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Applicability of Internal Audit - Companies Act 2013

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.

Recommended

 

Frequently asked questions (FAQs)

(i) Internal Auditor shall either be a Chartered Accountant (CA), Cost Accountant (CWA), or such other professional as may be prescribed by the board of the company.

(ii) Internal auditor may or may not be the employee of the Company.

Default in complying with provisions of section 138 of the Companies Act, 2013 shall be punishable with a fine which shall not be less than five thousand rupees but which may extend to twenty-five thousand rupees for every day during which the default continues.


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CA Anand Singh

CA Anand Singh

I am a practising Chartered Accountant with 6 years of experience in Direct and Indirect Taxation, FEMA, Corporate Law and Audit etc.