Internal Audit Applicability Under Companies Act 2013

Summary: Section 138 of the Companies Act, 2013 mandates that specific companies appoint an internal auditor. These include listed companies, unlisted public companies with paid-up capital of ₹50 crores or more, or those with turnover of ₹200 crores or higher, as well as private companies meeting similar financial thresholds. The internal auditor must be a Chartered Accountant, Cost Accountant, or any other professional as approved by the board, and may or may not be an employee of the company. However, statutory auditors cannot serve as internal auditors. While the Act does not specify penalties for failing to comply with internal audit requirements, companies and officers in default may face penalties under Section 450 of the Act, with a fine of ₹10,000 and an additional ₹1,000 per day for continued non-compliance. These provisions are designed to ensure transparency and accountability in corporate financial operations.

As per section 138(1), all companies as prescribed [under rule 13 of Companies (Accounts) Rule, 2014]* shall be required to appoint internal auditor, who shall be a Chartered Accountant or Cost Accountant (whether in practice or not) or any other professional as decided by board to conduct the internal audit of the company.

# The internal auditor may or may not be an employee of the company.

## A statutory auditor can’t be an internal auditor as per Section 144(b) of the Corporations Act 2013.

### There are no specific penalties for non compliance with the provisions of internal audit. However, in that situation general penalty u/s 450 of the act shall be applicable. (Company in default and all officer of the company at the time of default shall be liable to a penalty of 10,000/- and further 1,000/- per day if contravention continues)

*Relevant extract of Rule 13 of the Companies (Accounts) Rules, 2014:

1. Following companies shall be required to appoint an internal auditor:

1. Every Listed Company

2. Every Unlisted public company having-

1. 1. • Paid up share capital- 50 Crores or more- Preceding financial year or
      • Turnover** – 200 Crores or more- Preceding financial year or
      • Outstanding loans & borrowings from banks or Public financial institutions– 100 Crores or more- at any time during Preceding financial year or
      • Outstanding Deposits- 25 Crores or more- at any time during Preceding financial year

3. Every Private company having-

1. 1. • Turnover** – 200 Crores or more- Preceding financial year or
      • Outstanding loans & borrowings from banks or Public financial institutions – 100 Crores or more- at any time during Preceding financial year

** “Turnover” means the gross amount of revenue recognised in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year.