From the Arthashastra to Form 26: audit in India

Corelytix is built in Kusumpura — Pushpapura, the City of Flowers — which Megasthenes, the Greek envoy to the Mauryan court, recorded as Palibothra. It is a fitting place to build audit software, because the oldest Indian text that treats the checking of accounts as a branch of statecraft belongs to the tradition of that court.

The Arthashastra

The Arthashastra is traditionally attributed to Kautilya, minister to Chandragupta Maurya. Most modern scholars date the text we have to later centuries — Patrick Olivelle places its layers between roughly 150 BCE and 300 CE — so it is best read as the work of a long tradition rather than of one man in one year. Its concerns, though, are recognisably ours.

It describes a record and accounts office under a superintendent of accounts, with the year's accounts brought in and examined on a fixed date. It sets out forty ways in which officials embezzle revenue. And it states the problem every auditor since has faced in one line: just as one cannot tell when a fish moving in water is drinking it, one cannot tell when an official handling revenue is taking some for himself.

Modern labels — "auditor general", "segregation of duties" — are our words laid over the text, not the text's own. But the instinct is the same: the person who handles the money should not be the only one who records it, and the record should be checked by someone who did neither.

Audit under the Crown

When the British Crown took over the government of India from the East India Company in 1858, public accounts were reorganised, and the office that is now the Comptroller and Auditor General of India dates its beginnings from that year. In 1860 Sir Edward Drummond was appointed the first Auditor General.

Company audit came later. The Indian Companies Act, 1913 required company accounts to be audited by persons holding a certificate from the government. A Government Diploma in Accountancy, with three years of apprenticeship under an approved accountant, was introduced in 1918 and abolished in 1943. Under the Auditors' Certificate Rules, 1932, the first Accountancy Board was constituted to advise on the profession; an elected element was added in 1939.

A profession of its own

The Chartered Accountants Act, 1949 was passed on 1 May 1949 and brought into force on 1 July 1949 — the day still marked as CA Day — creating the Institute of Chartered Accountants of India as a self-regulating body, months before the Constitution itself took effect.

The tax audit followed decades later. Section 44AB, inserted into the Income-tax Act, 1961 by the Finance Act, 1984, required businesses and professions above specified limits to have their accounts audited and to report particulars to the department — the report every chartered accountant now knows as Form 3CD.

In 2018 the National Financial Reporting Authority was constituted under section 132 of the Companies Act, 2013, taking over oversight of auditors of listed and large companies. And from tax year 2026-27, under the Income-tax Act, 2025, the tax audit report becomes Form 26.

Timeline

Two thousand years on, the fish is still in the water. What has changed is how much of the water a CA can see at once. Corelytix reads every voucher, every 26AS row and every 2B invoice, so the auditor's attention goes where Kautilya's would have — to the official, and the entry, that does not add up.

Sources: Comptroller and Auditor General of India, history of the department; P. N. Shah and H. N. Motiwalla, “Some historical facts about ICAI”, BCAJ, 2012; on the Arthashastra's date, P. Olivelle, King, Governance, and Law in Ancient India (2013); on embezzlement in the Arthashastra, IDSA issue brief.