Who Needs an Internal Audit in India? A Complete Guide for Businesses

In today’s rapidly changing business environment, maintaining transparency, accountability, and strong internal controls has become more important than ever. One of the most effective tools that help organizations achieve these goals is internal audit. But the question arises — who actually needs an internal audit in India? Is it only for large corporations, or do startups and SMEs also require it?

This blog offers a complete guide to understanding who needs internal audit in India, the legal requirements, benefits, and how businesses can approach it strategically.

What is an Internal Audit?

An internal audit is an independent, objective assurance activity designed to evaluate and improve the effectiveness of risk management, control, and governance processes within an organization.

Unlike statutory audits which are mandated by regulators to check financial statements, internal audits are conducted periodically to ensure that a company’s operations are efficient, compliant, and secure.

Who Needs an Internal Audit in India?

As per the Companies Act, 2013, internal audit is mandatory for certain categories of companies. Let’s look at them in detail:

Mandatory Internal Audit as per Section 138 of the Companies Act, 2013

The Companies Act, through Rule 13 of the Companies (Accounts) Rules, 2014, prescribes internal audit for the following companies:

Listed Companies

All listed companies must conduct internal audits.

Unlisted Public Companies that satisfy any of the below:

• Turnover of ₹200 crore or more during the preceding financial year
• Outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more
• Paid-up share capital of ₹50 crore or more
• Outstanding deposits of ₹25 crore or more

Private companies that meet any of the following:

• Turnover of ₹200 crore or more during the preceding financial year
• Outstanding loans or borrowings from banks or public financial institutions of ₹100 crore or more

So, if your business meets any of these thresholds, an internal audit becomes mandatory.

Which Businesses Should Opt for Internal Audit Even If Not Mandatory?

While certain companies are legally required to conduct internal audits, many businesses voluntarily choose to conduct them for better control and risk management. These may include:

• Startups aiming for funding: Internal audits help build investor confidence.
• Family-owned businesses: To ensure operations are professional and transparent.
• SMEs with rapid growth: To prevent fraud, inefficiencies, and poor governance.
• NGOs and Trusts: To validate financial integrity and compliance.

In short, any organization seeking long-term sustainability and risk mitigation should consider internal audit as a best practice, even if not legally required.

Benefits of Internal Audit for Businesses

Conducting an internal audit provides numerous advantages, such as:

• Improved Operational Efficiency: It helps identify bottlenecks and suggests practical improvements.
• Risk Identification and Mitigation: Audits reveal operational, financial, or compliance risks early, enabling timely resolution.
•  Fraud Detection and Prevention: Internal controls are tested to reduce the chance of fraud and embezzlement.
• Stronger Compliance: Ensures adherence to regulatory requirements like GST, Income Tax, Companies Act, etc.
• Better Decision-Making: Provides management with accurate insights for strategic planning and budgeting.

Industries That Particularly Benefit from Internal Audits

While internal audits are useful for all sectors, the following industries especially need robust auditing systems:

• Manufacturing – Cost control, inventory, and supply chain checks
• E-commerce & Retail – Fraud prevention, transaction controls
• Healthcare – Regulatory compliance, operational efficiency
• Finance & NBFCs – Risk and compliance framework monitoring
• Real Estate & Infrastructure – Project management and cash flow audits
• Startups & Tech Firms – Investor confidence and data integrity

Role of an Internal Auditor

An internal auditor evaluates:

• Internal controls and processes
• Financial records and transactions
• Compliance with laws and internal policies
• Risk management systems

They submit regular reports to the board or audit committee, helping top management make informed decisions.

Who Can Be Appointed as an Internal Auditor?

As per Section 138, an internal auditor can be:

• A Chartered Accountant (either in practice or employment)
• A Cost Accountant
• Any other professional as decided by the company’s Board

The internal auditor may or may not be an employee of the company, offering flexibility to appoint either in-house or external professionals or firms.

Internal Audit vs. Statutory Audit: What’s the Difference?

Aspect	Internal Audit	Statutory Audit
Objective	Improve internal controls and efficiency	Certify financial statements
Mandated for	Specific companies under Section 138	All companies under Companies Act
Performed by	In-house or external professionals	Chartered Accountants appointed by company
Reporting To	Management and audit committee	Shareholders and government authorities
Frequency	Ongoing or periodic (monthly/quarterly/yearly)	Annual

Hire RNM India for Internal Audits?

RNM India is a reputed name in the top audit firms in India and assurance services. With over 75 years of experience, RNM India has worked with a diverse portfolio of clients — from listed companies to fast-growing startups across various sectors.

Here’s why businesses choose RNM India:

• Expertise Across Sectors: Manufacturing, real estate, IT, retail, education, healthcare, and more.
• Risk-Based Audit Approach: RNM’s audit methodology focuses on identifying high-risk areas and improving control systems around them.
• Tailored Audit Plans: Customized audit programs based on the size, nature, and risk profile of your business.
• Regulatory Compliance Support: RNM helps clients comply with statutory internal audit requirements under the Companies Act and SEBI.
• Use of Modern Audit Tools: Integration of data analytics and process automation to conduct efficient, high-quality audits.
• Strong Ethics & Confidentiality: RNM India follows the highest standards of independence, confidentiality, and reporting integrity.

Whether you’re mandated by law or looking to improve internal controls, outsourcing your internal audit function to RNM India can help you unlock business value and strategic insight.

Final Thoughts: Is Your Business Audit-Ready?

Internal audits are no longer optional for many Indian businesses. But even for those not mandated, conducting regular internal audits helps avoid costly errors, ensure compliance, and drive business performance.

Whether you’re a growing business looking to implement governance frameworks or an established organization seeking to refine your processes—now is the right time to prioritize internal auditing. RNM India, recognized among the top financial advisory firms in India, offers expert internal audit solutions tailored to your business needs, helping you stay ahead with robust controls and strategic insights.