The Internal Audit prescribed under Section 138 of Companies Act 2013 has become an apple of discord between the Chartered Accountants and Cost Accountants simply because of defective law governing it. However nobody is addressing the issue for correcting the law to the govt. and CAs are being accused of prevailing over the prerogative to conduct all types of audits of companies in the country.
I wish to point out the loopholes and ambiguity in the laws that govern the Internal Audit that has actually created the anarchy as under-
1. CA 2013 defines chartered accountants and cost accountants as member of ICAI or ICMAI holding CoP therefrom, hence company can not appoint any CA or CMA who is not in practice as internal auditor.
2. Sec 138 empowers company to appoint any CA or CMA or any other professional as decided by board of directors of company. Therefore any professional can be appointed as internal auditor who may be employee or consultant or any technical person.
3. Statutory Audit has been defined nowhere in the law and various types of statutory audits under Income Tax, VAT, Central Excise, GST and other State Laws are applicable to the company/firm
4. Internal Audit Report can not be used as a basis for evaluation of disclosure, correctness, completeness or otherwise of books of accounts and financial reports of the company by any external auditors or regulators or can be relied upon it.
5. Internal Auditor may be employee or friend or any technical person as decided by the management, hence he can not be prosecuted by authorities for professional misconduct or otherwise under professional laws.
6. Management has exclusive rights under law to appoint any person deemed fit for internal audit of its affairs and can apply any lawful procedure for selection of auditor.
7. Rules governing the appointment of internal auditor in public sector undertakings and large companies are ultra vires law and constitutional freedom and must be struck down by apex court.
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