Draft Documents For Appointment of Internal Auditors

PROCEDURE FOR THE APPOINTMENT OF INTERNAL AUDITORS

There was no provision for appointment of Internal Auditor under the Companies Act, 1956 (I.e. Appointment of Internal Auditor is not mandatory under the Companies Act, 1956). However a new Section 138 of Companies Act, 2013 came into force from 01.04.201a vide Notification No. S.O.902(E) issued dated 27.03.2014.


As per section 138(1) of Companies Act 2013 read with Rule 13 Of Companies (Accounts) Rules, 2014, certain class of companies as may be prescribed shall be required to appoint an Internal Auditors to conduct internal audit of the functions and activities of the company. An extract of Rule 13 of Companies (Accounts) Rules, 2014 is as follows-

Accordingly such Class or Classes of  Companies has now been prescribed in the Companies(Accounts)  Rules, 2014 issued by Ministry of Corporate Affairs (MCA) vide G.S.R. 239(E), dated 31.03.2014.

According to Sub-Rule (1) of Rule 13 of Companies (Accounts) Rules, 2014 is as follows-

 

Extract of Rule 13 of Companies (Accounts) Rules, 2014

“Companies required to appoint internal auditor.- 

(1) The following class of companies shall be required to appoint an internal auditor or a firm of internal auditors, namely:-

(a) every listed company; Always applicable

(b) every unlisted public company having –

(i)    paid up share capital of fifty crore rupees or more during the preceding financial year; or

(ii)  turnover(income) of two hundred crore rupees or more during the preceding financial year; or

(iii)    outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or

(iv)    outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and

(c) every private company having –

(i) turnover of two hundred crore rupees or more during the preceding financial year; or

(ii)   outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year:

Provided that an existing company covered under any of the above criteria shall comply with the requirements of section 138 and this rule within six months of commencement of such section.

 For the purposes of this rule – The internal auditor may or may not be an employee of the company. Therefore, an employee of the company may be appointed by the Board of Director as an internal auditor of the Company.

According to sub-rule (2) of the Companies (Accounts) Rules, 2014 state that, the Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit. However, the rule specifies that an internal auditor may or may not be an employee of the company. The Internal auditor may be a CA/CWA or any other professional. And also neither the rules nor the Act, has specified the duties and responsibilities. So even if the rules and act made the appointment of Internal Auditor mandatory, the same rules and Act provides option to companies to appoint any person as internal auditors. And also any one who has the knowledge can became an Internal Auditor, because the rules did not define the word “any other professional”.

Draft Format

Internal Auditor Proposal Letter

Date: ____________

To

Name of Internal Auditor

Address : _________

City : ________

Pin Code : ______

State : ____

(India)

                                                                 

Sub: Proposal for the Appointment as Internal Auditors of the Company

Dear Sir,  

With Reference to the above captioned subject, we intend to appoint your firm as an Internal Auditors of the Company for the financial year ______. 

You are therefore requested to let us know your consent to act as Internal Auditors for the Company. 

 

Thanking you,

For _________Limited

(______________)

Director

Appointment Letter - Internal Auditor

                   Date : ____________

To,

Name of Internal Auditor

Address : _________

City : ________

Pin Code : ______

State : ____

(India)

Sub. : Appointment of your firm as Internal Auditors of the company.

Dear Sir,

We are pleased to convey you that the Board of Directors of the Company has appointed your firm as an Internal Auditor of the Company for the Financial Year __________ at its meeting held on ___________. A certified True copy of the Resolution passed in this regard is attached herewith for your needful reference.

Your appointment as Internal Auditor has been made pursuant to the provisions of Section 138 of the Companies Act, 2013 read with Rule no. 13 of the Companies (Accounts) Rules, 2014.

Kindly acknowledge the receipt of the same.

Thanking you,

Yours Truly,

For 

 

(_____________________)

Director

Encl. : As above

Internal Auditor Consent Letter

To

Name of Company

CIN : U____

Address : _________

City : ________

Pin Code : ______

State : ____

(India)

Sub: Consent letter for Appointment as Internal Auditors of ____________

Dear Sirs,

We thank you for your letter dated _________, seeking our consent for appointment as Internal Auditor of ____________ ("the Company"). We hereby give consent to our appointment as Internal Auditor of the Company for the Financial Year __________, pursuant to the provisions of Section 138 of the Chapter IX of the Companies Act, 2013.

_{Yours faithfully,}

Date:

Place:

                                                                                  For _________________________.

                                                                                             Chartered Accountants

                                                                                                     

                                                   CA. ____________

                                                                                                                    Proprietor

M. No: ____________

Board Resolution

==================================================================

CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY HELD ON ___^ST _____________2016_AT 05:30 P.M. AT THE REGISTERED OFFICE OF THE COMPANY AT ________, CITY : _____, PIN CODE :______, STATE : ______ =================================================================

APPOINTMENT OF INTERNAL AUDITOR

“RESOLVED THAT pursuant to the provisions of Section 138 and any other applicable provisions of the Companies Act, 2013 and the rules made thereunder and with the consent of the Board be and is hereby accorded for the appointment of M/s......................., Chartered Accountant (Registration No._______) as an Internal Auditor of the Company for the Financial Year ........................_at remuneration as may be mutually agreed between the Internal Auditor and Board of Directors.

 

 

“RESOLVED FURTHER THAT the draft engagement letter as placed before the Board specifying the scope, functioning, methodology and remuneration etc. for conducting the exercise as formulated in consultation with the Audit Committee be and is hereby approved. 

 

“RESOLVED FURTHER THAT for the purpose of giving effect to this resolution, Mr. ................, Director of the Company be and is hereby authorized, on behalf of the Company, to do all acts, deeds, matters and things as deem necessary, proper or desirable and to sign and execute all necessary documents, applications and returns for the purpose of giving effect to the aforesaid resolution.”

Certified True Copy,

For __________________ LIMITED

DIRECTOR

DIN:

ADDRESS:

CITY :

STATE :

Thanks & Regards,

CS Meetesh Shiroya