Chapter – IX - Section 138 deal with the provisions 01.04.2014.
Section-138:
of the Companies Act, 2013, together with the rules made thereunder, as to Internal Audit of Companies - Notified to be effective from
The Section reads as under:
“138. (1) 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.”
TAKEWAY POINTS:
- Internal Audit (IA) applicable for companies as prescribed by Central Government (CG) by rules.
- Internal Auditor can be a CA, CWA or such other professional as decided by the Board.
- CG may by rules prescribe the intervals in which IA to be conducted and reported.
Rules: Rule 13 of the Companies (Accounts) Rules, 2014, relates to Internal Auditor:
Applicability to Companies:
Sub-rule (1) of Rule 13 of the Companies (Accounts) Rules, 2014, lists out the companies who are required to appoint an Internal Auditor,
- every LISTED company;
- every UNLISTED PUBLIC company having:
- PAID UP SHARE CAPITAL of Rs.50 Crores or more during the preceding financial year; or
- TURNOVER of Rs.250 Crores or more during the preceding financial year; or
- OUTSTANDING LOANS OR BORROWINGS from BANKS or PUBLIC FINANCIAL INSTITUTIONS exceeding Rs.100 Crores or more at any point of time during the preceding financial year; or
- OUTSTANDING DEPOSITS of Rs.25 Crores or more at any point of time during the preceding financial year; and every private company having:
- TURNOVER of Rs.200 Crores or more during the preceding financial year; or
- OUTSTANDING LOANS OR BORROWINGS from BANKS OR PUBLIC FINANCIAL INSTITUTIONS exceeding Rs.100 Crores or more at any point of time during the preceding financial year:
An existing company covered under any of the above criteria shall have to comply with the requirements of section 138 and this rule within Six (06) months of commencement of such section. i.e., 30.09.2014.
As per the explanation, given to the rule:-
- the internal auditor may or may not be an employee of the company;
- the term “Chartered Accountant” shall mean a Chartered Accountant whether engaged in practice or not.
Intervals/periodicity of Internal Audit:
Sub-rule 2 of Rule 13(2), stipulates that the Audit Committee of the company (in case the company is required to have one) or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit.
TAKEWAY POINTS:
- For Private Limited Companies, the criteria as to Paid-up is not included, thereby companied having turnover is Rs.200 Crores or more /loans of Rs.200 Crores or more are required to have IA.
- From the explanation, a CA other than in practice can also be appointed as an Internal Auditor.
Periodicity of Audit and report to be decided by the Board and the Auditor.
This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
