Neeta (Finance) (345 Points)
29 April 2010hello all
Query : Appointment of Internal Auditor :
> Under what circumstances or under which section does the appointment of internal auditor becomes mandatory?
Alos plz provide me a draft resolution for the appointment of internal auditors or wud it be fine if i take that of statutory auditors appointment except that of section and the name being altered as ' internal auditor'
plz reply ASAP
CA Sanjay Jha
(ACCOUNTS MANAGER)
(914 Points)
Replied 29 April 2010
IF CARO Applicable then difinetely Internal Auditor required appointment.
Companies Act is silent. Even the mandate of CARO is limited only to a report from the Auditors, whether in the case of listed companies and/or other companies having a paid-up capital and reserves exceeding Rs.50 lakhs as at the commencement of the financial year concerned, or having an average annual turnover exceeding five crore rupees for a period of three consecutive financial years immediately preceding the financial year concerned, whether the company has an internal audit system commensurate with its size and nature of its business;
Even section 292A does not compel a company to appoint an internal auditor.
As regards draft board resolution:
The Board considered the appointment of internal auditors as part of internal control system. Many names/firms who are doing internal audits to corporates with reference to the area to be covered and the fee structure were studied in detail:
It was Resolved to appoint M/s Honest and Prudent, Chartered accountants, Utopia, as internal auditors of the company for the year 2009-10 to cover the areas required to be audited as detailed in the exhibit placed before the board on the fees to be negotiated and finalised after discussion between the Internal Auditors and the Managing director of the company
CARO, 2003
In the case of listed companies and/or other companies having a paid-up capital and
reserves exceeding Rs.50 lakhs as at the commencement of the financial year concerned, or
having an average annual turnover exceeding five crores rupees for a period of three consecutive
financial years immediately preceding the financial year concerned, whether the company has an
internal audit system commensurate with its size and nature of its business. [Paragraph 4(vii)]
THIS AGREEMENT is made on [* ]
BETWEEN
[* ] (Company no. [* ]) Whose registered office is at [* ] (“the Company”).
AND
[* ] of [* ] [“the Internal Auditors”].
RECITALS
(A) The Company [intends to] carry on the business (“the Business”) of [* ].
(B) The Company has agreed to appoint M/s ……………. & Co Chartered Accountants and the said Chartered Accountants Firm (herein after referred to as “Firm”) has agreed to serve the Company as the Internal Auditors upon the terms and conditions of this Agreement.
IT IS AGREED as follows:—
1. Appointment
The Company appoints the Firm as Internal Auditors to the Company’s Plant/CFA/Depot situated at ……………. and the Firm accepts the appointment on the terms and conditions in this Agreement.
2. Term
The appointment shall be for a term of one year from 01.04.2010 to 31.03.2011 and shall then continue until terminated by either party serving three months written notice on the other, to expire on, or at any time after, the expiration of the initial period of one year.
3. Scope of Internal Audit:
3.1 The Senior Vice President, Head-Group Internal Audit (representing the company) will provide the Audit Scope for conducting the monthly audits on the various locations mentioned above.
3.2 The Audit Scope is subject to additions and deletions, depending upon the requirements from the Company Management and Business conditions existing on the audit period.
3.3 Any amendments or changes in the audit scope should be duly approved by The Senior Vice President, Head-Group Internal Audit and will be applicable on prospective basis.
3.4 The Audit Scope includes the Audit Programme, Annexure, documents, statements, checklists, working papers, confirmations, consents, questionnaires, audit correspondence, Inter Office Correspondence, Circulars, Notifications, Company’s Policies & Procedures, previous internal audit reports & observations, amendments & deletions in audit scope and other related correspondence.
3.5 The audit scope (subject to the provisions of Clauses 3.2 & 3.3) shall be for a term of one year from 01.04.2010 to 31.03.2011 and shall then continue until the termination by either party serving one month written notice on the other, to expire on, or at any time after, the expiration of the initial period of one year.
4. Duties
The duties of the Internal Auditors under this Agreement shall be:—
4.1 The Internal auditors conducts monthly audits of the above Plants/CFA/Depots of the company in connection with the business and as per the given audit scope.
4.2 The monthly audits should commence on the first day of the following month (for example April audit 01.04. 2010 to 30.04.2010 should commence on 01.05.2010) and shall complete the audit on or before fifth day of the following month (for example 05.05.2010 in above case).
4.3 The Internal Auditors should make all correspondence to the concerned Plant/CFA/Depot Incharge with C.C. to Regional Internal Audit head and Plant Internal auditor.
4.4 If the Audit is being delayed or postponed due to some extraordinary circumstances, this will form part of the audit report and should be included in the monthly audit report separately.
4.5 If the Audit is being delayed or postponed due to any reasons with in or beyond the control of the Plant/CFA/Depot Incharge, such events should be brought immediately to the notice of the Regional Internal Auditor, Plant Incharge and Plant Auditor.
4.6 The Auditors submits monthly report on or before 7th (Seventh) of the following month in (1+1) Hard Copy marking original to the Regional Internal Auditor and CC of Hard Copy to the concerned Plant/CFA/Depot Incharge.
