28 April 2014 | Volume 6 Issue 2
Certain Companies Required to Appoint an Internal Auditor
 
The Companies Act, 2013 (the Act), which will eventually replace the Companies Act, 1956 in its entirety, is being notified by the Ministry of Corporate Affairs (MCA) in parts. On 26 March 2014, 183 sections were further notified (for details, please click here). In continuation of the said notification, rules relating to certain provisions were notified by the MCA on 28 March 2014. The provisions relevant to the appointment of an Internal Auditor are given below.

Provisions Relating to the Appointment of an Internal Auditor
  • Section 138 of the Act mandates the appointment of an Internal Auditor for specified classes of companies.  The Companies (Accounts) Rules, 2014 prescribe the classes of companies that are required to comply with this provision. 
  • The Internal Auditor can be either a chartered accountant or a firm of chartered accountants or a cost accountant. The Board can also appoint any other professional as an Internal Auditor.
  • The Internal Auditor will be responsible for conducting the internal audit of the functions and activities of the company. 
  • The scope of Internal Audit, its periodicity and methodology are to be formulated by the Board or the Audit Committee. This shall be formulated in consultation with the Internal Auditor.
Classes of Companies Required to Appoint an Internal Auditor
  1. Listed Companies: Appointment of an Internal Auditor is mandatory
  2. Unlisted Public Company and Private Companies: Appointment of an Internal Auditor is mandatory if either of the following criteria are met:
Criteria* Unlisted Public Companies Private Companies
 
  Paid-up share capital

 
  INR 500 million (50 crore)
  or more
  Not a determining factor

  Turnover
 
  INR 2 billion (200 crore)
  or more
  INR 2 billion (200 crore)
  or 
more
 
  Outstanding loans or
  borrowings from banks or
  public financial institutions

 
  INR 1 billion (100 crore)
  or more
  INR 1 billion (100 crore)
  or 
more
 
  Outstanding deposits

 
  INR 250 million (25 crore)
  or more
  Not a determining factor
*to be checked for the preceding financial year

Existing Companies

Existing companies meeting the above criteria need to comply with the provisions within six months from 1 April 2014.

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ABOUT THIS BUSINESS ALERT
This SKP Business Alert contains general information existing at the time of its preparation only. It is intended as a news update and is not intended to be comprehensive nor to provide specific accounting, business, financial, investment, legal, tax or other professional advice or opinion or services. This business alert is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and also refer to the source pronouncement/documents on which this business alert is based. It is also expressly clarified that this business alert is not a solicitation or an invitation of any sort whatsoever or a source of advertising from SKP Group or any of its entities to create any adviser-client relationship.

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