In short
Applies to: Listed companies, and unlisted public and private companies that cross the Section 138 limits
- Internal audit under Section 138 applies to every listed company, and to unlisted public and private companies above limits tested on the preceding financial year.
- Section 138 names a Chartered Accountant, a Cost Accountant, or such other professional as the Board decides. The statutory auditor cannot also do the internal audit.
Is internal audit compulsory for our company?
It applies to every listed company. An unlisted public company is covered if, in the preceding financial year, it had paid-up capital of ₹50 crore or more, turnover of ₹200 crore or more, borrowings from banks or public financial institutions above ₹100 crore at any time, or deposits of ₹25 crore or more. A private company is covered only by two tests: turnover of ₹200 crore or more, or borrowings above ₹100 crore at any time. The borrowing test looks at any point during the year, not just the closing balance.
Can a Cost Accountant be appointed as internal auditor?
Yes. Section 138 names a Chartered Accountant, a Cost Accountant, or such other professional as the Board decides. The internal auditor may be an individual, a firm or a body corporate, and may or may not be an employee of the company.
Can our statutory auditor also do our internal audit?
No. Section 144 lists internal audit among the services a statutory auditor cannot provide to the company it audits, directly or indirectly.
Laws and guidance
Companies Act, 2013 (Section 138) and the internal audit guidance of the Institute of Cost Accountants of India (ICMAI)
Applicability of Section 138 depends on the company's class and figures for the preceding financial year, and is assessed case by case. Engagements are accepted only where independence requirements are met.
This article is for general information only and does not constitute professional advice. Please consult a qualified professional before acting on it.
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