Tax Audit – Understanding Comparative Financials for Proprietorships in FY 2024–25
A Practical Guide for Chartered Accountants in Light of ICAI’s Latest Disclosure Requirements
🔰 Introduction
Starting from April 1, 2024, the ICAI has introduced a standardized format for preparing financial statements of non-corporate entities, including sole proprietorships, partnerships, HUFs, and trusts. This change marks a significant step toward improving consistency and comparability in financial reporting, especially when these statements are being audited under Section 44AB of the Income Tax Act, 1961.
One of the most important updates in this new format is the requirement to show comparative figures from the previous year. However, in practical scenarios — especially in proprietorships — what should be done if the previous year’s financials were not audited? Is it a compliance issue to upload the current year’s audit report without comparative figures? Does it amount to professional misconduct?
Let’s break this down in detail.
🧾 ICAI’s Comparative Disclosure Norm – What It Really Means
The ICAI guidance for non-company entities states that financial statements should, wherever possible, present comparative figures for the previous reporting period. This provision enhances transparency, allows users to compare year-on-year performance, and improves audit documentation.
However, ICAI also provides relief:
“Where the previous year’s figures are not available or were unaudited, the entity is not required to present comparative data, provided that this fact is clearly disclosed in the notes to accounts or the audit report.”
This means non-corporate entities like sole proprietors are not mandatorily required to show previous year data in the Balance Sheet or Profit & Loss Statement if FY 2023–24 was unaudited. The key requirement is a clear disclosure in the audit report for FY 2024–25.
⚖️ Case Example – FY 2023–24 Unaudited, FY 2024–25 Audited
Let’s consider a common scenario. A proprietorship firm had turnover below ₹1 crore in FY 2023–24, and hence, it was not liable for audit. However, in FY 2024–25, the turnover crosses ₹2 crore or profits are below the deemed limit under Section 44AD. Now, the entity comes under compulsory audit for FY 2024–25.
The Chartered Accountant prepares the audit report (Form 3CB & 3CD) and uploads the Balance Sheet and Profit & Loss Account for FY 2024–25, without showing comparative figures for FY 2023–24.
The question arises:
Is this acceptable, or will it be treated as non-compliance or misconduct?
The answer is simple: Yes, this is fully acceptable.
✅ ICAI’s Position on Comparative Data for Unaudited Previous Years
ICAI’s guidance clearly supports the idea that comparative data is optional if the previous year was unaudited. This is especially relevant for sole proprietors who may not have maintained audited records earlier.
Therefore, even if your uploaded Balance Sheet for FY 2024–25 contains only current year figures, it is valid and acceptable, provided you make a note in the audit report such as:
“The previous financial year (FY 2023–24) was not audited. Accordingly, the current year’s financial statements do not contain comparative data.”
This note protects the CA from any future doubt during scrutiny, peer review, or disciplinary proceedings.
🧑💼 Is It a Case of Professional Misconduct?
No, uploading a Balance Sheet without comparative data for an unaudited previous year is not a case of professional misconduct. As long as:
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The audit is conducted properly for the current year,
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The disclosures are made clearly,
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The Income Tax forms (3CB/3CD) are filled with factual accuracy,
there is no misconduct under the First Schedule, Part I of the Chartered Accountants Act.
CAs are expected to exercise professional judgment and follow ICAI guidelines. And in this situation, ICAI permits flexibility with clear documentation.
🔗 Income Tax Portal Compliance – Is Re-Upload Required?
Many practitioners worry after uploading Form 3CB/3CD and Balance Sheet without comparatives. They wonder:
“Should I withdraw the return and re-upload with comparative data?”
The answer is No, as long as the current year’s data is audited correctly and disclosures are made, re-upload is not necessary. The Income Tax portal does not enforce any validation for comparative figures in audit forms.
🛡️ Best Practices for Chartered Accountants
Here are some practical tips to stay compliant and safe:
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Always mention in Form 3CB or the notes that the prior year was unaudited.
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If you have access to unaudited prior-year data, retain it in your working papers, even if not shown publicly.
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Don’t fabricate prior-year figures just to fit the format. It is better to disclose absence than to provide unaudited or estimated comparatives.
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Educate your clients about this requirement, especially those transitioning into audit applicability for the first time.
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In bank audits or funding-related audits, check lender-specific formats that might require comparatives separately.
🔚 Conclusion
The ICAI’s move toward standardization in financial reporting is a positive step for improving accounting discipline. However, it is important to understand the practical relaxations provided by the same framework.
If a proprietorship’s previous financial year was not audited, and you now upload only current year financials (FY 2024–25) without comparative figures, you are well within your professional and legal boundaries.
Just ensure:
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Disclosure is made in the audit report,
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Your working papers are maintained properly, and
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There’s no misrepresentation of facts.
With that, your compliance is rock solid — and your professional integrity remains intact.
✍️ Written by:
Shahid Siddiqui
Disclaimer:
The information shared in this article is intended for general awareness and educational purposes only. It is based on the author’s professional interpretation of ICAI guidelines and practical audit experience as of the date of writing.
Readers are advised to consult the latest notifications or their own Chartered Accountant before acting on any matter.
If you notice any discrepancies or have suggestions for improvement, feel free to share your comments for review and correction.