Internal Audit

For the first time internal audit has been mandatory for certain class of companies. Rule 13 of the Companies (Accounts) Rules 2014 specifies that 

1) every listed company;

2) every unlisted public company having paid up share capital of Rs.50 crores or more during the preceding financial year OR turnover of Rs.200 crores or more during the preceding financial year OR outstanding loans or borrowings from banks or public financial institutions of 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;

3) 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 of Rs.100 crores or more at any point of time during the preceding financial year 

SHALL be required to appoint an Internal Auditor or firm of Internal Auditors

Explanation below this Rule clarifies that Internal Auditor may or may not be an employee of the company

The Audit Committee shall in consultation with the Internal Auditor formulate the scope, functioning, periodicity & methodology of Internal Audit. 

Section 138(1) of the Companies Act, 2013 specifies that the internal auditor shall be either chartered accountant or cost accountant or such other professionals as may be decided by the Board to conduct the internal audit of the functions and activities of the company. 

Section 144 prohibits a Statutory Auditor from carrying out the functions of Internal Audit directly or indirectly to the company or its holding company or subsidiary company.

The Companies Act, 2013 has not defined “Internal Audit”  or “Internal Auditors” anywhere in the Act or in the Rules.  

Section 138 gives the leeway that even Company Secretaries can be appointed as Internal Auditors provided the constitution of ICSI allows the company secretaries to provide such services. 

 

 

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