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CA Intermediate · Auditing and Ethics · Risk Assessment and Internal Control

Under Section 143(3)(i) of the Companies Act, 2013, the auditor of Bharat Auto Components Ltd., a company, reports on internal financial controls. The company is a private company with turnover of Rs 30 crore and borrowings of Rs 10 crore, and it is not a subsidiary or holding of a public company. Management claims the auditor must still report on IFC operating effectiveness. What is the correct position?

The auditor need not report on internal financial controls. An MCA exemption covers a private company that is neither holding nor subsidiary of a public company, with turnover below Rs 50 crore and borrowings below Rs 25 crore, and both thresholds are satisfied here.

  1. AReporting is required for every company without exception
  2. BThe auditor must report only if the company has an audit committee
  3. CReporting is exempt for such a private company under the MCA exemption, since turnover is below Rs 50 crore and borrowings below Rs 25 croreCorrect
  4. DReporting is exempt only for companies with turnover above Rs 500 crore

Explanation

MCA notification exempts a private company (not a holding or subsidiary of a public company) from IFC reporting if turnover is below Rs 50 crore and borrowings from banks and financial institutions below Rs 25 crore in the previous year. Both conditions are met here, so the report on IFC is not required. Option 3 reverses the turnover logic.

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