Introduction
Navigating the intricacies of internal auditor compliance in the Indian Companies Act is crucial for businesses. Today, I want to shed light on the intricate requirements for appointing internal auditors in Indian companies. In this simplified guide, we’ll address key questions surrounding the appointment of internal auditors, ensuring clarity and understanding.
Understanding the Basics
Companies in India are required to appoint internal auditors based on specific financial parameters. For listed companies, the obligation is clear.
However, for unlisted public companies, the criteria include:
- Paid-up Share Capital: ₹50 crore or more OR
- Turnover: ₹200 crore or more OR
- Outstanding Loans/Borrowings: Exceeding ₹100 crore at any point during the previous financial year OR
- Outstanding Deposits: ₹25 crore or more at any point during the previous financial year.
Private Companies, on the other hand, need to appoint internal auditors if they meet:
- Turnover: ₹200 crore or more OR
- Outstanding Loans/Borrowings: Exceeding ₹100 crore at any point during the previous financial year.
Why Does It Matter?
Internal audits are critical for ensuring financial integrity, risk management, and compliance adherence. By understanding and meeting these criteria, businesses enhance their governance structures and financial transparency, fostering trust among stakeholders.
Formulating the Internal Audit Framework:
The Audit Committee of the company or the Board, in collaboration with the Internal Auditor together, they design the blueprint for the internal audit, encompassing the:
- Scope: Defining the areas within the company to be audited.
- Functioning: Outlining the roles, responsibilities, and workflow of the internal audit team.
- Periodicity: Determining the frequency of internal audits to ensure timely evaluations.
- Methodology: Establishing the techniques and tools to be employed during the audit process.
Let’s delve deeper into the frequently asked questions to demystify this process.
1. Can the Internal Auditor be an Employee of the Company? The internal auditor may or may not be an employee of the company, offering flexibility in appointment choices.
2. Reporting requirements for Private Limited Companies: For private limited companies, there’s no mandatory intimation required to the Registrar of Companies (ROC) for the internal auditor’s appointment.
3. Reporting requirements for Public Limited Companies: Public limited companies must diligently file Form MGT 14 with the ROC within 30 days of appointing an internal auditor, ensuring legal compliance.
4. Can a Company Secretary (CS) Conduct Internal Audits?
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- If a CS is employed, they can conduct internal audits upon Board approval.
- Practicing Company Secretaries (PCS) can also conduct internal audits with Board consent, showcasing the importance of qualified professionals in the process.
5. Can the Appointment be made through a Circular Resolution? No, the appointment of the internal auditor cannot be made through a circular resolution. It should be done only at a duly held Board Meeting.
6. Can the Statutory Auditor Act as the Internal Auditor? No, statutory auditors cannot act as internal auditors. The internal auditor must be a distinct entity, maintaining separation for unbiased oversight.
7. What is the time limit for the appointment of an Internal Auditor (IA)? Companies falling within the specified financial parameters are required to appoint an Internal Auditor within six months from the date when the relevant section became applicable to them.
8. Can only individuals be appointed as Internal Auditors (IA)? Companies have the flexibility to appoint either an individual, a partnership firm, or a body corporate as their Internal Auditor.
9. Whether only a CA in practice can- conduct Internal Audit (IA)? A qualified professional holding a CA/ CS certificate can conduct IA, regardless of whether they are actively engaged in practice or not.
Conclusion: Rest assured; your journey through complying with Section 138 and Rule 13 of Companies (Accounts) Rules, 2014, just got simpler. This guide is your go-to resource, offering easy-to-understand insights and assistance. Remember, I’m here to simplify the process, making sure your company complies effortlessly and efficiently.
Your support is vital; kindly consider liking, sharing, and commenting to enhance its reach.
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About the Author: The author is a qualified Company Secretary with over five years of comprehensive experience and knowledge in navigating complex Acts, Rules, and Regulations, including but not limited to The Companies Act, 2013, FEMA, LODR, PIT, SEBI ICDR, and more. With a strong passion for the law and an ongoing pursuit of an LLB degree, they possess a comprehensive understanding of legal principles and practices. The author can be contacted at [email protected].
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. For legal advice, please consult with a Qualified Company Secretary familiar with the relevant laws and regulations. I make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the article or the information contained in it.
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