4.7 The Auditors submits the soft copy of monthly audit report on or before 5th (Fifth) of the following month to the Regional Internal Auditor and CC to the concerned Plant/CFA/Depot Incharge.
4.8 The Audit Report includes Major observations, Comments, Suggestions, Annexure of Audit Scope, Additional Annexure forming part of Audit Report, statements, confirmations, working papers, company documents approved by the concerned Plant/CFA/Depot Incharge and attested the Internal External Auditors with seal and all correspondence forming part of Audit Report.
4.9 If the audit report is being delayed after 9th of the following month such report should be submitted with reasons and needs special approval from the Senior Vice President, Head-Group Internal Audit for processing the payment and for accepting the report.
4.10 If the audit report is being delayed beyond 9th of the following month and the concerned Internal Auditors had neither communicated the delay nor submitted the said report with reasons with in the stipulated time mentioned under clause 4.9 above, the company is at liberty to give the assignment for the previous month audit to the other auditors and the remuneration paid to the other auditors will be adjusted in processing the bills of the present internal Auditors.
4.11 If the monthly audit report is not received consecutively for two months, the company is at liberty to appoint another internal auditor without further notice and this agreement stands terminated without any further notice. In this case all the previous bills and dues will be adjusted subject to the submission of Audit Reports and the difference in additional fees to be paid to the newly appointed auditor.
4.12 The internal Auditors will render general advice to the Company in connection with the Business and in particular advise on all financial matters, review management accounts and forecasts, aspects of sales marketing and general management of the Business at such times and at such place or places as shall be reasonably requested of him by the Senior Vice President, Head-Group Internal Audit, or his agents or representatives or assignees or successors or superiors of the Company (‘’the Senior Vice President, Head-Group Internal Audit ’’).
4.13 The Internal Auditors attends at any meetings of the Audit Heads or meetings with customers, suppliers and advisers to the Company at which his presence is reasonably required and whether or not those meetings are during normal business hours.
5. Fees
5.1 The Internal Auditors shall be entitled, by way of remuneration for his services as Internal Auditors, to a [monthly] fee of [* ] Service Tax inclusive of all expenses payable quarterly in arrears on the last day of each quarter on submission of reports.
5.2 All Original Bills should be forwarded to the Regional Auditor.
5.3 Fees will be processed subject to the receipt of Audit Reports (in Hard and Soft Copies) in time.
6. Loyalty
During the period of this Agreement the Internal Auditors will use skills and cares and will faithfully serve the Company. They will use their utmost endeavors to promote its interests and shall co-operate to the fullest extent with the Plant/CFA/Depot Incharge, Regional Internal Auditor, Plant/CFA/Depot audit staff and employees of the Company. The determination as to the interests of the Company for the purposes of this clause is a matter in the discretion of the Senior Vice President, Head-Group Internal Audit alone and the Internal Auditors shall at all times act in accordance with policy from time to time laid down by him or as instructed by him and, in case of doubt, the Internal Auditors shall consult with the Senior Vice President, Head- Group Internal Audit before taking any action.
7. Confidentiality
7.1 Except as required in the performance of his duties and in accordance with written instructions from the Senior Vice President, Head-Group Internal Audit, the Internal Auditors shall not, either himself or acting by or through his servants or agents or representatives or assignees:-
7.1.1 At any time disclose the private affairs or secrets of the Company which he may learn during his appointment; or
7.1.2 At any time, directly or indirectly, communicate to any third party or other unauthorized person, firm or company any confidential matters concerning the Company or the Business; or
7.1.3 Directly or indirectly communicate upon any matter concerning the Company or the Business with any of the Company’s employees, customers, suppliers, bankers, competitors or other persons or companies with whom the Company does business, except as instructed in the course of his duties; or
7.1.4 At any time during this Agreement, or for twelve months following its termination, solicit or endeavor to entice away from the Company any person, firm, company or public body who was or were customers of the Company [or its subsidiaries] at any time during this audits in connection with a business competitive with the Business.
7.1.5 During this Agreement and for a period of twelve months following its termination, solicit, or endeavor to entice away from the Company any person who was an employee of the Company at any time during this Agreement; or
7.1.6 At any time during this Agreement, or for twelve months following its termination, carry on, or be engaged, concerned or interested in the carrying on, within the ...................., of any business the same or similar to the Business on his own account or jointly with or as agent for any other person, firm or company either directly or indirectly whether as director, employee, shareholder consultant or otherwise PROVIDED ALWAYS that nothing contained in this Agreement shall preclude the Internal Auditors from holding shares or loan capital in any company carrying on any such business and whose shares or loan capital of the class or classes so held are listed on The Stock Exchange or the Unlisted Securities Market; or
7.1.7 At any time use the benefit of any secret process or secret method of production or organization or the Company; or
7.1.8 At any time take away any documents or data or working papers of the Company other than as necessary in the course of his duties; or
7.1.9 At any time generally take any action injurious to the interests of the Company or the Business.
7.2 It is agreed between the parties that the provisions of this clause 7 are reasonable for the protection of the Company and the Company was not willing to enter into this Agreement without the benefit of such provisions.
