Introduction
Internal audit has emerged as a cornerstone of corporate governance, ensuring transparency, accountability, and operational efficiency within organizations. The Companies Act, 2013 introduced mandatory provisions for internal audits under Section 138, making it a statutory requirement for certain classes of companies. This move was aimed at strengthening risk management, improving internal controls, and safeguarding stakeholder interests.
Under the Act, internal audit is not merely a compliance exercise—it is a strategic tool that evaluates the effectiveness of processes, detects irregularities, and recommends improvements. The applicability of these provisions depends on specific thresholds related to company type, turnover, capital, and borrowings, as prescribed under Rule 13 of the Companies (Accounts) Rules, 2014. Furthermore, reporting requirements and the role of the Audit Committee or Board in defining the scope and methodology underscore the importance of this function in modern corporate governance.
Applicability
Section 138 of the Companies Act, 2013 read with Rule 13 of the Companies (Accounts) Rules, 2014 provides the applicability of Mandatory appointment of Internal Auditor
(a) every listed company
(b) every unlisted company having:-
(i) paid up share capital of Rs.50 cr or more during the preceding FY; or
(ii) turnover of Rs.200 cr or more during the preceding FY; or
(iii) outstanding loans or borrowing from banks or public financial institution exceeding Rs.100 cr or more at any point of time during the preceding FY; or
(iv) outstanding deposits of Rs.25 cr or more at any point of time during the preceding FY
(c) every private company having:-
(i) turnover of Rs. 200 cr or more during the preceding FY; or
(ii) outstanding loans or borrowing from banks or public financial institution exceeding Rs.100 cr or more at any point of time during the preceding FY
Who can be an Internal Auditor?
For being appointed as an Internal Auditor, the section 138 says that internal auditor can be either a Chartered Accountant or Cost Accountant or such other professional as may be decided by the Board of Directors.
Further the explanation to Rule 13 of Companies (Accounts) Rules, 2014 says that, and internal auditor may or may not be an employee of the company. And Chartered Accountant or the Cost Accountant may or may not be engaged in practice.
Appointment Process
(a) Audit Committee identifies and evaluates prospective auditor.
(b) Auditor gives written consent.
(c) Audit Committee recommends appointment to the Board.
(d) Board of Directors approves in their meeting.
(e) Formal appointment letter issued to the auditor.
Compliance & Reporting
[A] When to appoint?
If a company crosses the prescribed threshold / criteria (such as turnover, paid-up capital, loans, deposits as per rule 13) in a given financial year, Appointment must be completed within 6 months from the date the company falls under the criteria. The 6-month period starts from the beginning of the next financial year or from the date of applicability.
The preceding financial year is considered for checking limits.
For example: ABC Private Limited or Limited touches paid up capital of Rs. 200 cr on 1st December 2025 than this company needs to appoint an internal auditor by 30th September 2026 i.e. 6 months from closure of preceding Financial Year which is 2025-26.
[B] Filings under Companies Act, 2013
As per Section 117 (1) & (3) which talks about Resolution and agreement to be filed with ROC and Section 179(3) Companies Act, 2013 read with Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014, which talks about powers of the board: all public companies (whether listed or unlisted) including deemed public companies (i.e. subsidiaries of public companies) need to file MGT-14 within 30 days from the appointment of internal auditor.
Exemption for Private Companies: MCA Notification dated 5th June 2015 exempts private companies from filing MGT-14 for resolutions under Section 179(3) and Rule 8.
[C] Disclosures under LODR
Regulation 30 of SEBI LODR: Requires disclosure of material events to the stock exchange.
Schedule III, Part A, Para A(7): Specifically includes appointment or resignation of key managerial personnel, internal auditor, or compliance officer as a material event.
Listed entity must intimate the stock exchange(s) where its securities are listed within 24 hours of the Board meeting in which the appointment is approved.
Disclosure must be made in the prescribed format under SEBI Circular SEBI/HO/CFD/CFD-PoD-1/P/CIR/2023/123 dated July 13, 2023, which should include:
- Name of the internal auditor.
- Reason for Change (appointment/ re-appointment/resignation/removal/death)
- Date of appointment and terms.
- Brief profile (qualifications, experience).
And at last update the company’s website with details of the appointment as per Regulation 46 (read with regulation 30(8))
**to be noted prior intimation under regulation 29 not required*
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