Internal Audit For Private Companies — Does Your Company Actually Need One? Give Me Photo For The B

Internal Audit for Private Companies — Does Your Company Actually Need One?

Okay so if you run a private limited company or work in one there's a very good chance this question has come up at some point.

Do we need an internal audit? Is it mandatory for us? Or is it only for big listed companies?

And honestly most business owners either dont know the answer or assume it doesnt apply to them. Which sometimes leads to a compliance issue they didnt even see coming.

So lets just sort this out properly today. With a real example.

Meet Sahil — A Business Owner Who Got a Surprise From His CA

Sahil runs a private limited company in Surat. Trading business. Been going well for the last few years. Turnover has been growing steadily.

Last year his CA sat him down during the annual accounts discussion and told him — Sahil ab tumhari company ko internal audit karwana mandatory ho gaya hai.

Sahil was genuinely surprised. He thought internal audit was something only big corporations or listed companies worried about. His company was private, family run, not listed anywhere. Why would he need an internal audit?

His CA explained it to him. And honestly it made a lot of sense once he understood it properly.

So What Does the Law Actually Say?

Under the Companies Act 2013 — specifically Section 138 — certain classes of companies are required to mandatorily appoint an internal auditor.

And the criteria is not about whether you're listed or unlisted. Its about the size of your business.

For a private limited company internal audit becomes mandatory if any one of these conditions is met —

• Your turnover is ?200 crores or more in the previous financial year
• Your outstanding loans or borrowings from banks or financial institutions is ?100 crores or more at any point during the previous financial year

Thats it. Two simple triggers. If either of these applies to your company you need to have an internal audit done. No exceptions.

Sahil's company had crossed ?200 crores in turnover the previous year. He had no idea this triggered the internal audit requirement. His CA caught it during the annual review.

Who Can Do the Internal Audit?

The internal auditor can be —

• A Chartered Accountant
• A Cost Accountant
• Or any other professional that the Board of Directors decides is suitable

And importantly the internal auditor can be someone from outside the company — an external firm or CA — or someone who is already an employee of the company. Both are allowed under the law.

The Board of Directors is responsible for appointing the internal auditor. And the Audit Committee — if the company has one — works with the internal auditor on the scope and frequency of the audit.

What Does an Internal Auditor Actually Do?

This is something a lot of people wonder about. Because internal audit sounds very vague.

Simply put the internal auditor looks at the internal systems and processes of the company and checks whether everything is running properly and efficiently. They look at things like —

• Are financial controls in place and working?
• Are purchases and expenses being approved properly?
• Is inventory being managed correctly?
• Are there any areas where fraud or leakage could happen?
• Are all regulatory compliances being followed?

They then give a report to the management and the Board pointing out whatever issues they found and suggesting improvements.

Think of it like a regular health checkup for your business. Not to find fault but to make sure everything is working the way it should be.

What Happens if You Dont Do it?

This is the part most people dont think about until its too late.

If your company meets the criteria and you dont appoint an internal auditor its a violation of the Companies Act. The company and its officers — meaning the directors — can face penalties under Section 138 read with Section 450 of the Act.

Its not something that gets flagged immediately every year but when it does come up during a ROC inspection or statutory audit it creates unnecessary complications. And its always better to be compliant from the start than to fix it under pressure later.

Sahil got his internal audit done properly that year and actually found a few areas in his purchase process where money was leaking without anyone realising. The internal audit paid for itself honestly.

Quick Summary

If you run a private limited company just check these two things —

• Did your turnover cross ?200 crores last year?
• Are your outstanding bank loans ?100 crores or more?

If yes to either one — you need an internal audit. Get it done. Appoint a CA or qualified professional. Its not just a compliance box to tick. Done properly it genuinely helps your business run better.

Not sure if your company needs an internal audit or want to get one done properly? Our team at [Firm Name] can help you figure it out — reach out anytime.