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Internal Auditor

Ameet (L) (1678 Points)

12 June 2010

WHICH SECTION UNDER COMPANIES ACT PROVIDE FOR INTERNAL AUDIT AND WHAT IS LIMIT?

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4 Replies

Prejith (Pursuing CA) (92 Points)
Replied 12 June 2010

Internal audit is mentioned u/s 227 (4A) CARO and is mandatory for closely held companies when:

a) the paid up capital and reserves exceed more than Rs 50L at the commencement of the concerned financial year.

b) the average turnover exceeds Rs 5Cr for 3consecutive years, preceding the concerned financial year.

If any of the above conditions are satisfied by a pvt limited company then internal audit is mandatory.

It is mandatory for public limited companies.

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(Guest)

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.

Regards

K.ilayaraja

Prejith (Pursuing CA) (92 Points)
Replied 13 June 2010

Sir I humbly disagree with the last sentence mentioned in your reply.

As per my knowledge, its not necessary for a company to have a internal auditor to which CARO is applicable.

Because for a closely held company:

Caro is applicable only if the turnover exceeds Rs. 5 crore at any point during the concerned financial year (apart from the other two conditions), whereas to have an internal auditor the condition is avg turnover exceeding Rs. 5 crore for 3 consecutive years, preceding the concerned financial year.

Thanks

hemal (CA FINAL) (176 Points)
Replied 14 June 2010

As per CARO, auditor is just required to comment whther there is an internal audit system is arranged in the company or not. It does not mandated to the company for internal audit system. CARO is not compulsore any provision but auditor is just comment on it.

And as far Companies Act is concern, there is no specific provision for internal audit.