ICAI ramps up tax audit scrutiny tenfold, 1,000 firms under review

The Institute of Chartered Accountants of India (ICAI) has stepped up its tax audit scrutiny tenfold, selecting 1,000 companies with turnover of over Rs 100 crore for review of their reports for assessment year 2024-25. About 867 reports have been reviewed so far. While the CA institute did not disclose the exact gaps found, an official said "certain common and recurring deficiencies" in tax audit reporting were identified during the scrutiny.

ICAI increased the number of companies selected for review to 1,000 in 2025-26, from 100 in the previous selection year. ICAI president Prasanna Kumar D. said that the sharp increase is aimed at improving compliance and expanding the coverage of tax audit quality checks.

The institute now has plans to widen the review further next year, indicating that the current exercise is not being treated as a one-off scrutiny drive. The review process is being handled by a taxation audit quality review board (TAQRB) which has been tasked with strengthening the overall quality of tax audit reporting.

The companies selected this year have turnover of Rs 100 crore or more and fall into five turnover categories. These range from enterprises with turnover of Rs 10,000 crore or above to those in the Rs 100-1,000 crore bracket. "TAQRB primarily examines compliance with the applicable reporting requirements while reviewing the tax audit reports," Kumar said.

Further, the exercise covers eight sectors - manufacturing and trading, banking, financial services, insurance, IT, services, infrastructure and others. This spread gives the institute a broad base to examine tax audit reporting practices across different types and sizes of businesses.

Experts said the sharp increase in coverage points will allow the institute to identify patterns that may not emerge from a smaller sample. Former ICAI secretary Ashok Haldia said the recurrence of reporting errors in tax audits points to the need for heightened regulatory oversight. "It sends a clear message that tax audits are no longer mere compliance checklists and demand rigorous due diligence from auditors and corporates to avoid severe penalties. ICAI should extend these checks to all public interest entities over the next 2-3 years," he said.

"The focus on multiple sectors and turnover categories could also help distinguish between isolated reporting mistakes and common compliance gaps," said an audit consultant.

However, the institute did not disclose how many of the 867 reports reviewed contained deficiencies nor has it provided a breakdown of the specific reporting issues identified. The official responses also do not indicate whether any cases have been escalated for disciplinary action.

Broadly, the review checks whether companies' tax audit reports comply with the Income-Tax Act and related rules. It also looks at whether auditors have followed ICAI's guidelines while preparing these reports. One key area is Form 3CD, a detailed statement attached to a tax audit report. It contains information about a company's financial and tax related matters such as depreciation, expenses, loans and other specified transactions. The review checks whether the information required in this form has been properly reported.

ICAI said that tax auditors of the reviewed companies have been communicated about the gaps and observations. Some of the reports where observations were communicated have also been randomly selected for follow-up with the aim of checking whether the issues identified are addressed when the auditors file tax audit reports for the following year.