# Section 138 – Internal Auditor

## 1. Companies Required to Appoint Internal Auditor

Applicable to:

Listed companies (all listed companies, regardless of size)
Unlisted public companies meeting prescribed thresholds (paid-up capital ≥ ₹50 cr, turnover ≥ ₹200 cr, outstanding loans/borrowings from banks/PFIs ≥ ₹100 cr, or outstanding deposits ≥ ₹25 cr at any point during preceding FY)
Private companies meeting prescribed thresholds (turnover ≥ ₹200 cr, or outstanding loans/borrowings from banks/PFIs ≥ ₹100 cr at any point during preceding FY)

## 2. Who Can Become an Internal Auditor?

The internal auditor may be:

A Chartered Accountant (CA), OR
A Cost Accountant (CMA), OR
Such other professional as decided by the Board

May be:

An Individual, OR
A Partnership firm, OR
A Body Corporate

## 3. Important Note

The internal auditor may or may not be an employee of the company. (The CA/CMA need not necessarily be in practice.)

## 4. Function

Internal auditor conducts internal audit of the functions and activities of the company.

Scope, functioning, periodicity and methodology for conducting internal audit shall be decided by the Audit Committee or Board in consultation with the internal auditor.

Worked example

### Example 1

Example: ABC Pvt. Ltd. has a turnover of ₹250 crore in FY 2023-24. Must it appoint an internal auditor?

Yes – since turnover exceeds ₹200 cr, it falls within the threshold for private companies. It must appoint an internal auditor.

### Example 2

Example: Mr. X is a qualified CA but not in practice and is an employee of XYZ Ltd. Can he be appointed as internal auditor?

Yes. The Act permits a CA (whether in practice or not) to be appointed. The internal auditor may or may not be an employee.

⚠️ Common exam mistakes

Assuming only a CA in practice can be appointed – the Act allows CA, CMA, or other professional as decided by the Board, and they may or may not be in practice.
Assuming internal auditor must be external – they may be an employee of the company.
Forgetting that all listed companies are covered without any turnover threshold.
Confusing thresholds for public vs private companies.

Bare-Act text Section 138 read with Rule 13 of Companies (Accounts) Rules, 2014 · Companies Act, 2013 · click to expand

Section 138(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.

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Appointment of Internal Auditor (Section 138)

Worked example

⚠️ Common exam mistakes