Cost and Management Audit · Operational Audit and Internal Audit under Companies Act, 2013

Internal Audit of Producer Companies under Section 378ZF

Updated 11 October 2026 · Fact-checked

Section 378ZF says every Producer Company must have its accounts internally audited. The audit is done at the interval and in the manner set out in its articles. The internal auditor must be a chartered accountant as defined in the Chartered Accountants Act, 1949. A cost accountant is not named in this section.

Understand Internal Audit for Producer Companies (Section 378ZF)

A Producer Company is a special kind of company under the Companies Act, 2013, formed by primary producers such as farmers. Its provisions sit in a separate Part, and Section 378ZF is one of them. It covers internal audit.

The rule is simple. Every Producer Company must have internal audit of its accounts. There is no size test, no turnover limit and no listing condition. You do not look at any rules to see whether it applies. If the company is a Producer Company, it applies.

Two things are left to the company's articles: the interval (how often the audit is done) and the manner (how it is carried out). So the Act sets the duty, and the articles fill in the schedule and method.

The section is strict on who can audit. It must be a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949. Compare this with Section 138, where the internal auditor may be a chartered accountant, a cost accountant or another professional decided by the Board. For a Producer Company, the section as supplied names only a chartered accountant.

In the exam, this topic is mostly tested as a comparison: Section 138 against Section 378ZF. Learn the contrast on applicability, who audits, and who fixes the interval and manner.

Key rules to remember

Applicability of Section 378ZF: Every Producer Company → internal audit of its accounts; No prescribed class, size or turnover test. The duty applies to all Producer Companies.
Who may be internal auditor: Chartered accountant as defined in section 2(1)(b) of the Chartered Accountants Act, 1949; The section names only a chartered accountant. A cost accountant or other professional is not mentioned.
Interval and manner: As specified in the articles of the Producer Company; The Act does not fix the frequency. The articles do.
Section 138 contrast: applicability: Such class or classes of companies as may be prescribed; Section 138 applies only to prescribed classes. The details come from the rules.
Section 138 contrast: auditor: Chartered accountant, or cost accountant, or other professional decided by the Board; Wider choice than Section 378ZF.
Section 138 contrast: interval and manner: Prescribed by the Central Government by rules; Under Section 138(2) the rules fix the manner and intervals, including reporting to the Board.

How to solve Internal Audit for Producer Companies (Section 378ZF) questions

Use this method for any question on internal audit of a Producer Company, whether it is a short note, a comparison or a case.

1Check the entity first. Is it a Producer Company? If yes, Section 378ZF applies. If it is an ordinary company, think of Section 138.
2State the duty: every Producer Company must have internal audit of its accounts.
3Say who can be the auditor: a chartered accountant as defined in the Chartered Accountants Act, 1949, section 2(1)(b).
4Say who sets the interval and manner: the articles of the company.
5If the question asks for a comparison, set out Section 138 and Section 378ZF side by side on applicability, auditor and interval/manner.
6If a case names an auditor, test the person against the section. A cost accountant or other professional is not a chartered accountant, so the appointment does not fit Section 378ZF.
7Close with a clear conclusion in one line.

Quickest way: Three-point check: Who, Who audits, Who decides

When to use it: Use for MCQs and for short answers where you have only a few minutes.

Who must have it? Every Producer Company, with no size limit.
Who audits? Only a chartered accountant under this section.
Who decides interval and manner? The articles. Under Section 138 it is the rules instead.

Common mistakes in Internal Audit for Producer Companies (Section 378ZF)

