When we say Sec. 138- every one will immediately think of the Sec. 138 under Negotiable instruments Act, which details the procedure to be followed in Cheque bouncing cases. Under Companies Act 2013, Sec. 138 is the one which deals with Internal auditors.
Corresponding Section in Companies Act 1956
There was no corresponding section similar to the present Sec. 138 in Companies Act 1956. Companies have been doing internal audit based on CARO rules. Now the Companies Act itself prescribes Internal audit and its applicability is going to reach thousands of Companies for the first time.
Who can be an Internal auditor?
Sec. 138 prescribes that “Such class of Companies which are required to appoint an internal auditor – shall appoint a person as Internal auditor who shall be either a Chartered Accountant, Cost Accountant or such other professional as may be decided by the Board”.
On a plain reading of the above section, while Chartered accountants and Cost accountants have been mentioned as the professionals to do Internal audit, Board can give the assignment to another professional who is capable of doing it. So, the Company Secretaries or Advocates also stand a chance to be an Internal auditor.
However practically speaking, the Chartered accountants will take the most of the new assignments that will come in the form of Internal audit. In case if a PCS firm is already into some financial activity and has a good track record & a good relationship with the Company, it may also stand a chance to get the Internal audit assignment.
Periodicity of Internal audit
As regards the periodicity, Sec. 138 (2) says that “ Central government will prescribe the manner and intervals in which the internal audit shall be conducted”.
While the section gives power to Central Government, the Draft Rule delegates that power to Audit Committee of the Company. As per Rule 9.15 (2), Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for
While the section gives power to Central Government, the Draft Rule delegates that power to Audit Committee of the Company. As per Rule 9.15 (2), Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for
conducting the internal audit.
Which companies are mandatorily required to do Internal audit?
The Draft Rules details the Companies for which Internal audit will be applicable.
As per the Draft Rule, 9.15 (1), the following class of companies shall be required to appoint an internal auditor or a firm of internal auditors:-
(a) every listed company
(b) every public company having paid up share capital of Rupees 10 crores or more;
(c) every other public company which has any outstanding loans or borrowings from banks or public financial institutions exceeding 25 crore rupees or which has accepted deposits of 25 crore rupees or more at any point of time during the last financial year.
Following points are worth pondering:
i) All Public Limited Companies with paid up capital of Rs. 10 crores or more is required to do Internal audit. It must be mentioned here that Secretarial audit, which is an annual affair is prescribed only for Companies with paid up capital of Rs. 100 crores or more. Lot of Company Secretary professionals have given suggestion to reduce the Secretarial audit limit also in line with the Internal audit provision i-e: 10 crores. We need to wait and see what is the final slab prescribed by the Government.
ii) Most of the exemptions given to Private Limited Companies have been removed under the Companies Act 2013; now many exemptions are given to One person Company or Small Company only. However Internal audit is one provision which is exempt for a Private Limited Company.
iii) There are Companies which have Internal audit team in their Company itself. In that case, the Audit team will be employees of the concerned Company. Whether the new law will recognize such practice is something which we will get to know, as time progresses.
Conclusion :
Once the Sec. 138 is implemented, thousands of Companies will look for a new Internal auditor, as they do not have one now. So great opportunity awaits the professionals.
i) All Public Limited Companies with paid up capital of Rs. 10 crores or more is required to do Internal audit. It must be mentioned here that Secretarial audit, which is an annual affair is prescribed only for Companies with paid up capital of Rs. 100 crores or more. Lot of Company Secretary professionals have given suggestion to reduce the Secretarial audit limit also in line with the Internal audit provision i-e: 10 crores. We need to wait and see what is the final slab prescribed by the Government.
ii) Most of the exemptions given to Private Limited Companies have been removed under the Companies Act 2013; now many exemptions are given to One person Company or Small Company only. However Internal audit is one provision which is exempt for a Private Limited Company.
iii) There are Companies which have Internal audit team in their Company itself. In that case, the Audit team will be employees of the concerned Company. Whether the new law will recognize such practice is something which we will get to know, as time progresses.
Conclusion :
Once the Sec. 138 is implemented, thousands of Companies will look for a new Internal auditor, as they do not have one now. So great opportunity awaits the professionals.
dear sir,
ReplyDeletemy view is that a CS professional with financial & accounts experience with or without accounts qualification i.e., MBA /CMA can get internal audit from lot of companies in future. Though CA can play aggressive role on getting more internal audit from new companies, but due to conflict of interest as being the Statutory auditor of those firms, it will be strongly considered other 2 professional for engaging.. as internal auditor
good luck to all :)
rgs
P Thirumalaikumar
Good perspective Thirumalai Kumar. Thanks for sharing the same.
ReplyDelete