Audit of government companies explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A government company is audited by a chartered accountant, but that accountant is not chosen by the members. The Comptroller and Auditor-General of India (CAG) appoints the auditor, can direct how the audit is done, and has the right to carry out a supplementary audit and comment on the report. This article sets out those provisions from the Companies Act, 2013 as they read in the consolidated text as amended to 29 July 2022, consulted on 4 October 2026; check for later amendments and the current rules. The CAG's own governing Act and audit manuals are outside this article. For the annual filing side of a large or government company, see our annual filing support for large companies.
For a government company, and for another company owned or controlled by the Government, the CAG appoints the auditor under section 139(5) (and the first auditor under section 139(7)). The auditor follows the CAG's directions under section 143(5) and sends the CAG a copy of the report. The CAG then has sixty days from receipt to order a supplementary audit and comment on or supplement the report (section 143(6)), and may order a test audit (section 143(7)). The company must send the CAG's comments to the people entitled to the financial statements and place them before the annual general meeting.
Who is covered
Section 2(45) defines a "government company" as a company in which the Central Government, a State Government or Governments, or both together, hold at least the share of paid-up capital that the definition fixes, and includes a subsidiary of such a company. Sections 139(5), 139(7) and 143(5) extend to any other company owned or controlled, directly or indirectly, by the Central or State Governments. The definitions and company-law provisions for government companies are covered in our post on section 394. Our post on section 139 covers appointment of auditors for companies generally.
Appointment by the CAG
| Event | Who appoints | Time and detail (as printed) | Section |
|---|---|---|---|
| Auditor for a financial year | CAG, from persons duly qualified to be auditors of companies under the Act | Within one hundred and eighty days from the commencement of the financial year; the auditor holds office till the conclusion of the annual general meeting | 139(5) |
| First auditor | CAG | Within sixty days from registration; if not, the Board appoints within the next thirty days; if the Board fails, the members appoint within sixty days at an extraordinary general meeting | 139(7) |
| Casual vacancy where the CAG appoints | CAG | Within thirty days; if not, the Board fills it within the next thirty days | 139(8)(ii) |
For these companies the general rule of appointment by members at the annual general meeting does not apply. The company's role is to ensure that the CAG's office has the information it needs and to give the appointed auditor access to the books. The rotation rule in section 139(2) is addressed to listed companies and the classes that are prescribed, so check the rules that apply. A note on the CAG's role is also in our guide to the government company auditor under section 143.
Directions to the auditor: section 143(5)
Under section 143(5) the CAG appoints the auditor under section 139(5) or (7) and directs the auditor on the manner in which the accounts of the company are to be audited. The auditor then submits a copy of the audit report to the CAG, and that report is to include, among other things, the directions issued by the CAG, the action taken on them and their impact on the accounts and financial statements. In practice, the auditor treats the directions as additional audit steps and reports on each one, whether it applies or not. The statutory auditor's general duties and powers are in our post on section 143.
Supplementary audit and comments: section 143(6)
Within sixty days from the date of receipt of the audit report under section 143(5), the CAG has a right to:
- conduct a supplementary audit of the company's financial statement through persons the CAG authorises, requiring information or additional information to be furnished on the matters and in the form the CAG directs; and
- comment upon or supplement the audit report.
Any comments or supplement are to be sent by the company to every person entitled to copies of the audited financial statements under section 136(1) and are to be placed before the annual general meeting at the same time and in the same manner as the audit report. The company therefore needs a process for circulation and for placing the comments before members.
Test audit: section 143(7)
Without prejudice to the rest of the Chapter, the CAG may, for a company covered by section 139(5) or (7), if he considers it necessary, by an order cause a test audit of the company's accounts to be conducted. Section 19A of the Comptroller and Auditor-General's (Duties, Powers and Conditions of Service) Act, 1971 applies to the report of that test audit, as the section states; this article does not go into that Act.
How the pieces fit
| Stage | Who acts | What the company does |
|---|---|---|
| Appointment | CAG | Provides information to the CAG's office and receives the auditor |
| Audit | Statutory auditor, following directions | Gives access, replies to each direction, signs representations |
| Report | Auditor to company and CAG | Prepares financial statements on time; provides the CAG's copy |
| Supplementary audit and comments | CAG, within the printed period | Responds to information requests; circulates the comments and places them before the AGM |
| Test audit | CAG, by order | Cooperates with the audit party |
Worked example (illustrative)
Gramin Power Ltd, an invented State-owned company, receives the CAG's appointment of an audit firm in the first half of the financial year, with directions on matters such as whether the company has clear title to its freehold land and whether there are cases of waiver or write-off of debts. The auditor reports on each direction, including that title deeds for two plots are with a revenue authority and the company has not obtained the transfer, and the impact on the accounts is described as nil. The auditor sends a copy of the audit report and the direction responses to the CAG. Within the sixty days the CAG's office asks for further information on those plots and issues comments. The company sends the comments to its shareholders with the financial statements and places them before the annual general meeting alongside the audit report.
Documents to keep ready
- Appointment letter from the CAG's office.
- The list of directions and the working papers and management replies for each.
- Draft and signed financial statements and the audit report, with the date the copy was sent to the CAG.
- Correspondence with the CAG's office during the supplementary audit.
- Circulation record of the comments and the minutes of the annual general meeting where they were placed.
Common lapses
- Treating the appointment as a routine appointment by members.
- Responding to the directions in general terms without the action taken and impact on the accounts.
- Delays in sending the audit report to the CAG, which push back the start of the sixty-day period and the AGM.
- Not circulating the CAG's comments or not placing them before the annual general meeting.
- Overlooking the test audit order and the information requests that follow.
Need help with filings and compliance for a government or large company?
Government and large companies depend on timely audited accounts and orderly annual filings, and the CAG process adds another step to the calendar. Our team can help you plan the calendar, prepare the supporting schedules and manage the annual filings; see our annual filing support for large companies.
Key takeaways
- The CAG appoints the auditor of a government company, under section 139(5) and (7).
- The auditor follows the CAG's directions and reports the action taken and impact (section 143(5)).
- The CAG has sixty days from receipt of the audit report for a supplementary audit and comments (section 143(6)).
- A test audit may be ordered (section 143(7)).
- The company must circulate the CAG's comments and place them before the annual general meeting.
Read next
- Audit, review, agreed-upon procedures and compilation compared
- Liabilities of an auditor in India
- Section 139, appointment of auditor
- Section 143, powers and duties of auditor
Disclaimer: Based on the Standards on Auditing, the review, assurance and related services standards, the Compendium of Standards on Internal Audit (as on 1 October 2022) and the Compendium of Forensic Accounting and Investigation Standards (as on September 2025) issued by the Institute of Chartered Accountants of India, in the versions named in the article, as consulted on 4 October 2026. ICAI revises standards from time to time; check the current text and effective dates on icai.org and the Companies Act provisions referred to. This article is general information, not legal advice; check the official text before acting.