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February 4, 2021
Appointment of an Internal Auditor
Internal audits is held by businesses across the world to evaluate the truth of the records and the effectiveness of the operations. It is generally done periodically and offers control by measuring and assessing the effectiveness of other controls of the organizations. Every company that is registered under the Companies Act, 2013 must compulsorily appoint an Internal Auditor for their company. In this article we will be discussing the Procedure for the Appointment of an Auditor
Table of Content
Role of an Internal Auditor
The role of an internal auditor includes certain mandatory tasks which are as follows:
- Take a review of the control systems of the financial as well as all the operating segments in the organizations independently.
- Try to save the organization’s assets by checking the inefficiency and replication of effort.
- Measuring and managing any dispersion of risk and Incorporate healthy risk management practices.
- Instate internal check systems to minimize the possibility of fraud or theft.
- Seeing to it that the policies, procedures, and regulations are complying with the legislation.
- Incorporating programs and activities to overlook and prevent the company and its liabilities.
Eligibility for appointment as an Internal Auditor
Rule 13(1) of the Companies Act, 2014 stats the following eligibility criteria that have to be followed by a person who has to be appointed as an Internal Auditor:
- He or she shall be either a Chartered Accountant (CA). I t doesn’t matter whether engaged in the practice or not or be a Cost Accountant. Such professionals may be employed after the discussion by the Board of Directors of the company.
- He should not be an employee of the company.
Process for the appointment of Internal Auditor
- The organizations must ensure that all the eligibility conditions are fulfilled.
- Issuing a notice or drafting an agenda on a shorter notice, in writing, to every director of the company. Also calling for a Board meeting to personally appoint the Internal Auditor of the company and to fix his or her income with all the benefits.
- Get written consent and a certificate from the selected person to the effect of his eligibility under the Act.
- Allow the Company Secretary or any Director to sign and file the relevant form with the Registrar of the Companies.
- In the case of a public company, filing a certified copy of the Board resolution should be made approving the appointment of an Internal Auditor with the Registrar in Form No. MGT.14 under Section 117 of the Act along with the prescribed fee.
- Issue the appointment letter to the concerned Internal Auditor.
- Make and circulate the draft minutes with all the directors of the company within 15 days of the Board meeting and wait for their comments.
- Rule 13 states that the Audit Committee along with the Internal Auditor shall plan the scope, functioning, periodicity, and methodology for doing the internal audit.
- Section 138(2) gives all the guidelines to the Central Government to make the rules and manners to carry out the proceedings.
If it is a government firm, the Comptroller and the Auditor General of India shall appoint the auditor under the sub-section (5) or sub-section (7) of Section 139. Thereupon the auditor appointed shall compulsorily submit a copy of the audit report to the Comptroller and the Auditor General of India.
In case, if any auditor or the Cost Accountant or the Company Secretary, who is in practice, does not comply with the provisions of the sub-section (12), he or she shall be punishable with a penalty which can’t be less than one lakh rupees but which can be extended to twenty-five lakh rupees.
Internal Audit is a basic need for the healthy growth of the company. The Auditors, Chartered Accountants, Company Secretariats, etc. should work to explore the opportunities in this area as they have a piece of very good knowledge about the companies act and all other laws that are necessary for properly conducting an effective Internal Audit system.
Related Read- Resignation of an Auditor- Formalities and procedure
Appointment of Auditors
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