Internal Audit

As per section 138 of The Companies Act, 2013 read with Rule 13 of Companies (Accounts) Rules 2014, the following class of companies are required to appoint an internal auditor or a firm of internal auditors namely:-

internal-audit
  • Every listed company;
  • Every unlisted public company having-
    • paid up share capital of fifty crore rupees or more during the preceding financial year; or
    • turnover of two hundred crore rupees or more during the preceding financial year; or
    • outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or
    • outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and
  • Every private company having-
    • turnover of two hundred crore rupees or more during the preceding financial year; or
    • outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year:

Existing company covered under any of the above criteria shall comply with the requirements of section 138 and this rule within six months of commencement of such section.

Purpose

As Companies grow risks and its impact increase, Statutory Auditors due to their limited review may not cover all the aspects. Internal Audit will help company in monitoring its activities having financial impact on the company by conducting timely review.

Internal audit helps to assist the management to improve controls by identifying weaknesses and suggesting avenues to the correct the same. This provides management that assists them in fulfilling their responsibilities to the company and its stakeholders. It also provides the directors and management with a way of showing shareholders and other stakeholders that they are managing the company effectively on behalf of the shareholders by evaluating important risks and highlighting where improvements are necessary.

The objectives of Internal Audit

  1. Revenue Audit – Income Leakage Audit
  2. Compliance Audit – Taxation and other regulatory
  3. Payroll Audit
  4. Reimbursement Audit
  5. Procurement Audit
  6. Systems Audit – EDP Audit