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Caro and internal audit

Eswar Reddy S (CFO- at NHTF) (58270 Points)

15 December 2014

Hi Experts , I heard that CARO is not applicable from 2014-15 FY. In that case , Is the Internal Audit applicable for the companies ? Is the Internal Audit Mandatory under any law?

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3 Replies

ABHINANDAN JAIN (CA Student) (886 Points)
Replied 16 December 2014

Earlier in Company Act 1956, CARO was notified under section 227(4A). Corresponding section in New cpompany act i.e. Company Act 2013 is Section 143

As per new act, caro is not yet notified. Hence not applicable. However upto Nov,14 Format of audit report has not been modified according to the new company act. I do not know about current status of format as on date.

In old act, there was no section which says that the Internal audit is compulsory for the company. In CARO,one clause dealt about Internal Audit which do not even mandates the Internal audit. That clause was for the Auditor to identify whether Internal audit is being carried out by company or not by applying the limit criteria mentioned in that clause. If the auditor finds that criteria is satisfied, then it ws the duty of auditor to mention in his report about the fact criteria being satisfying and whether company has appointed a Internal auditor or not. The auditor was also required to mention if criteria is not satisfied.

In short, clause related to CARO ws for the pupose of reporting by auditor only. It never mandated the company to compulsorily appoint the Internal Auditor.

BUT as per Section 138 of New company act, 2013, certain class of company notified in Rule 13 of Companies (Accounts) Rules,2014 is mandatorily required to appoint Internal auditor.

As per Rule 13:

a) Every Listed Company

b) Every unlisted public company having

(i) paid up share capital of Rs 50 crore or more during the preceeding financial year;or

(ii) turnover of Rs 200 Crore or more during the preceeding financial year;or

(iii) Outsanding Loans or borrowing from banks or Public financial institutions exceeding Rs 100 Crore or more at any point of time during the preceeding financial year;or

(iv) Outstanding deposits of Rs 25 Crore or more at any point of time during the preceeding financial year

c) Every Private company having

(i) turnover of Rs 200 Crore or more during the preceeding financial year;or

(ii) Outsanding Loans or borrowing from banks or Public financial institutions exceeding Rs 100 Crore or more at any point of time during the preceeding financial year.

As per said section, Internal auditor shall conduct the Internal audit of the functions and activities of the company. The internal auditor shall be a CA whether or not engaged in practise,Cost accountant or such professional as may be decided by the Board

All existing companies satisfying the above criteria shall within 6 months comply with the requirements of the section is appointment of Internal auditor

Thank you