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CA Final · Advanced Auditing, Assurance and Professional Ethics · Internal Audit

Shakti Dairy Producer Company, registered as a producer company, asks whether its articles may provide that internal audit be done by a cost accountant who is not a chartered accountant, citing Section 138 under which a cost accountant may be an internal auditor. How should the matter be resolved under the Companies Act, 2013?

A cost accountant cannot be appointed. Section 378ZF specifically requires every Producer Company to have its accounts internally audited by a chartered accountant, with the interval and manner specified in its articles. The wider choice of professionals under Section 138 does not override this specific requirement.

  1. AAllowed, since Section 138 permits a cost accountant to act as internal auditor in any company
  2. BAllowed, if the Board decides so by resolution
  3. CNot allowed, because Section 378ZF requires a producer company's accounts to be internally audited by a chartered accountant, at the interval and in the manner specified in its articlesCorrect
  4. DNot allowed, because producer companies are exempt from internal audit altogether

Explanation

Section 378ZF specifically requires every Producer Company to have internal audit of its accounts carried out by a chartered accountant, at such interval and in such manner as the articles specify. Section 138's wider choice of cost accountant or other professional applies to prescribed classes of companies under that section, and the specific provision for producer companies governs here. Producer companies are not exempt from internal audit, so the last option is also wrong.

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