GRMC&E–DECEMBER 2019

Question 1 (a) P Pvt. Ltd. was incorporated under the Companies Act, 1956 on 3rd October, 2011. The
Authorised Share Capital of the Company is `75 crores. The present paid up Share Capital of the
Company is `60 crore. The turnover of the company for financial year 2017-18 was `150 crores and
because of good overseas marketability of the company's product, the turnover of the company for the
year ended 31st March, 2019 increased to `210 crores. The Secretarial Auditor of the company advised
that the company should have internal audit in place, but the Managing Director of the company argued
that since it is a private company, so it is not required.
Based on the facts in the above case, answer the following questions :
(i) Whether internal audit is compulsory for the Private Limited ? (1 mark)
Answer 1(a)(i) As per section 138 of the Companies Act, 2013 read with rule 13(1)(c) of
TheCompanies (Accounts) Rules, 2014 every private company having-
(a) turnover of two hundred crore rupees or more during the preceding financial year; or
(b) 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 shall be required to
appoint an internal auditor.
As the turnover of the P Pvt. Ltd is more than Rs. 200 crore, for the year ended 31 st March, 2019 it is
mandatory to appoint an internal auditor.
(ii) In the above case if the company had been an Unlisted Public Limited and Turnover for year ended
31st March, 2019 would be `190 crore, what would have been your answer ? (2 marks)
Answer 1(a)(ii) As per section 138 of the Companies Act, 2013 read with rule 13(1)(b) of The
Companies (Accounts) Rules, 2014 every unlisted public company having-
(a) paid up share capital of fifty crore rupees or more during the preceding financial year; or
(b) turnover of two hundred crore rupees or more during the preceding financial year; or
(c) 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
(d) outstanding deposits of twenty five crore rupees or more at any point of time during the preceding
financial year shall be required to appoint an internal auditor.
In the mentioned case, as the paid up capital is more than Rs. fifty crores hence the company needs to
appoint the internal auditor.
(iii) Can Company Secretary be appointed as Internal Auditor in an Unlisted Public Company where he is
already appointed as Key Managerial Personnel? (2 marks)
Answer 1(a)(iii) Section 138 of the Companies Act, 2013 states that an internal auditor, shall either be
a chartered accountant or a cost accountant, or such other professional as may be decided by the Board.
Further explanation to Rule 13 of The Companies (Accounts) Rules, 2014 states that the internal
auditor may or may not be an employee of the company.
In view of the above the Company Secretary who is appointed as Key Managerial Personnel in the
company can be appointed as an internal auditor of the company.
(b) M Pvt. Ltd. was registered in the year 2001 as a Private Limited Company and continuing with the
same status. It is having a paid-up share capital of `65 crore as on 31st March, 2019. The present
company’s auditor, X, Chartered Accountant, (a Proprietor Firm) who was appointed as auditor of the
company in the year 2014. The term of the said auditor is going to expire and company wants to re-
appoint the same person, since he is having well acquaintance with
the company's officials and its working.
Based on the above facts, answer the following questions :
(i) Whether X can be reappointed as Statutory Auditor of the Company ? (1 mark)
Answer 1(b)(i) Section 139(2) of the Companies Act, 2013 read with Rule 5(b) of the Companies
(Audit and Auditors) Rules, 2014 provides that:
all private limited companies having paid up share capital of rupees fifty crore or more shall not
appoint or re-appoint
 (a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years.
Also, an individual auditor who has completed his term of five consecutive years shall not be eligible
for re-appointment as auditor in the same company for five years from the completion of his term.
In view of the above as the paid up share capital of the company is more than Rs.50 Crore, Mr. X
cannot be appointed as Statutory Auditor for the second term.
(ii) In the above case if, instead of the Individual Person as an auditor, the company would have
appointed any Firm of Chartered Accountants, and now the tenure of the said firm is expiring, whether
this firm is eligible for reappointment ? (2 marks)
Answer 1(b)(ii) Section 139(2) of the Companies Act, 2013 read with Rule 5 of the Companies (Audit
and Auditors) Rules, 2014 provides that:
all private limited companies having paid up share capital of rupees fifty crore or more shall not
appoint or re-appoint
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years.
An audit firm which has completed its term shall not be eligible for re-appointment as auditor in the
same company for five years from the completion of such term:
Provided further that as on the date of appointment no audit firm having a common partner or partners
to the other audit firm, whose tenure has expired in a company immediately preceding the financial
year, shall be appointed as auditor of the same company for a period of five years.
In view of the above the firm of Chartered Accountants will not be eligible for the reappointment for
five years on the completion of the term.