Section 138 of the Companies Act, 2013
Section 138 of the Companies Act, 2013 deals with the Internal Audit of companies.
📜 Section 138 – Internal Audit
Provision:
Section 138 mandates certain classes of companies to appoint an internal auditor, who shall conduct internal audit of the functions and activities of the company and report to the Board of Directors.
✅ Key Points:
Who is an Internal Auditor?
The internal auditor can be:
A chartered accountant (whether or not in practice), or
A cost accountant, or
Any other professional as may be decided by the Board.
Purpose of Internal Audit:
To assess and improve the effectiveness of risk management, control, and governance processes.
To ensure compliance and operational efficiency.
Appointment:
The internal auditor is appointed by the Board.
The scope, functioning, periodicity, and methodology of the internal audit is decided by the Board in consultation with the internal auditor.
🏢 Applicability (as per Companies (Accounts) Rules, 2014):
Internal Audit is mandatory for the following companies:
(a) Listed Companies – All listed companies.
(b) Unlisted Public Companies, having:
Paid-up share capital ≥ ₹50 crore, or
Turnover ≥ ₹200 crore, or
Outstanding loans/borrowings from banks or PFI ≥ ₹100 crore, or
Outstanding deposits ≥ ₹25 crore.
(c) Private Companies, having:
Turnover ≥ ₹200 crore, or
Outstanding loans/borrowings from banks or PFI ≥ ₹100 crore.
✅ Thresholds are based on preceding financial year figures.
🧾 Important Notes:
The internal audit report is presented to the Board but not required to be submitted to the ROC.
It is different from statutory audit (which is done by an external auditor).
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