The Bill suggests adding a new Section 139(12) to the Companies Act, 2013, allowing the government to exempt particular classes of companies from needing to appoint statutory auditors.
Connection with updated “small company” thresholds
This proposal coincides with an initiative to broaden the definition of “small company” by increasing the paid-up capital limit from ₹10 crore to ₹20 crore and turnover from ₹100 crore to ₹200 crore.
This adjustment may enlarge the pool of companies that qualify for simplified compliance measures.
“It’s essential to assess the proposal within the framework of the revised ‘small company’ definition,” stated Zubin Billimoria, President of the Bombay Chartered Accountants Society.
He noted that it remains uncertain whether these thresholds will apply for audit exemption or if the government might set lower criteria for eligibility.
Anticipated advantages
Billimoria commented that exempting smaller companies from obligatory audits could yield several advantages:
- Decreased compliance expenses
- Reduced administrative burden
- Consistency with existing relaxations available to small companies, such as exemptions from preparing cash flow statements
- Importance of clear eligibility guidelines
As the categories of companies eligible for exemption are yet to be defined, Billimoria emphasized the necessity of safeguards to ensure the measure is well-targeted.
“The exemption should apply solely to unlisted private limited companies that meet defined thresholds,” he remarked, adding that firms with listed debt, public deposits, or those functioning in regulated sectors might need to be excluded.
He also mentioned that companies with poor compliance histories or ongoing regulatory concerns may not be suitable for such relief.
Guardrails to prevent misuse
Experts point to several conditions that could be evaluated, such as:
- Limiting eligibility to companies without public deposits
- Excluding entities in sectors like banking, insurance, NBFCs, or those subject to market regulation
- Connecting eligibility to verifiable business activities, such as GST filings or employee-related contributions
- Considering previous compliance records
- Implementing alternative oversight measures
Instead of a comprehensive statutory audit, a simplified framework could be introduced for qualifying companies.
Experts propose that such firms might be asked to provide self-certified financial statements signed by a director and a qualified accountant, while regulatory authorities should retain the capability to review and revoke exemptions when necessary.
