Can a company appoint one of its employees (who has chartered accountant qualification) as its internal auditor under provisions of Section 138 of the Companies Act? Does the word “internal” include an employee? The section is silent on this issue due to which there is a confusion.
The provision relating to appointment of an internal auditor for prescribed companies is contained in Section 138 of the Companies Act, 2013, which is reproduced below:
“138. Internal audit.—(1) Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.
(2) The Central Government may, by rules, prescribe the manner and the intervals in which the internal audit shall be conducted and reported to the Board.”
The companies for which the above provision is applicable have been prescribed in Rule 13 of the Companies (Accounts) Rules, 2014. In the Explanation to sub-rule (1) in this Rule, it has been clarified that the internal auditor may or may not be an employee of the company.
Thus, freedom has been given to the companies to whom the provision of internal auditor is applicable to appoint even an employee as the internal auditor, provided other conditions mentioned in above section are satisfied.
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