Internal Audit applicability under section 138 of the Companies Act 2013


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Section 138 of the Companies Act 2013: Internal audit

(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.

(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 the Companies (Accounts) Rules, 2014: Companies Required to Appoint Internal Auditor

(1) The following class of companies shall be required to appoint an internal auditor which may be either an individual or a partnership firm or a body corporate, namely:-

(a) every listed company;

(b) every unlisted public company having-

(i) paid up share capital of Rs. 50 crore or more during the preceding financial year; or

(ii) turnover of Rs. 200 crore or more during the preceding financial year; or

(iii) outstanding loans or borrowings from banks or public financial institutions exceeding Rs. 100 crore or more at any point of time during the preceding financial year; or

(iv) outstanding deposits of Rs. 25 crore or more at any point of time during the preceding financial year; and

(c) every private company having-

(i) turnover of Rs. 200 crore or more during the preceding financial year; or

(ii) outstanding loans or borrowings from banks or public financial institutions exceeding Rs.100 crore or more at any point of time during the preceding financial year:

Provided that 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.

Explanation.- For the purposes of rule 13 –

(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 practice or not’.]

(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.


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