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Internal Audit of Companies
[Updated as on April 27, 2020]
Section 138 of the Companies Act, 2013 provides for appointment of Internal Auditor by certain class or classes of Companies. The auditor 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.
As per Rule 13 of the Companies (Accounts) Rules, 2014, 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:-
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.
Important points
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An employee of the Company could also be appointed as an internal Auditor provided he is either a Chartered Accountant or Cost Accountant or such other professional as may be decided by the Board.
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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’.
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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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An auditor appointed under Section 139 of the Act shall not perform internal audit whether directly or indirectly of the company, or its holding company or subsidiary company as provided by Section 144 of the Act.
Appointment of Internal Auditor
As per Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014 read with Section 179(3), the Board of Directors has the power to appoint internal auditors of a Company by means of resolutions passed at meetings of the Board. Copy of the resolution so passed shall be filed with the Registrar within thirty days of such passing as per section 117(1) in Form No. MGT-14. However a private company shall not be required to file such resolution with the registrar as the resolutions of the Board Meeting passed under 179(3) by a private company has been granted exemption from the filing requirement under Section 117(1) vide notification No. G.S.R. 464(E) dated 05/06/2015.
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