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What is Internal Audit?

  1. Internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
  2. Performed by professionals with an in-depth understanding of the business culture, systems, and processes, the internal audit activity provides assurance that internal controls in place are adequate to mitigate the risks, governance processes are effective and efficient, and organizational goals and objectives are met.

What activities are covered in Internal Audit?

  • To check whether internal controls are in place or not and evaluate their effectiveness
  • To check accounting process of organization
  • To check what legal compliance are applicable to organization and level of their compliance
  • To check inventory management and liquidity management of Organization
  • To check the efficacy of risk management procedures which are currently in place
  • To protect against fraud and theft to organization’s asset
  • To review the transaction processing system and Internal control environment

What is process of Internal Audit?

  • Planning: In the planning phase, the audit staff reviews any past audit work, looks over literature on the area being reviewed, and makes a preliminary review of the unit budgets, actual revenues and expenses.
  • Fieldwork: The fieldwork phase is typically the lengthiest part of the audit, the audit staff gathers information about the auditee's operations, gains an understanding of the unit's functions, and identifies both strengths and weaknesses.
  • Reporting and Recommendation: All fieldwork results are compiled, presented and discussed with the client. Based on this, action plans must be prepared to address the drawback in system, process and operations.
  • Follow up: Follow up is performed to ensure that whether action plan has been indeed implemented or not.

When Internal Audit is mandatory?

As per Companies Act, 2013 following class of companies are required to appoint Internal Auditor:
  • Listed Company
  • Unlisted Public Limited company having either
    1. Paid up share capital of 50 Crores rupees or more during preceding FY or
    2. Turnover of 200 crores rupees or more during preceding FY or
    3. Outstanding loans or borrowings from banks or public financial institutions exceeding 100 crore rupees or more at any point of time during preceding FY; or
    4. Outstanding deposits of 25 crores rupees or more at any point of time during the preceding FY
  • Private Limited Company having either
    1. Turnover of 200 crores rupees or more during preceding FY or
    2. Outstanding loans or borrowings from banks or public financial institutions exceeding 100 crore rupees or more at any point of time during preceding FY;

What are the benefits of Internal Audit?

  • It improves the efficiency of processes, operations and functioning of organization.
  • It ensures compliance with all the applicable laws and regulations.
  • It protects the organization from fraud, mismanagement by providing a clear insight of operations, management and funds of organization.
  • It facilitates more effective management of organization.
  • It facilitates on-going review of organization’s performance so that timely action can be taken to correct mistakes.
  • It ensures optimum utilization of resources of organization by identifying weakness in system and process.
  • It also provides financial security to company.