A proposed relaxation in statutory audit requirements under the Corporate Laws (Amendment) Bill, 2026 has triggered concerns over financial accountability, with Chartered Accountant Satish Sharma warning that the exemption framework could place too much reliance on management’s own representations about a company’s financial statements.
Reacting to the proposed changes, Sharma said that under the proposed exemption, the financial statements of a company with turnover of up to ₹200 crore could potentially rest substantially on the management’s own word. He questioned the logic of allowing the same management whose performance is reflected in the financial statements to effectively certify those accounts without an independent statutory audit.
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The issue assumes significance as the Corporate Laws (Amendment) Bill, 2026 seeks to substantially expand the definition of a “small company” and introduce an enabling provision under which prescribed classes of companies may be exempted from the mandatory appointment of statutory auditors.
What Does the Corporate Laws (Amendment) Bill, 2026 Propose?
The Bill, introduced in the Lok Sabha on March 23, 2026, proposes amendments to the Companies Act, 2013 and the Limited Liability Partnership Act, 2008. It is intended to reduce compliance burdens, decriminalise certain procedural defaults and provide greater flexibility to smaller businesses.
One of the important proposals concerns the definition and regulatory treatment of small companies. The Bill proposes increasing the statutory ceiling for a company’s paid-up share capital from ₹10 crore to ₹20 crore and the turnover ceiling from ₹100 crore to ₹200 crore, subject to the manner in which the provisions are ultimately prescribed and brought into force.
More significantly from the audit perspective, the Bill proposes to empower the Central Government to prescribe classes of companies that would not be required to appoint an auditor under Chapter X of the Companies Act. The precise categories that may eventually qualify would depend on the rules or notifications issued under the enacted law.
CA Satish Sharma Raises “Self-Certification” Concern
Sharma’s criticism focuses on the fundamental purpose of an independent audit.
In his social-media post, he drew an analogy with examinations, stating that students are not permitted to grade their own examinations. He questioned whether companies should similarly be permitted to effectively certify their own financial books.
His central concern is that financial statements are not merely internal documents belonging to management. They are relied upon by a wide range of stakeholders, including shareholders, lenders, trade creditors, tax authorities, employees and regulators.
An independent statutory audit provides an external layer of scrutiny over the accounts prepared by management. Removing that layer, even for a specified class of smaller companies, could therefore alter the balance between ease of doing business and financial accountability.
₹200 Crore Threshold Brings Scale of Concern Into Focus
The proposed ₹200 crore turnover ceiling has become an important part of the debate.
Critics argue that a company approaching ₹200 crore in annual turnover cannot necessarily be viewed as financially insignificant. Such a business may have substantial bank borrowings, trade creditors, related-party transactions, fixed assets, inventories and tax liabilities.
A company of that size may also have numerous stakeholders who rely upon the reliability of its financial statements.
An analysis of the Bill has similarly pointed out that a financially significant private company could receive simplified treatment despite having material debt, creditor exposure or related-party transactions. The Bill itself does not specify the precise class of companies that would receive the audit exemption; that determination would emerge through subsequent rules.
Audit Is More Than a Compliance Cost
The debate also raises a broader question about the role of statutory audits.
A statutory auditor is expected to independently examine whether financial statements present a true and fair view in accordance with the applicable accounting framework. The auditor’s role is therefore different from that of company management, which is responsible for preparing the financial statements.
This distinction becomes particularly important where financial statements are used by third parties.
Banks may rely on audited accounts while evaluating creditworthiness. Suppliers may consider them when extending trade credit. Investors may use them to assess financial performance. Regulators may use them for supervisory and compliance purposes.
Consequently, the concern raised by Sharma is not merely about the accounting profession or the workload of auditors. It goes to the larger question of who independently verifies the financial information on which third parties rely.
Government’s Objective: Reduce Compliance Burden
The proposed audit relaxation needs to be viewed against the broader objective of the Bill.
The Corporate Laws (Amendment) Bill seeks to make India’s corporate regulatory framework less burdensome, particularly for smaller businesses. It proposes several other compliance relaxations, including changes to CSR applicability, electronic corporate processes and decriminalisation of certain offences.
The government’s approach is essentially aimed at distinguishing between companies that require intensive regulatory oversight and businesses for which certain compliance requirements may impose disproportionate costs.
The audit exemption proposal appears to form part of that broader ease-of-doing-business philosophy.
However, the challenge is to ensure that reduction in compliance costs does not unintentionally reduce the reliability of financial information.
The Independence Question
At the heart of the controversy is the distinction between management responsibility and independent assurance.
Management prepares and presents the financial statements. An independent auditor, on the other hand, examines those statements and expresses an opinion based on audit evidence.
If the audit requirement is removed for a class of companies, management would continue to remain responsible for maintaining books and preparing financial statements. But the independent assurance mechanism would potentially disappear.
That is precisely why Sharma’s “students grading their own examinations” analogy has attracted attention: it highlights the potential conflict inherent in asking the same party responsible for financial performance to provide the principal assurance regarding the accuracy of the financial results.
Bill Still Under Parliamentary Scrutiny
Importantly, the proposed exemption is not presently a blanket audit exemption for all companies with turnover up to ₹200 crore.
The Bill has been referred to a 31-member Joint Parliamentary Committee (JPC) for detailed examination. The committee has been considering various aspects of the proposed legislation, and its report is expected to determine the contours of several provisions before Parliament takes up the legislation.
The proposed increase of the small-company threshold and the proposed auditor exemption are therefore part of a legislative process that has not yet resulted in a final operative exemption.
The distinction is important because the ₹200 crore figure relates to the proposed statutory ceiling for classification as a small company, while the actual companies that may be exempted from appointing auditors would be determined by prescribed conditions and subsequent implementation.
Need for Safeguards
The controversy suggests that any final audit exemption framework may need carefully defined safeguards.
Potential considerations include whether a company has significant bank borrowings, public deposits, foreign investment, related-party transactions, subsidiaries or group-company relationships. The presence of substantial third-party financial exposure could make independent assurance particularly important.
An analysis of the Bill has suggested that, even if some form of relaxation is retained, companies with external creditors, public funds or significant related-party exposure should not automatically be brought within a complete audit exemption.
Such safeguards could allow the government to achieve its objective of reducing compliance costs for genuinely small and low-risk businesses without weakening confidence in the financial reporting system.
Ease of Business vs Financial Accountability
The controversy ultimately reflects a larger policy dilemma.
India’s corporate regulatory framework has progressively attempted to reduce unnecessary compliance burdens, particularly for smaller businesses. At the same time, the country’s corporate governance framework relies heavily on independent financial reporting and professional assurance.
The proposed audit exemption seeks to move the balance towards simplification. Sharma’s criticism, however, underscores the potential consequence if simplification goes too far: financial statements could lose an important layer of independent verification.
The final question for Parliament and the JPC is therefore not simply whether smaller companies should receive compliance relief, but where the line should be drawn between reducing regulatory costs and preserving trust in corporate financial statements.
As Sharma’s intervention puts it, the concern is fundamentally about independence: if management prepares the accounts and the same management effectively becomes the final authority on their accuracy, the system may save compliance costs but could also weaken the independent assurance on which stakeholders depend.
For now, the audit exemption remains a proposal under consideration, and its ultimate scope will depend on the final legislation and the rules prescribing the eligible classes of companies.
