Procedures under Companies Act, 2013

Appointment of an Internal Auditor of the Company and Conduction of Internal Audit

In accordance with Section 138(1) of the Companies Act, 2013, such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.

Key Considerations:

  • Only following class of companies as prescribed in the Companies (Accounts) Rules, 2014 are required to appoint an Internal Auditor or a firm of internal auditors, namely:-

    • a) Every Listed Company;

      b) Every unlisted Public Company having-

        i. paid up share capital of Rupees 50 crore or more during the preceding financial year; or

        ii. turnover of Rupees 200 crore or more during the preceding financial year; or

        iii. outstanding loans or borrowings from banks or public financial institutions exceeding Rupees 100 crore or more at any point of time during the preceding financial year; or

        iv. outstanding deposits of Rupees 25 crore or more at any point of time during the preceding financial year; and

      c) every private company having-

        i. turnover of Rupees 200 crore or more during the preceding financial year; or

        ii. outstanding loans or borrowings from banks or public financial institutions exceeding Rupees 100 crore or more at any point of time during the preceding financial year.

      [Rule 13(1) of the Companies (Accounts) Rules, 2014]

  • Person to be appointed as Internal Auditor shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board. Internal auditor may or may not be an employee of the company. Chartered Accountant means a Chartered Accountant whether engaged in practice or not. (Section 138(1) and Explanation to Rule 13(1) of Companies (Accounts) Rules, 2014.

  • Internal Auditor cannot be appointed by the Board by passing a resolution by circulation. (Section 179 (3)(k) and Rule 8(4) of the Companies (Meetings of Board and its Powers) Rules, 2014

  • Statutory Auditor shall not be appointed as Internal Auditor of the Company. (Section 144(a).

The following procedure is to be followed for Appointment of an Internal Auditor and conduction of Internal Audit of a Company under Section 138 read with Rule No. 13 of the Companies (Accounts) Rules, 2014:-The

1. Ensure that internal auditor proposed to be appointed shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company. [Section 138(1)]. The person so proposed to be appointed as internal auditor, may or may not be the employee of the company.

2. Obtain written consent and a certificate from the proposed internal auditor to the effect of his eligibility under the Act.

3. Issue not less than 7 days notice and agenda of Board meeting, or a shorter notice in case of urgent business, in writing to every director of the company at his address registered with the company and call a Board Meeting to appoint an Internal Auditor of the company and to fix his remuneration. [Section 173(3). Also follow the procedure prescribed for issuing and signing of notice of Board Meeting.

4. Hold a meeting of Board of Directors-

  • To pass the necessary Board Resolution for the appointment of an internal auditor of the company and to fix his remuneration.

  • To authorize Company Secretary or any Director to sign and file the relevant form with Registrar of Companies and to do such acts, deeds and things as may be necessary to give effect to the Boards decision

5. Prepare and circulate draft minutes within 15 days from the date of the conclusion of the Board Meeting, by hand/speed post/registered post/courier/e-mail to all the Directors for their comments. Alsofollow the procedure prescribed for preparing, circulation, signing and compiling of Board Minutes.(Secretarial Standards-1 )

6. In case of a public company, file a certified copy of the Board resolution approving the appointment of an internal auditor with the Registrar in Form No. MGT.14 under Section 117 of the Act along with fee as provided in the Companies (Registration offices and fees) Rules, 2014 within 30 days of passing Board Resolution. [Section 117(3)(g), 179(3)(k) and Rule 8(4) of the Companies (Meetings of Board and its Powers) Rules, 2014].

[A private company is not required to file MGT-14.]

7. Issue the appointment letter to the concerned Internal Auditor.

8. In case of companies which are required to constitute an Audit Committee under section 177, the Audit Committee of the company shall and in other companies the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit of the Company. [Rule 13(2) of the Companies (Accounts) Rules, 2014]

9. The central government may make rules to prescribe the manner and the intervals in which the internal audit shall be conducted and reported to the Board. [Section 138(2)]


Procedure Authors

ACS Divya Jain
ACS Palak Jain
ACS Ankita Jain
ACS Sugandh Jain
ACS Mansi Kapor
ACS Bhawna Sharma


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