Appointment of - Whether statutory auditor of company can also be its internal auditor - Companies Law - Circular : No. 29/76

Circular : No. 29/76[1/1/76 ‑ CL ‑ V], dated 27 ‑ 8 ‑ 1976 as corrected by Circular No. 5/77 [1/1/76 ‑ CL ‑ V], dated 8 ‑ 4-1977. Subject: Appointment of - Whether statutory auditor of company can also be its internal auditor A question has been raised whether a statutory auditor of a company can also be its internal auditor, which has been carefully examined in this Department and its view is as follows : The internal auditor is appointed by the management and hence is in the position of an employee, whereas the statutory auditor is appointed by the company in accordance with the provisions of section 224, and the auditor is required to perform the duties enjoined on him under section 227 and rules/orders issued thereunder. In this connection, reference may also be made to paras 4(A)(vi) and (xi) of the Manufacturing and Other Companies (Auditor s Report) Order, 1975 in accordance with which the statutory auditor has to include in his report under section 227 whether there is adequate internal control procedure commensurate with the size of the company and the nature of its business for the purchase of stores, raw materials including components, plant and machinery, equipment and other assets and in the case of companies having more than Rs. 25 lakhs paid-up share capital, whether there is any internal audit system commensurate with the size and nature of business. It is, therefore, obvious that if the statutory auditor of the company is also the internal auditor, it will not be possible for him to give an independent and objective report under section 227, read with para 4(A) of the said Order. As such, in the opinion of this Department, a statutory auditor of a company cannot also be its internal auditor.