Appointment of Internal Auditor
Appointment of Internal Auditor
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 companies 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.
Process for the appointment of Internal Auditor
An Internal Auditor could be appointed by passing a Board Resolution for this purpose. Before such an appointment, the Board members must endorse the terms and conditions of the appointment, and the Company Secretary must issue a Witten Consent for the role. If appointed, the details of the appointed Internal Auditor must be furnished in the register and submitted to the Registrar of Companies (ROC). These details are to be furnished and submitted within thirty days of such appointment in Form MGT-14 should be filed within thirty days of the passing of Board Resolution with the Consent Letter.
Format of the Board Resolution
“RESOLVED THAT pursuant to provisions of section 138 of Companies act 2013 read with rule 13 of the Companies (Accounts) Rules, 2014 and section 179 of the said Act read with rule 8 of the Companies (Meetings of board and its Powers) Rules, 2014 and other applicable provisions, if any, M/s ____________ (a firm of practising cost accountants/ charatered accountants/ company secretaries represented by Mr. ______________, having membership number ___________)/ Mr. ____________, Cost Accountant/ Chartered Accountant/ Company Secreatary/ ____________ (any other professional) having membershipnumber ___________ be and is hereby appointed as Internal Auditors of the company on the terms contained in the draft appointment letter containing scope, functioning, periodicity, and methodology of the audit placed before the Board.
RESOLVED FURTHER THAT Mr. _____________ Director (DIN: ___________) and Mr. __________ (DIN:__________) hereby severally authorized to take such steps and to do all such acts, deeds and things as may be necessary in this regard and to negotiate and fix the terms and conditions including the remuneration, to convey the acceptance of the terms, to sign the appointment letter and digitally signing and filing the necessary forms and returns, and generally to do all such acts, deeds, matters and things as may be necessary, proper, expedient or incidental fro giving effect to this resolution.”
Penalty for Non-Compliance
If a company or any other officer of the company, contravenes the provisions of this section, then the company or any officer of the company who is in default is liable for punishment with a penalty of up to Rs.10,000. In case of continuation of default in complying with the above section further fine of Rs.1,000 per day will be imposed.
