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CA Intermediate · Corporate and Other Laws · Audit and Auditors

Lotus Infra Ltd is a private company with paid-up capital of ₹5 crore, borrowings from banks of ₹10 crore and turnover of ₹90 crore. Its Board is considering whether the company must appoint an internal auditor. Which statement is correct?

Internal audit is not required. A private company must appoint an internal auditor only if turnover is ₹200 crore or more, or bank and financial institution borrowings exceed ₹100 crore. Lotus Infra's turnover of ₹90 crore and borrowings of ₹10 crore are below both limits.

  1. AInternal audit is not required because it is a private company
  2. BInternal audit is required only if the company is a listed company
  3. CInternal audit is required because a private company with turnover of ₹200 crore or more or borrowings of ₹100 crore or more must have it
  4. DInternal audit is not required, as the private company's turnover and borrowings are below the prescribed limitsCorrect

Explanation

A private company must appoint an internal auditor if in the preceding financial year its turnover was ₹200 crore or more, or outstanding loans or borrowings from banks and public financial institutions exceeded ₹100 crore. Here turnover is ₹90 crore and borrowings ₹10 crore, both below the limits. Private status alone does not exempt a company, so the first option's reason is wrong.

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