Tuesday, December 23

Companies Act 2013 - Internal Audit

Applicability:
Section 138 shall apply only to such class or classes of companies as may be prescribed. As per Rule 13 of The Companies (Accounts) Rules, 2014, following class of companies shall be covered under section 138:

  1. Every listed company
  2. Every unlisted public company having- 
    1. Paid up share capital of Rs. 50 crore or more during the preceding financial year; or
    2. Turnover of Rs. 200 crore or more during the preceding financial year; or
    3. 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
    4. Outstanding deposits of Rs. 25 crore or more at any point of time during the preceding financial year.
  3. Every Private company having - 
    1. Turnover of Rs. 200 crore or more during the preceding financial year; or
    2. 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.
Legal requirements:
  1. Every company to which section 138 is applicable, shall appoint an internal auditor.
  2. The internal auditor shall conduct the internal audit of the functions and activities of the company.
  3. The internal auditor shall be-
    1. A chartered accountant; or
    2. A cost accountant; or
    3. Such other professional as may be decided by the Board.
  4. The internal auditor may or may not be an employee of the company.
  5. A ‘Chartered Accountant’ may be appointed as an internal auditor whether or not he is engaged in practise.
Manner and interval of internal audit:
(a)   Central Government may, by rules, prescribe the manner and the intervals in which the internal audit shall be conducted and reported to the Board.
(b)   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.

Legal requirements for existing companies:

If an existing company satisfies any of the criteria laid down under Rule 13 (i.e. it falls under the prescribed class(es) of companies for the purpose of section 138), it shall, within 6 months, comply with the requirements of section 138 and Rule 13.


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