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Internal audit refers to the process of evaluation of an organization's internal controls, practices, processes, and methods. The objective of an internal audit is to check the effectiveness of operational standards framed by an organization. It is either performed by the employee of an organization or a professional, as appointed by the Board of directors.
Internal audit applicability
Section 138 read with Rule 13 of the Companies (Accounts) Rules 2014, provides for internal audit in specified companies. The following companies shall be required to appoint an internal auditor-
(a) Every listed company;
(b) Every unlisted public company if satisfy any of the criteria given as under-
- paid-up share capital of fifty crore rupees or more during the preceding financial year
- turnover of two hundred crore rupees or more during the preceding financial year
- outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year
- outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and
(c) Every private company if satisfy any of the criteria given as under-
- turnover of two hundred crore rupees or more during the preceding financial year; or
- outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year:
Applicable threshold of internal audit to companies in tabular form
|
Particulars |
Listed companies |
Unlisted public companies |
Private limited companies |
|
Paid-up share capital |
Internal Audit is mandatory without any threshold |
Rs. 50 crores or more |
Not applicable |
|
Turnover |
Rs. 200 crores or more |
Rs. 200 crores or more |
|
|
Outstanding loans or borrowings from banks or financial institutions |
Exceeding Rs. 100 crores |
Exceeding Rs. 100 crores |
|
|
Outstanding deposits |
Rs. 25 crores or more |
Not applicable |
Examples
1. XYZ Pvt. Ltd. having Rs 50 lakhs paid-up capital, Rs 9.60 crores reserves and turnover of last three consecutive financial years, immediately preceding the financial year under audit, being Rs 59 crores, Rs 155 crores and Rs 280 crores, but does not have any internal audit system.
In the instant case, XYZ Pvt. Ltd. is having a turnover of Rs 280 crores during the preceding financial year which is more than Rs 200 crore. Hence, the company has the statutory requirement to appoint an Internal Auditor.
2. ABC Pvt. Ltd. company has outstanding loans or borrowings from banks exceeding one hundred crore rupees. In the given case, AB Pvt. Ltd. is under compulsion to appoint an internal audit as its loans or borrowings are falling under the prescribed limit.