Saying a cost accountant can be internal auditor of a Producer Company under Section 378ZF.
Students carry over Section 138, which allows a chartered accountant, a cost accountant or another professional.
Fix: Remember that Section 378ZF names only a chartered accountant. Tie the cost accountant option to Section 138.
Writing that Section 378ZF applies only to prescribed classes of companies.
Section 138 uses the words 'such class or classes of companies as may be prescribed', and students mix the two.
Fix: Section 378ZF says 'every Producer Company'. No class is prescribed.
Saying the Central Government rules fix the interval of internal audit for a Producer Company.
Under Section 138(2) the Government prescribes the manner and intervals by rules.
Fix: Under Section 378ZF, the articles specify the interval and manner.
Confusing internal audit with cost audit under Section 148.
Both are in the same paper and both can involve a cost accountant.
Fix: Section 148 is an audit of cost records by a cost accountant appointed by the Board. Section 378ZF is internal audit of the accounts of a Producer Company by a chartered accountant.
Quoting Section 378ZF as a rule about voting or about the audit committee.
Nearby section numbers in the Producer Company Part look alike. Section 378Z is about voting rights and Section 177 is about the audit committee.
Fix: Link each number to one idea. 378Z: one member, one vote. 378ZF: internal audit. 177: audit committee.

Worked examples

Example 1

Kisan Agro Producers Company Limited is a Producer Company in Maharashtra. Its Board wants to appoint a cost accountant as its internal auditor for the accounts. Advise the Board with reference to Section 378ZF.

Show the solution

Kisan Agro is a Producer Company, so Section 378ZF applies. Every Producer Company must have internal audit of its accounts.
The section requires the audit to be carried out by a chartered accountant as defined in section 2(1)(b) of the Chartered Accountants Act, 1949.
The section does not name a cost accountant or any other professional.
The wider choice of chartered accountant, cost accountant or other professional is found in Section 138, which applies to prescribed classes of companies. It does not change the wording of Section 378ZF for a Producer Company.
The interval and manner of the audit must follow the articles of the company.

Answer: The Board should not appoint a cost accountant as internal auditor under Section 378ZF. It should appoint a chartered accountant and conduct the audit at the interval and in the manner set out in the articles.

Example 2

Distinguish between the internal audit requirement under Section 138 and Section 378ZF of the Companies Act, 2013.

Show the solution

Applicability: Section 138 applies to such class or classes of companies as may be prescribed. Section 378ZF applies to every Producer Company.
Auditor: Under Section 138 the internal auditor is a chartered accountant, a cost accountant or such other professional as the Board decides. Under Section 378ZF it is a chartered accountant as defined in the Chartered Accountants Act, 1949.
Interval and manner: Under Section 138(2) the Central Government prescribes the manner and intervals by rules, and also how the audit is reported to the Board. Under Section 378ZF the articles specify the interval and manner.
Scope: Section 138 refers to the functions and activities of the company. Section 378ZF refers to the accounts of the Producer Company.

Answer: Section 138 is class-based, allows a wider range of professionals and leaves interval and manner to rules. Section 378ZF covers every Producer Company, requires a chartered accountant and leaves interval and manner to the articles.

Exam tips

Expect a comparison question. Prepare a four-row table in your head: applicability, auditor, interval and manner, scope. Write it as short points in the exam.
In MCQs, watch the word 'only'. If an option says a cost accountant may be appointed under Section 378ZF, it is wrong.
In case questions, first identify whether the company is a Producer Company. That one fact decides which section applies.
Quote the section number only when you are sure. 378ZF for internal audit of Producer Companies and 138 for internal audit generally are safe to use.
Finish every answer with a clear conclusion that tells the Board or the company what to do.

Practice questions from Operational Audit and Internal Audit under Companies Act, 2013

Internal Audit for Producer Companies (Section 378ZF): frequently asked questions

Does Section 378ZF apply to all companies?

No. It applies only to Producer Companies. Every Producer Company must have its accounts internally audited. Other companies are covered by Section 138 if they fall in a prescribed class.

Can a cost accountant be internal auditor of a Producer Company?

Under the text of Section 378ZF, the internal audit is carried out by a chartered accountant as defined in the Chartered Accountants Act, 1949. A cost accountant is not named. A cost accountant is named only in Section 138.

Who decides how often the internal audit of a Producer Company is done?

The articles of the Producer Company specify the interval and the manner. The section does not fix a frequency. This differs from Section 138, where the rules prescribe the manner and intervals.

What is the main difference between Section 138 and Section 378ZF?

Section 138 applies to prescribed classes of companies and allows a chartered accountant, cost accountant or other professional chosen by the Board. Section 378ZF applies to every Producer Company and requires a chartered accountant. Interval and manner come from rules under Section 138 and from the articles under Section 378ZF.