in short
| Stage | What happens |
|---|---|
| Acceptance and planning | Engagement terms, independence check, understanding the entity, materiality, risk assessment |
| Risk response | Tests of controls and substantive procedures, designed to the assessed risks |
| Evidence and conclusions | Evaluate misstatements, written representations, subsequent events |
| Reporting | Opinion, along with other reports required by law |
The full sequence is in the audit process from planning to report.
Audit, accounting and review
| Accounting | Audit | Review | |
|---|---|---|---|
| Who | Management or its accountant | Independent auditor | Independent practitioner |
| What | Records transactions and prepares statements | Tests the statements and opines | Mainly inquiry and analytical procedures |
| Assurance | None | Reasonable | Limited |
Limits of an audit
An audit is not a guarantee of fraud detection or of a company's future health. The auditor tests samples, relies on judgement, and works within inherent limits of controls, including collusion and management override. The Standards place the first responsibility for fraud prevention on management and those charged with governance. That is why the opinion is expressed as reasonable assurance.
The audit report
The output is the auditor's report. It carries an opinion, which may be unmodified, qualified, adverse or a disclaimer. For companies it is accompanied by the report under the Companies (Auditor's Report) Order, 2020 and a report on internal financial controls. See types of audit opinion and the audit report format template.
Worked example (illustrative)
A manufacturer reports revenue of ₹85 crore and profit before tax of ₹6 crore. The auditor sets overall materiality at, say, 5% of profit before tax, ₹30 lakh, and tests invoices near year end to check cut-off. The auditor finds sales of ₹45 lakh booked in March for goods dispatched in April. This is above materiality. Management corrects it; the report stays unmodified. If management refused, the auditor would consider a qualified opinion.
Frequently asked questions
What is the meaning of audit in simple words?
An independent person checks whether a company's accounts are reliable and tells users what they found.
What is the main objective of an audit?
To give reasonable assurance that the financial statements are free of material misstatement and to report on them, as SA 200 sets out.
Who can conduct an audit in India?
For companies, a practising Chartered Accountant or a firm of Chartered Accountants, subject to section 141 of the Companies Act, 2013.
Is an audit mandatory for every business?
No. It depends on the law, the entity and its size. Companies need a statutory audit; businesses may need a tax audit above the section 44AB limits.
What is the difference between audit and accounting?
Accounting records and prepares. Audit independently examines what was prepared.
For more on the types, see types of audit in India and the audit standards reference.
Statutory facts on this page are checked against their sources, and the page says where it relied on secondary reporting. How we verify · Report an error