Internal Audit

An internal audit can guarantee that a business can secure timely compliance with laws and regulations. The audit contributes a degree of security and helps accomplish risks arising from fraud, abuse of power, or any other scenario. An internal auditor provides the administration with their objective assessment of the processes and reports. The management can develop their operational and financial performance using the services of an internal auditor.

What is an internal audit?

An independent service for evaluating the internal management of a company is known as an internal audit. This corporate practice secures the organisation to comply with the various laws applicable to the organisation.

What is the purpose of an internal audit?

For upgraded and improved operational standards, it is necessary to check the organization's activities. The internal audit performs the analysis. Organisations have their own set of rules to carry out business, and the internal audit helps set the standard internal operational management.

Internal audits are useful for:

The identification of any incompetence and the measures to fix them.
If any employee is causing fraud, it can be easily identified if internal audits are conducted regularly.
If there is an unnecessary cost overrun or any favouritism, it can be rectified by internal audits.
If the employees require a role change, for example, the persons working in marketing have shown some efficient sales skill, those can be identified and raised in an internal audit.
Internal audits can be called a check on any potential threat or upcoming financial losses.

Internal audits can be conducted quarterly, monthly, or annually as per the requirements of the organisation. Under certain conditions, the company is mandated to appoint an internal auditor under the Companies Act 2013.

Who performs Internal audits?

The internal auditor should be a chartered accountant or a cost accountant as determined by the Board of Directors.

The employees of the company usually conduct internal audits, and it is reported to the Board of Directors and the members of management, covering the matters regarding:

Governance
Risk Management
Process Improvement

How is the internal auditor appointed?

The appointment of the internal auditor is made by passing a resolution at a board meeting under the provision of Rule 8 of the Companies (Meeting of Board and its Power) Rules, 2014.

What do internal audits cover?

The checklist of internal audits is as follows:

Initial Audit Planning: The internal team should have a clear understanding of putting the internal audit project in the audit plan. Internal audits should have the following concerns:

Reason behind the audit project being approved on the internal audit plan.
The process of support in the development of the organization
The risks the organization is facing or is likely to face.
Significant changes have been made since the last audit.

Risk and Process Subject Matter Expertise: The audit's performance based on the company's internal matter is helpful to assess the operational standard of the company. To ensure correct evaluation, the person conducting the audit must be a subject matter expert, either an employee or a third-party expert.

Is internal audit compulsory?

Sec. 138 of the Companies Act makes it mandatory forprivate companies with turnover of Rs. 200 crores or more, all listed and unlisted companies with paid-up capital of Rs. Fifty crores or more and a turnover of Rs. 200 crores.