Internal Audit Applicability

internal audit applicability

Internal Audit Applicability as Per 2013 Companies Act

A company’s Internal Audit Applicability is important in its function and operations. 

Companies Act of 2013 outlines the rules and regulations governing internal audits. 

Internal audit requirements require many companies to have provisions and follow them properly. 

Internal audit applicability greatly affects the internal control of a business. 

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

Internal audit applicability also determines the structure and functions of the risk evaluation system. 

Additionally, it ensures accountability and integration into the company. It also protects the interests of stakeholders. A complete guide on internal audit applicability is available.

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 should apply to all listed companies.

·       The application of internal audits must be followed by all unlisted public companies with an annual turnover of 200 crore rupees or more.

·       An internal audit should be conducted for every unlisted public company that has paid a share amount of more than 50 crore rupees.

·       The applicability of an internal audit should be followed by all unlisted public companies with outstanding deposits of 25 crore rupees or more.

·   It is recommended that every unlisted public company that has received 100 crore rupees or more from many banks or public financial institutions at any point in time performs an internal audit.

·       Every private company with a turnover of 200 crore rupees or more should conduct an internal audit.

·     Internal audits should be considered in any private company that has received over 100 crore rupees from various banks or public financial institutions at any one 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 

According to section 138(1) of the Companies Act 2013, companies must hire an internal auditor to conduct internal audits. 


An internal auditor can be a chartered accountant, regardless of whether they have experience practising.


Internal auditors can also be cost accountants, whether or not they have experience. The board may also suggest or explain other professionals for appointment as internal auditors. 

It is impossible to appoint the statutory auditor as the internal auditor of a company. 

The Companies Act 2013 mentions this provision in 144(b). The internal auditor cannot also be the statutory auditor. 


Hiring or appointing a qualified company employee as an internal auditor is also possible. 


Specifically, this provision appears in Rule 13 of the Companies (Accounts) Rules, 2014.

Appointment Procedure

·    In addition to the returned consent and a certificate, the proposed internal auditor should mention their eligibility to serve as an internal auditor. The Companies Act of 2013 mentions these provisions.

·       To appoint the internal auditor of a company, a meeting with the board is required.

·       It is mandatory to hold a meeting with the board of directors.

·       Any authorized company member can sign the form and send it to the company’s registrar. 

·       After the board of directors appoints an internal auditor, the comments draft should be prepared within 15 days.

·      After appointing the final internal auditor for the company, a certified copy of the board of directors’ order should be prepared. Per section 117 of the Companies Act 2013, this form must be filed with the company’s Registrar as Form MGT 14. The prescribed fee is also included. 

·         A letter of appointment should be issued to the internal auditor.

Types of Internal Audits


A company’s internal audits can be divided into the following types: 

The role of the investigative audit includes investigating a certain department inside a corporation. It is in charge of identifying any mistakes and fraud inside an organization.

Management Audit: management audit determines how a firm operates and is organized. These structures are examined and validated effectively.

Performance Audit: In a business, a performance audit determines how well a certain team, department, or personnel performs.

Operational Audit: An operational audit verifies a certain department’s efficacy, efficiency, and proper functioning. An operational audit covers various activities, including data correctness, security, management, etc.

Technology audits include assessing and validating an organization’s technological infrastructure.

Compliance audits ensure that a firm complies with necessary laws and regulations in a sufficient and timely manner.

 Environmental audit: activities and functions that address how a company’s operations or functions affect the environment are included in environmental audits. Regarding the corporation, the laws and environmental standards are also confirmed.

Financial audit: A financial audit examines a company’s many financial phases. Its verification is also included.


Below are a few general penalties included in the Companies Act of 2013:


·     A 10,000 rupee fine is imposed on the corporation, the employee, or any other individual affiliated with the company who is accountable for disregarding or failing to comply with the internal audit.

·      If non-compliance persists, there would be an extra penalty of Rs 1000 per day, with a maximum penalty of Rs 2 lakh. The corporation faces a penalty of two lakh rupees, while the official in violation faces a penalty of fifty thousand.


Read More,


·         Statutory Auditing Services

·         Services for Internal Audits


·         Services for Stock Audits


An internal audit thoroughly analyses and verifies internal issues related to a company’s finances, accounting, and other processes. 

Internal audits examine the efficacy and efficiency of a company’s numerous operations and services. 

An organization may designate a qualified individual or group of qualified personnel to serve as internal auditors. 

There are requirements for a company’s internal audit applicability. Both listed and unlisted corporations are subject to distinct legislation and regulations. 

Certain public and private businesses are also mandated to conduct internal audits. 

FAQ’s Regarding the Application of Internal Audits

What benefits might internal audits offer?

Every procedure that occurs in a corporation is subject to assessment and verification by the internal audit department. Internal audits include all aspects of a company’s internal operations, including finance, security, accounting, etc. A statutory audit’s primary benefit is that it must only be done once every fiscal year. However, you are free to conduct internal audits at any desired frequency—monthly, weekly, or any other period. It can also identify or describe defects or mistakes in various firm activities or services.


How applicable is internal auditing?

Only publicly traded firms and private enterprises with an annual revenue of 200 crore rupees or more are eligible for internal audit. It is also accessible to businesses with loans from banks or other public financial institutions totalling 100 crore rupees.


Are internal audits necessary for every company?

Internal audits are not necessary for every business. The article has already discussed the internal audit criteria. Internal audits are sometimes advised for all kinds of companies to ensure smooth operations.


Do small businesses require internal audits?

In today’s highly competitive world, every firm needs an internal audit, no matter how big or small. In addition to their quality, internal auditors and internal audits are crucial in identifying a company’s operations and activities. Additionally, it makes future decisions and judgments made by the firm better.


If internal audit applicability is absent, what will happen? 


Internal audits are an integral part of every well-run firm or organization. A company’s inability to make wellness decisions and judgments may result from internal audit applicability. They wouldn’t be able to assess their progress or make plans for improved results. Only via internal audits will it be feasible to examine internal operations and procedures. This may also result in a company’s lack of objective risk management.

Leave a Comment

Your email address will not be published. Required fields are marked *