Internal Audit - Section 138 of Companies Act, 2013




Appointment of Internal Auditor        

Section 138 (1) says that:

Such class or classes of companies as may be prescribed in rule 13 shall be required to appoint an internal auditor, who shall either be a CA or a cost accountant, or such other professional as may be decided by the Board to conduct an internal audit of the functions and activities of the Company.

Section 138(2): 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.


Rule 13 of Companies (Accounts) Rules, 2014: Companies required to appoint Internal Auditor

Rule 13(1) The following class of companies shall be required to appoint an internal auditor:
(a)   Every Listed Company
(b)   Every unlisted public company having:
          i.           PUC of Rs. 50 crore  or more during the preceding FY; or
        ii.            Turnover of Rs. 200 crore or more during the  preceding FY; or
      iii.            Outstanding loans or borrowings from banks or PFI                 exceeding Rs. 100 crore  or more at any point of time during the preceding FY; or
       iv.            Outstanding deposits of Rs. 25 crore or more at any   point of time during the preceding FY; and
(c)    Every private company having-
(i)                  Turnover of Rs. 200 crore or more during the preceding FY; or
(ii)               Outstanding loans or borrowings from banks or PFIs exceeding Rs. 100 crore or more at any point of time during the preceding FY:




Q-Who can be appointed as Internal Auditor?

Internal Auditor  may be either:
an individual or
a partnership firm or
a body corporate


Explanation:-

(i) The internal auditor may or may not be an employee of the company;

(ii) the term “Chartered Accountant” or “Cost Accountant” shall mean a “Chartered Accountant” or a “Cost Accountant”, as the case may be, whether engaged in the practice or not’.


Rule 13(2): 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.


Q-What is the Procedure to appoint new internal auditor?

The company should do the following steps to appoint the Internal Auditor:

Step-1: Obtain a consent letter from the proposed New Auditor for being eligible for appointment as an Internal Auditor.

 Step-2: After giving notice of the Board meeting, call a Board Meeting for appointment of Internal Auditor.

Step-3: File an e-form MGT-14 for the appointment of Internal Auditor of the Company.

(NOTE: MGT-14 is not required to be filed by Private Limited Company as per notification dated 05.06.2015)
https://www.mca.gov.in/Ministry/pdf/ExemptionPrivateCompanies.pdf

Step-4: Send intimation letter to the appointed Internal Auditor relating to his appointment in a Company.



Note: In case of Specified IFSC Public Company - Section 138 shall apply if the articles of the company provides for the same. - Notification Dated 4th January 2017.

https://www.mca.gov.in/Ministry/pdf/IFSC_Public_04012017.pdf




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