SECTION 138. INTERNAL AUDIT
[Effective from 1st April, 2014]
EXEMPTION
In case of a Specified Public Company Section 138 shall apply if the articles of the company provides for the same, vide Notification No. 8(E) dated 04th January, 2017.
In case of a Specified private Company Section 138 shall apply if the articles of the company provides for the same, vide Notification No. 9(E) dated 04th January, 2017.
(1) Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a 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.
(2) The Central Government may, by rules, prescribe the manner and the intervals in which the internal audit shall be conducted and reported to the Board.
Applicable Rules
Companies (Accounts) Rules, 2014
[Effective from 1st April, 2014]
Rule 13. Companies required to appoint internal auditor.—(1) The following class of companies shall be required to appoint an internal auditor [which may be either an individual or a partnership firm or a body corporate][1] namely:—
(a) every listed company;
(b) every unlisted public company having—
(i) paid up share capital of fifty crore rupees or more during the preceding financial year; or
(ii) turnover of two hundred crore rupees or more during the preceding financial year; or
(iii) 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; or
(iv) outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and
(c) every private company having—
(i) turnover of two hundred crore rupees or more during the preceding financial year; or
(ii) 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:
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.
Explanation.—For the purposes of this rule—
(i) the internal auditor may or may not be an employee of the company;
(ii) [the term “Chartered Accountant” or “Cost Accountant'”shall mean a “Chartered Accountant” or a “Cost Accountant”, as the case may be, whether engaged in practice or not.][2]
(2) The Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit.
[1] Substituted for the words “or a firm of internal auditors” by the Companies (Accounts) Amendment Rules, 2016 vide Notification No. 742(E) dated 27th July, 2016.
[2] Substituted by the Companies (Accounts) Amendment Rules, 2016 vide Notification No. 742(E) dated 27th July, 2016. Prior to the substitution it read as under:
” the term “Chartered Accountant” shall mean a Chartered Accountant whether engaged in practice or not.”
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