Internal Audit

Section 138 of the Companies Act deals with Internal Audit of Companies. This section states that certain classes of Companies shall be required to appoint an internal auditor who shall either be a Company Secretary ,Chartered Accountant, 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.

  • This is a new Section where in Internal Audits have been made mandatory for certain categories of Companies. There is no corresponding old section

Key Aspects

The following class of companies shall be required to appoint an internal auditor or a firm of internal auditors, namely (a) “Every listed company” and (b) Private and unlisted public companies meeting “any” of the following criteria

  • Criteria
  • Unlisted Public
  • Private
  • Paid up Share Capital
  • Fifty crore rupees or more during the preceding financial year
  • No Share capital criteria
  • Turnover
  • 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
  • Twenty five crore rupees or more at any point of time during the preceding financial year
  • No deposit criteria
  • 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. For the purposes of this rule, (i) the internal auditor may or may not be an employee of the company and (ii) the term “Chartered Accountant” shall mean a Chartered Accountant whether engaged in practice or not. Internal Auditors cannot render Statutory Audit Services for the same Company (Sec 144 of the Act )
  • The audit committee of the Company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, methodology and periodicity for the conduct of Internal Audit