As per Section 138 of the Companies Act, a certain class of companies are required to appoint an internal auditor for conducting internal audit which evaluates the function and activities of the company. The internal auditor can be the chartered accountant or a cost accountant, or such other professional as decided by the Board can be appointed as the Internal Auditor. In this article, we look at the requirement and procedure for the appointment of Internal Auditor in detail.

Eligibility Criteria for Appointment of Internal Auditor

Internal Auditors are professionals who are appointed by the concerned organisation for internal auditing of the company. According to the Section 138 of the companies Act, the internal auditor can be chartered accountant or a cost accountant, company secretary or such other professional decided by the Board of Directors of the company for the purpose of internal auditing.

The following are the companies are mandatorily required to appoint an internal auditor:

  • Any listed companies
  • Any unlisted public company having-
    • Paid-up share capital of Rs.50 crore or above during the preceding financial year.
    • Annual turnover of income of Rs.200 crores or above during the preceding financial year.
    • Outstanding loans or borrowings from either banks or public financial institutions that are exceeding Rs.100 crores or above during the preceding financial year.
    • Outstanding deposits of Rs.25 crores or above during the preceding financial year.
  • In case of any private company  having-
    • Annual turnover of income of Rs.200 crores or above during the preceding financial year.
    • Outstanding loans or borrowings from either banks or public financial institutions that are exceeding Rs.100 crores or above during the preceding financial year.

Duties and Responsibilities

An Internal auditor has the following duties and responsibilities in a company as listed below:

  • Evaluate risk management, corporate governance system, which is functioning as intended to meet the organisation goals.
  • Issue report of risk management and control deficiencies identified by the auditor. Also, the internal auditor provides recommendations in pursuit of improving the performance towards the organisation.
  • Evaluate risk exposures and security threat of the organisation information.
  • Evaluate programs relevant to regulatory compliance.
  • Evaluate the readiness of the organization in case of any interruption towards the business of the organization.
  • Provide workshops and seminars towards education and staff development
  • Plays a major role in maintaining the organization’s anti-fraud programs.

Note: The internal auditor should report to the audit committee. The audit committee or the board should, along with the internal auditor formulate the function, scope, periodicity and methodology of conducting the internal audit. Further, both the audit committee and the board are required to consider the efficiency of internal control systems and financial controls in the company.