The applicability of internal audit under the Companies Act, 2013 is governed by the provisions of Section 138 of the Act and Rule 13 of the Companies (Accounts) Rules, 2014. These regulations specify the companies that are required to undertake internal audit. The following categories of companies fall under the purview of internal audit:
1. Listed Companies: Every listed company, regardless of its size or financial thresholds, is required to conduct internal audits.
2. Unlisted Public Companies: Unlisted public companies meeting any of the following criteria during the preceding financial year are required to conduct internal audits:
- Turnover of INR 200 crores or more.
- Paid-up share capital of INR 50 crores or more.
- Outstanding loans/borrowings from banks/public financial institutions exceeding INR 100 crores or more at any point in time.
- Outstanding deposits of INR 25 crores or more at any point in time.
3. Private Companies: Private companies meeting any of the following criteria during the preceding financial year are required to conduct internal audits:
- Turnover of INR 200 crores or more.
- Outstanding loans/borrowings from banks/public financial institutions exceeding INR 100 crores or more at any point in time.
Regarding the scope of internal audit, it is important to note that the Companies Act, 2013 and the related rules do not specifically prescribe the scope. However, Rule 13(2) of the Companies (Accounts) Rules, 2014 states that the audit committee of the company or the board, in consultation with the internal auditor, will determine the scope, periodicity, functioning, and methodology for conducting the internal audit of the company.
It is essential for companies falling under the applicable criteria to comply with the internal audit requirements as mandated by the Companies Act, 2013, and the rules set forth by the regulatory authorities. By conducting internal audits, these companies can enhance transparency, ensure compliance, and strengthen their governance practices.
Qualification of Internal Auditor
The qualification of an internal auditor is determined by Section 138(1) of the Companies Act, 2013. The internal auditor appointed by companies required to conduct internal audits must meet one of the following qualifications:
1. Chartered Accountant: The internal auditor can be a Chartered Accountant, whether engaged in practice or not.
2. Cost Accountant: The internal auditor can also be a Cost Accountant, whether engaged in practice or not.
3. Other Professionals: The Board of the company has the authority to decide whether to appoint any other professional as the internal auditor.
It is crucial to note that the Companies Act, 2013, under Section 144(b), prohibits the appointment of the statutory auditor of the company as its internal auditor. This means that the statutory auditor and the internal auditor cannot be the same person.
Additionally, as per the explanation to Rule 13 of the Companies (Accounts) Rules, 2014, an employee of the company can also be appointed as an internal auditor.
Appointment of Internal Auditor
The procedure for the appointment of an internal auditor includes the following steps:
1. Obtain written consent and a certificate from the proposed internal auditor, confirming their eligibility as per the provisions of the Companies Act, 2013.
2. Issue a notice to call a board meeting for the appointment of the internal auditor and determine their remuneration.
3. Conduct the board meeting and pass a resolution authorizing the appointment of the internal auditor. The company secretary or any director may be authorized to sign and file the relevant form with the Registrar of Companies (ROC).
4. Prepare the draft minutes of the board meeting and circulate them to all directors for their comments within 15 days of the meeting's completion.
5. File a certified copy of the board's resolution approving the appointment of the internal auditor with the ROC. This filing is done in Form MGT-14 under Section 117 of the Companies Act, 2013, within 30 days from the date of the board's resolution. However, this filing requirement applies only to public companies.
6. Issue an appointment letter to the appointed internal auditor.
By following these procedures, companies ensure compliance with the Companies Act, 2013, regarding the appointment of an internal auditor and establish a framework for effective internal auditing.
Comentarios