Internal Auditor


Internal Audit is one most important tool for better Corporate Governance in any company. This is not a post – mortem like statutory audit, but may provide real time analysis and processing of transactions through watchful eyes.

According to Section 138 of the Companies Act, 2013 discussed earlier here, “Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company. The Central Government may, by rules, prescribe the manner and the intervals in which the internal audit shall be conducted and reported to the Board.”

Accordingly, Rule 13 of the Companies (Accounts) Rules 2014 prescribes appointment of Internal Auditor.

Companies for Internal Audit:

The following class of companies shall be required to appoint an internal auditor or a firm of internal auditors, namely:-

(a) every listed company;

(b) every unlisted public company having-

(i) paid up share capital of fifty crore rupees or more during the preceding financial year; or

(ii) turnover of two hundred crore rupees or more during the preceding financial year; or

(iii) outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or

(iv) outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and

(c) every private company having-

(i) turnover of two hundred crore rupees or more during the preceding financial year; or

(ii) outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year.

An existing company covered under any of the above criteria shall comply with the requirements of section 138 and this rule within six months of commencement of such section i.e. 1st April 2014.

Eligibility to be Internal Auditor:

Chartered Accountant (CA) and Cost Accountant (CMA) are primarily eligible to be appointed as Internal Auditor. The term “Chartered Accountant” shall mean a Chartered Accountant whether engaged in practice or not.

Other professional like Company Secretary may be appointed as an Internal Auditor of a Company if decided by the Board of directors of the company for such appointment.

This seems from the close reading that audit committee of the company is authorised to appoint a chartered accountant or cost accountant as internal auditor. In case of other professional like company secretary, only board of Directors may appoint them as internal auditors.

The internal auditor may or may not be an employee of the company.

The Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit.

Please note: I welcome your comments and feedback. This blog post is not a professional advice. Readers may share this post on social media by using buttons given here.

Advertisements

5 responses to “Internal Auditor

  1. Pingback: Index of Companies Law Posts | AishMGhrana

  2. Pingback: Amendment in Companies Accounts rules, 2016 | AishMGhrana

  3. Aakanksha Kashyap

    Do we need to appoint Internal Auditors on Financial Year basis.

    Like

  4. Rajesh Kumar Khurana

    Dear Ashwarya Ji,

    It is always a pleasure to read your blogs. These are very informative. Keep it up.

    With best regards,

    R.K. Khurana Advocate, 153 Pocket D, Mayur Vihar Phase II, Delhi-110091

    Liked by 1 person

No professional query in comments (but in mail). Only academic discussion here. Comments moderated. Sometime, reply to your mail ID. To subscribe blog, check homepage.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s