Internal Audit

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Last Updated on 28 June, 2021

What is Internal Audit?

Internal audit evaluates and improves effectiveness of an organisation’s risk management, control, governance and accounting processes. Internal audit is performed to identify potential risk (such as misappropriation of assets, misuse of funds, frauds, manipulation of records) an organisation may be prone to, managing those risk and reporting on such risk and their management as per statutory requirements.

Internal Audit Objectives:

Internal audit is performed to give assurance to top level management that the risk associated to business are identified and managed properly. It is conducted to provide assurance that management of an organisation has an ability to manage risk effectively. It also ensures that governance and internal control processes are operating effectively.

Benefits of Internal Audit:

Internal audit have many benefits some of which are discussed below:

1. It protect assets and reduce the possibility of fraud as it keeps a check on the internal control of organisation;

2. It serves as an early warning system that enables organisation to identify deficiencies and apply remedies on a timely basis;

3. It improves efficiency in operations;

4. It increases financial reliability and integrity;

5. It ensures that organisation complies with laws and statutory regulations; and

6. It establishes monitoring procedures;

7. It reduces risk of data breaches and various other cybersecurity concerns;

Applicability of Internal Audit:

The following companies are required to appoint internal auditors:

Listed Company – Every listed company

Unlisted company – Every unlisted public company having:

During the preceding financial year

Paid-up share capital – Rs. 50 crores or more

Turnover – Rs. 200 crores or more

At any point during the year

Outstanding Loan or borrowing – Exceeding Rs. 100 crores

Outstanding deposits – Rs. 25 crores or more

Private Company – Every private company having:

During the preceding financial year

Turnover – Rs. 200 crores or more

At any point during the year

Outstanding Loan or borrowing – Exceeding Rs. 100 crores

*Outstanding loans or borrowings from banks or public financial institutions

The Central Government may, by rules, prescribe the manner and the intervals in which the internal audit shall be conducted and reported to the Board.

Internal Auditor:

An internal auditor is a person who performs internal audit. It can be an individual, partnership firm or a body corporate. An internal auditor can be a Chartered Accountant or Cost Accountant (whether in practice or not) or such other professional which the boards appoints to conduct internal audit of the functions and activities of the company.

Can an employee of a company be appointed as an internal auditor?

An employee of a company can be appointed as an internal auditor provided he possess requisite qualification and abilities to perform internal audit.

Activities involved in Internal Audit:

Generally an internal audit involves following activities:

1. Internal auditor will establish and communicate the scope and objectives of audit to appropriate members of management.

2. He will develop an understanding of the business area under review such as its objectives, measurements, type of key transaction, interviews and review of documents.

3. He should describe the key risks in business activities that is within the scope of the audit to be conducted.

4. He must identify management practices to ensure that each key risk is properly controlled and monitored.

5. He must develop and execute a risk-based sampling and testing approach to determine whether the most important management controls are operating as intended.

6. He should report issues and challenges identified and discuss them with management to reach at some action plans to address those issues.

7. At the end, he must follow-up on reported findings at appropriate intervals to check whether any efforts have been made by the management. Internal Audit Departments maintain a follow-up database for this purpose.

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The statutory material is obtained only from the authorized and reliable sources
All the latest developments in the judicial and legislative fields are covered
Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
Every content published by Taxmann is complete, accurate and lucid
All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
The golden rules of grammar, style and consistency are thoroughly followed
Font and size that's easy to read and remain consistent across all imprint and digital publications are applied

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Internal Audit

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Internal Audit Objectives:

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Internal Auditor:

Can an employee of a company be appointed as an internal auditor?

Activities involved in Internal Audit:

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