Internal Audit Applicability

internal audit applicability

Internal Audit Applicability as Per 2013 Companies Act

It is essential that internal auditing be applicable to the role and operations of a business. 

The regulations and principles governing internal audits are outlined in the Companies Act of 2013. 

Internal audit requirements mandate that many organisations have policies and follow them. 

The use of internal audit has a big impact on a company’s internal control. 

Additionally, it ensures that all workers and employees follow all rules and regulations. 

The setup and functionality of the risk evaluation system are also determined by the applicability of internal audits. 

Additionally, it ensures accountability and integration within the group. Stakeholder interests are also protected. A thorough set of guidelines is available for applying internal audits.

The Applicability of Internal Audits

Companies Act 2013 section 138 and Companies Rule 14 of 2014 declare which companies must follow internal audits.

The Following Companies Have To Follow The Applicability of Internal Audits: 

Internal audits ought to be performed on all publicly traded companies.

Internal audits are mandated for all unlisted public companies with an annual revenue of at least 200 crore rupees.

An internal audit should be conducted for each publicly traded unlisted company that has paid a share amount greater than 50 crore rupees.

It is advised that unlisted public companies follow the applicability of an internal audit if they have outstanding deposits of at least 25 crore rupees.

Conducting an internal audit is recommended for any unlisted public business that has received at least 100 crore rupees from various banks or public financial institutions.

An internal audit should be conducted by any private company with revenue of at least 200 crore rupees.

Internal audits should be taken into consideration by any private company that receives more than 100 crore rupees from multiple banks or public financial institutions at any given time.

Aims and Objectives

Companies Act 2013 should specify the scope of internal audit applicability. 

Nonetheless, a company’s internal applicability is determined by members of its board and its audit committee, along with the internal auditor, as stipulated in rule 13(2) of the Companies (Accounts) Rules, 2014. 

Internal audit methods and strategies must be delivered and specified to work properly. 

The scope of internal audits in a company should be formulated and conducted. 

An Internal Auditor Must Possess the Following Qualifications 

Companies are required by section 138(1) of the Companies Act 2013 to employ an internal auditor in order to carry out internal audits. 

Chartered accountants can be internal auditors, even if they don’t have any prior experience working as practitioners.

Cost accountants can also be internal auditors, regardless of expertise level. The board may also recommend or justify the employment of other experts to serve as internal auditors. 

The statutory auditor cannot be named as a company’s internal auditor. 

This clause is mentioned in Companies Act 2013 at 144(b). The statutory auditor cannot concurrently serve as the internal auditor. 

It’s also feasible to designate or hire a qualified staff member of the business as an internal auditor. 

This clause is specifically mentioned in Rule 13 of the 2014 Companies (Accounts) Rules.

Appointment Procedure

The prospective internal auditor should state that they are qualified to act as an internal auditor in addition to providing a certificate and the returned consent. These provisions are mentioned in the Companies Act of 2013.

  • A board meeting is necessary to select a company’s internal auditor.
  • A meeting with the board of directors is required.
  • The form may be signed by any authorised company member and submitted to the registrar of the business. 
  • The internal auditor should be appointed by the board of directors, and the comments draft should be ready in 15 days.
  • Once the company’s last internal auditor has been chosen, a certified copy of the board of directors’ directive needs to be created. This document, document MGT 14, needs to be lodged with the company’s Registrar in accordance with section 117 of the Companies Act 2013. Included is the prescribed cost as well. 
  • The internal auditor should receive a letter of appointment.

Types of Internal Audits 

The internal audits of a firm can be classified into the following categories: 

One of the responsibilities of an investigative audit is to look into a certain department inside a company. It is responsible for spotting errors and fraud within a company.

Management audit: management audit establishes the structure and methods of operation of a company. These structures are successfully inspected and verified.

Performance audits are used in businesses to assess the effectiveness of a particular team, division, or employee group.

Operational Audit: An operational audit confirms the effectiveness, efficiency, and correct operation of a certain department. Numerous tasks are covered by an operational audit, such as management, security, and data accuracy.

An organization’s technological infrastructure is evaluated and validated as part of a technology audit.

A company’s adherence to relevant rules and regulations is verified by compliance audits, which guarantee timely and adequate compliance.

Environmental audits comprise tasks and activities that deal with the ways in which a business’s operations or services impact the environment. The laws and environmental requirements also pertain to the corporation.

Financial audit: A financial audit looks at all the many financial stages of a business. Included is also its verification.


A few general penalties covered by the Companies Act of 2013 are listed below:

  • The organisation, the employee, or any other person connected to the business that is responsible for disobeying or not following through on the internal audit would be fined 10,000 rupees.
  • Should non-compliance continue, an additional penalty of Rs 1000 per day will be applied, up to a maximum penalty of Rs 2 lakh. The offending official faces a penalty of fifty thousand rupees, while the corporation faces a penalty of two lakh rupees.

Study Up,

  • Services for Statutory Auditing
  • Services related to Internal Audits
  • Services related to Stock Audits


  • An internal audit carefully examines and confirms internal problems pertaining to the accounting, financial, and other operations of a business. 
  • An organization’s many activities and services are evaluated for effectiveness and efficiency through internal audits. 
  • An entity has the authority to assign a qualified individual or team of competent employees to function as internal auditors. 
  • The applicability of internal audits in a corporation must meet certain standards. Different laws and rules apply to corporations that are listed and those that are not. 
  • Internal audits are also required of some public and private companies. 

FAQ’s Regarding the Application of Internal Audits

What advantages could internal audits provide?

Every process that takes place within a company is examined and validated by the internal audit division. All facets of an organization’s internal operations, such as accounting, security, and finance, are covered by internal audits. The main advantage of a statutory audit is that it only needs to be completed once per fiscal year. You can, however, carry out internal audits as often as you’d like—weekly, monthly, or at any other interval. Additionally, it can be used to explain or find flaws in a range of business operations or services.

How much does internal auditing apply?

Internal audits are only permitted for publicly traded companies and privately held businesses with annual sales of at least 200 crore rupees. Businesses who have loans totaling 100 crore rupees from banks or other public financial institutions can also access it.

Are internal audits required in every business?

Not all businesses require internal audits. The internal audit criteria have already been covered in this text. For all types of businesses, internal audits are occasionally recommended to guarantee efficient operations.

Are internal audits necessary for small businesses?

No matter how big or small, every company requires an internal audit in today’s fiercely competitive environment. Internal auditors and internal audits are essential in determining a company’s operations and activities in addition to its quality. Furthermore, it improves the firm’s judgement and future decisions.

What will happen if internal audit applicability is lacking? 

Internal audits are essential to any successfully operated business or organisation. Internal audit applicability may lead to a company’s incapacity to make decisions and renderings regarding wellbeing. They wouldn’t be able to evaluate their development or plan for better outcomes. Examining internal operations and processes will only be possible through internal audits. This could also lead to a lack of objective risk management within the organisation.

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