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All about Internal Audit Applicability

Internal Audit Applicability: Section 138 of Companies Act 2013, deals with Internal Audit.

Applicability of Internal Audit: 

Following companies are required to appoint Internal Auditor (As per Rule13 of Chapter IX-Co.s Accounts Rules 2014):

  1. All Listed Public Companies.
  2. Unlisted Public Companies, if it satisfies the following conditions:
  • Paid up share capital of Rs. 50 Crore or more during the preceding  financial year;   OR
  • Turnover of Rs.200 Crore or more during preceeding financial year;  OR
  • Outstanding loans or borrowings from banks or public financial institutions exceeding Rs.100 Crore or more at any point of time during the preceeding financial year; OR
  • Outstanding deposits of Rs 25 crore or more  at any point of time during the preceeding financial year; AND
  1. Private Companies,  if it satisfies the following conditions:
  • Turnover of Rs.200 Crore or more during preceeding financial year.
  • Outstanding loans or borrowings from banks or public financial institutions exceeding Rs.100 Crore or more at any point of time during the preceeding financial year.

Transitional Period:

An existing company covered under any of the above criteria shall comply the requirements of section 138 and this rule within 6 months of commencement of this section.

Who can be Internal Auditor?

For the purpose of this rule internal auditor can be:

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  • A chartered accountant (whether engaged in practice or not) or
  • A cost accountant or
  • Such other professional as may be decided by the board.

Note: Internal auditor may or may not be the employee of the company.

Example 1: 

S Pvt Ltd is a textile industry having turnover of Rs. 300 crores, outstanding loans of Rs. 10 Crores during the immediately preceeding financial year. You are required to state whether the company is liable for internal audit.

As per the provisions of sec 138 of Companies Act, 2013 as the turnover of S Pvt ltd is more than Rs 200 crores, S Pvt ltd is liable for internal audit.

Example 2:

P Ltd is a listed company having turnover of Rs 10 Crore. The company has no internal audit systems. Give your views.

As per the provisions of section 138 of Companies Act, 2013, since P Ltd is a listed company it is required to have internal audit without any relevance to turnover limits.

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All about Internal Audit Applicability

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