Audit of Foreign Companies in India: Statutory Audit, Schedule III, Ind AS / IFRS, and Compliance Guide

India has become a preferred destination for foreign companies, multinational corporations, and global universities establishing branch offices, liaison offices, and project offices. While setting up business presence in India offers significant opportunities, it also brings regulatory responsibilities. One of the most important compliance requirements is the audit of financial statements relating to Indian operations.

Foreign companies operating in India must maintain books of accounts, prepare financial statements relating to their Indian operations, and get them audited in accordance with the Companies Act, 2013. Proper preparation of financial statements of foreign companies in India is essential before conducting statutory audit and regulatory filings. This audit ensures transparency, regulatory compliance, and reliability of financial information submitted to Indian authorities. Understanding the audit framework is essential for foreign companies, CFOs, and compliance professionals to ensure smooth and compliant operations.

Legal Framework Governing Audit of Foreign Companies in India

The audit requirement for foreign companies in India is governed by the Companies Act, 2013, primarily under Sections 379, 381, and 384.

Section 379 provides that the provisions of the Companies Act apply to foreign companies operating in India.

Section 381 mandates that every foreign company must prepare financial statements relating to its Indian business operations and file them with the Registrar of Companies (ROC). These financial statements must reflect the financial position and performance of the company’s place of business in India.

Section 384 further provides that the provisions relating to audit and auditors apply to foreign companies in the same manner as they apply to Indian companies.

Accordingly, foreign companies must:

• Maintain proper books of accounts for Indian operations
• Prepare financial statements for Indian business
• Get these financial statements audited by a Chartered Accountant in India

The audit must be conducted in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India (ICAI). This ensures that financial statements present a true and fair view and comply with Indian legal requirements.

Preparation of Financial Statements as per Schedule III

Foreign companies are required to prepare financial statements in accordance with Schedule III of the Companies Act, 2013.

Schedule III prescribes the format and disclosure requirements for financial statements to ensure uniformity and transparency. The financial statements must include:

• Balance Sheet
• Statement of Profit and Loss
• Notes to Accounts

These financial statements must relate specifically to Indian business operations and not the global consolidated financial statements of the parent company.

Even if the foreign company prepares its global financial statements under IFRS, US GAAP, or other international accounting standards, separate financial statements must be prepared in Schedule III format for Indian compliance purposes.

Schedule III compliance ensures:

• Standardized reporting
• Transparency in financial disclosure
• Comparability across companies
• Proper regulatory oversight

These Schedule III financial statements form the basis for statutory audit and ROC filing.

Financial Year Requirement for Foreign Companies – Section 2(41)

As per Section 2(41) of the Companies Act, 2013, financial year means the period ending on 31 March every year.

Foreign companies operating in India are required to prepare financial statements for their Indian operations based on this financial year.

In many cases, the parent company located outside India follows a different financial year, such as January to December, for global reporting purposes. In such situations, the foreign company may apply to the National Company Law Tribunal (NCLT) seeking approval to follow its global financial year.

However, in the absence of such approval, foreign companies must prepare and audit financial statements for the period ending 31 March for Indian compliance purposes.

This requirement ensures uniformity in reporting, facilitates tax compliance, and aligns foreign company reporting with Indian regulatory and taxation framework.

Accounting Standards Applicable – Ind AS and IFRS

Foreign companies must prepare financial statements relating to Indian operations in accordance with Indian accounting standards.

Depending on applicability criteria, financial statements must comply with:

• Indian Accounting Standards (Ind AS), or
• Accounting Standards (AS)

Ind AS is generally applicable to larger entities and entities meeting prescribed thresholds, while other foreign companies may follow Accounting Standards (AS).

Foreign companies may continue to prepare global consolidated financial statements under IFRS or other international accounting frameworks for their parent company and global stakeholders.

However, for Indian statutory audit and ROC filing, financial statements must comply with Schedule III and applicable Indian accounting standards.

Therefore, foreign companies typically maintain separate financial statements for Indian operations to ensure compliance.

Appointment of Auditor for Foreign Company

Foreign companies are required to appoint a Chartered Accountant in India to conduct statutory audit of their Indian financial statements.

The auditor must be:

• A practicing Chartered Accountant
• A member of the Institute of Chartered Accountants of India (ICAI)

The auditor is responsible for:

• Examining books of accounts maintained in India
• Verifying financial transactions and supporting documents
• Ensuring compliance with accounting standards
• Conducting audit procedures as per Standards on Auditing
• Issuing audit report on financial statements

The audit report provides independent assurance that financial statements present a true and fair view of the financial position and performance of the foreign company’s Indian operations.

Audit conducted by foreign auditors for global reporting purposes does not substitute the statutory audit requirement in India. Audit by an Indian Chartered Accountant is mandatory.

Filing of Audited Financial Statements with Registrar of Companies – Form FC-3

Foreign companies are required to file audited financial statements with the Registrar of Companies using Form FC-3.

This filing must be completed within six months from the end of the financial year.

The documents required to be filed include:

• Audited financial statements
• Auditor’s report
• Details of principal place of business in India

This filing enables regulatory authorities to monitor the financial position and operations of foreign companies operating in India.

Failure to file audited financial statements within the prescribed timeline may result in penalties, additional fees, and regulatory non-compliance.

Timely completion of audit and filing ensures smooth regulatory compliance.

Tax Audit and Transfer Pricing Audit Requirements

In addition to statutory audit under the Companies Act, foreign companies may also be subject to audit requirements under the Income Tax Act, 1961 and the taxation framework applicable to foreign companies operating in India.

Tax audit under Section 44AB is required where the turnover of Indian operations exceeds the prescribed threshold.

Further, foreign companies often have transactions with their parent company or related entities located outside India. These transactions are governed by transfer pricing regulations.

Transfer pricing compliance requires foreign companies to:

• Maintain transfer pricing documentation
• Ensure transactions are conducted at arm’s length price
• Obtain accountant’s report in Form 3CEB

Transfer pricing audit ensures that income is properly reported and taxed in India.

These audits are separate and additional to statutory audit under Companies Act.

Conclusion

Foreign companies operating in India are required to comply with statutory audit requirements under the Companies Act, 2013.

Key compliance requirements include preparation of financial statements in Schedule III format, compliance with applicable Indian accounting standards, following financial year ending 31 March, and conducting audit through a Chartered Accountant in India.

Foreign companies must also file audited financial statements with the Registrar of Companies within prescribed timelines and comply with tax audit and transfer pricing regulations where applicable.

Proper audit and compliance not only ensures adherence to regulatory requirements but also enhances financial transparency and credibility. Foreign companies should ensure timely audit and filing to avoid penalties and ensure smooth and compliant operations in India.