Section 138 of CA 2013 : Section 138: Internal Audit

Explanation using Example

Imagine a mid-sized manufacturing company in India, "Quality Widgets Pvt. Ltd.", which has been growing rapidly over the past few years. As per the new rules issued under the Companies Act, 2013, their annual turnover has crossed the threshold that requires them to appoint an internal auditor.

Complying with Section 138(1) of the Act, the Board of Directors holds a meeting and decides to appoint a chartered accountant with a good track record in internal auditing. This auditor is tasked with regularly examining the company's financial processes, ensuring compliance with financial regulations, and identifying areas for cost reduction and efficiency improvements.

Following Section 138(2), the company adheres to the rules set by the Central Government regarding how often the internal audit should be conducted. The appointed auditor submits detailed audit reports quarterly, which are then reviewed by the Board to ensure that Quality Widgets Pvt. Ltd. maintains high standards of financial integrity and continues to thrive in the market.