8. Termination
If the Internal Auditors shall be guilty of any breach or non-observance of any of the stipulations contained in this Agreement, or if he becomes bankrupt or makes any composition with his creditors, this Agreement may be determined forthwith. In such event no fee shall be payable to the Auditors in respect of any period subsequent to the determination and such determination shall be without prejudice to any right of action by the Company to claim damages or other relief against such default, breach or non-observance.
9. Other Interests
Before accepting any full time or part time position, including a consultancy (whether for reward or otherwise), which might conflict with the provisions of this Agreement (and in particular the provisions of clause 7) (or any of them) the Internal Auditors undertakes that they will notify the Company, in writing, of the proposed terms, giving the identity of the other party and sufficient detail of the nature of his duties and the terms of his appointment or engagement.
11. Return of papers
On the termination of this Agreement (for whatever reason) the Internal Auditors shall immediately deliver up to the Company any documents, papers or other written information which either belongs to the Company or relates to the Business and which came into the possession of the Auditors in the performance of their duties under this Agreement.
12. Notices
Any notice under this Agreement shall be given in writing by either party to the other and may be delivered or sent by first class prepaid post addressed, in the case of the Company, to its registered office and, in the case of the Auditors, to their address last known to the Company. Any such notice shall, in the case of delivery, be deemed to have been served at the time of delivery and, in the case of posting on the expiration of twenty four hours after it has been posted by first class mail.
AS WITNESS the hands of the parties to this Agreement or their duly authorized representatives the day and year first before written.
SIGNED by [* ] )
for and on behalf of )
[* ] Limited )
in the presence of )
[* ] )
SIGNED by [* ] )
in the presence of )
[* ] )
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 29 April 2010
As per my understanding a prior board resolution is not required for the appointment of Internal Auditors. A simple noting in the next BM would be enough.
Appointment Resolution
“RESOLVED THAT consent of the board of directors of the company be and is hereby given to the appointment of M/s. _____________, Chartered Accountants, Address as Internal Auditor of the company for the F.Y. 2010-2011 and Ms. Chanda Kocher, Managing Director of the company be and is hereby authorised to fix the remuneration from time to time in consultation with the Audit Committee.”
Take note Resolution
The engagement letter for the appointment of Internal Auditor as per draft placed before the board. The Board took note of the same and the following resolution was passed unanimously:
RESOLVED THAT the engagement letter as per draft placed before the board and signed by the Chairman for the purpose of identification for the appointment of M/s _______________ as Internal Auditor of the company for the F.Y. 2010-2011 be and is hereby approved.
Neeta
(Finance)
(345 Points)
Replied 29 April 2010
THANKS TO ALL REPLIES !! THANKS A LOT FOR THE REPLY asap
ankur sir , yes agree with your understanding , and as said , Act is silent on the issue. Was eagerly waiting for your reply to beat the last bang on the issue.
Actually , some times we need make resolutions even if our Act does not ask for and that is WHEN UR DIRECTOR SAYS " NO , I WANT IT"
thanks again !!
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 29 April 2010
vikash rathi
(Chartered Accountant)
(787 Points)
Replied 30 April 2010
| Appointment of internal auditor. | |||||||||
| The appointment of the internal auditor is prerogative of the management as it is entirely | |||||||||
| depends on the wishes of the managements of corporate or non-corporate organisation | |||||||||
| whether to have its own internal auditor or not. | |||||||||
| However, | |||||||||
| after the enactment of the CARO,2003 it is obligatory on the part of the companies | |||||||||
| to have internal auditing in terms of paragraph 4(vii) of the said order | |||||||||
| which is reproduced below : | |||||||||
| In the case of listed companies and/or other companies having a paid-up capital and | |||||||||
| reserves exceeding Rs.50 lakhs as at the commencement of the financial year concerned, or | |||||||||
| having an average annual turnover exceeding five crores rupees for a period of three consecutive | |||||||||
| financial years immediately preceding the financial year concerned, whether the company has an | |||||||||
| internal audit system commensurate with its size and nature of its business. | |||||||||
| Sec.227(4A) - Duty under CARO,2003 | |||||||||
| The central govt has the power to direct by a general or special order that, in the case of | |||||||||
| specified companies, the statutory auditor's report shall include a statement of such matters | |||||||||
| as may be specified in its order. | |||||||||
| CARO,2003 | |||||||||
| Issued by the Central govt. of india in terms of sub sec.(4A) of sec.227 | |||||||||
| of the companies act,1956. | |||||||||
| So, sec.227(4A) says | |||||||||
| it is mandatory for all companies to appoint internal auditor, IF CARO,2003 IS APPLICABLE. | |||||||||
Vishal
(Student)
(29 Points)
Replied 01 October 2010
Is any one there to send soft copy of Internal Audit Report to me
thanks
GSTR 9 and 9C for FY 23-24 as amended by Notification 12/2024 dated 10th July 2024(with recording)
CAclubindia
