Internal auditing is an independent, objective assurance and consulting activity designed to add value to and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. Internal auditing achieves this by providing insight and recommendations based on analyses and assessments of data and business processes. With commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called internal auditors are employed by organizations to perform the internal auditing activity.

Text sign showing Internal Audit

The Internal Audit is thus required to be conducted by specified companies as per The Companies Act, 2013. Lets us explore more about Internal Audit.

Internal Audit

What is Internal Audit?

There is no definition of Internal Audit under The Companies Act, 2013. By general parlance, Internal auditing activity is primarily directed at evaluating internal control. Internal control is broadly defined as a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of the following core objectives for which all businesses strive:

  • Effectiveness and efficiency of operations.
  • Reliability of financial and management reporting.
  • Compliance with laws and regulations.
  • Safeguarding of Assets

Which Law governs the Internal Audit?

Internal Audit is governed by the section 138 of The Companies Act, 2013 read with Rule 13 (1) of Companies (Accounts) Rules, 2014 and Rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014.

Which companies are required to conduct internal Audit?

As per The Companies Act, 2013, the following class of companies shall be required to appoint an internal auditor or a firm of internal auditors, namely:-

1. Every listed company;

2. 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

3. 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:

Who conduct an Internal Audit of Companies?

The company is required to appoint an Internal Auditor who can be any of below given person:

  1. a chartered accountant or
  2. a cost accountant, or
  3. such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.

Also note that such person appointed may or may not be the employee of the company. 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.

What is the procedure to appoint Internal Auditor for the company?

The companies which are required to appoint an Internal Auditor have to follow the below given procedure: –

  1. Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting for candidate consideration for appointment as Internal Auditor and sending engagement letter or consent letter from the proposed Internal Auditor.
  2. Obtaining engagement letter or consent letter.
  3. Sending of Notice along with Agenda of Board meeting to all the Directors of company.
  4. Convene board meeting and pass the following Board Resolution.
  5. Sending of Outcome of Board Meeting to Stock exchange wherever company’s securities are listed within 30 minutes from the conclusion of meeting. (this point is applicable for listed companies only)
  6. Sending of Appointment letter to Appointed Internal Auditor.
  7. File e-Form return along with attachments with the Registrar of Companies regarding appointment of Internal Auditor within thirty (30) days from date of Board Meeting.
  8. Making entry in register, minute books, etc of company.

What forms are required to appoint an Internal Auditor?

Only one E-form is required t be filed by the company i.e. MGT-14 within thirty (30) days from date of Board Meeting as per The Companies Act, 2013.

What is a company fails to appoint an Internal Auditor?

Every Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ₹ 10,000/- and where the contravention is continuing one with a further fine which may extend to ₹ 1,000/– for every day after the first during which the contravention continues.


Disclaimer: – The above article is prepared keeping in mind all the important and basic question as well as provision of section 138 of the Companies Act, 2013 which comes in mind of a professional or other stakeholder while appointing an Internal Auditor. The author has tried to cover all the important and basic question. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

(The Author is Corporate Consultant and provides varied array of services including Start-ups mentor, Secretarial, Legal, Trademark, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can be contacted through email id:- [email protected] and Contact Number: 91-8178515005)

Author Bio

Qualification: CS
Company: Proventure- Aiding your Business
Location: NEW DELHI, New Delhi, IN
Member Since: 06 Jul 2019 | Total Posts: 63
I am Company Secretary and engaged with this profession from last nine (9) years. Throughout this journey, my moto is to help people start their startups and business. View Full Profile

My Published Posts

More Under Company Law

One Comment

  1. c m rajendra says:

    Last 6 years our internal audit not up to the mark , now we have to appoint a internal auditor for next 3 F/ys 2021-22,2022-23 & 2023-24 that to be from peportal becuse our is GOVT Dept, kindly enlighten me how frame a terms & conditions to get Good CA co.,

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

April 2021