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Internal Audit

What is Internal Audit?

Internal audit is like a quality checker for an organization. It evaluates a company’s internal controls including its corporate governance and accounting processes to make sure everything is working properly. It helps an organization reach its goals by finding ways to improve how it manages risks, controls and governs itself.

According to the Companies Act 2013, there is a rule that companies need to have an internal auditor. This internal auditor can either be a chartered accountant, a cost accountant, or another professional chosen by the company's board. The job of the internal auditor is to check and review the company's functions and activities.

Why Internal Audit? Is it mandatory?

Internal audit is done to check if the company has followed all the applicable rules and laws that apply to it. After doing the check, the Internal Auditor writes a report about compliances and material deviations. This report shows if the company followed the rules or not. Chartered Accountants in Bangalore can play a crucial role in assisting with internal audits for organizations.

Companies Covered Under Internal Audit

As per Rule 13 of the Companies (Accounts) Rules, 2014, the specified types of companies mandated to engage an internal auditor or a firm of internal auditors include:

All registered listed companies must comply with the requirement for internal audit.
Unlisted public companies with an annual turnover of 200 crore rupees or more are required to have an internal audit.
Unlisted public companies that have paid a share amount of 50 crore rupees or more must follow the applicability of an internal audit.
Unlisted public companies with an outstanding deposit of 25 crore rupees or more at any time should adhere to the requirement for internal audit.
Unlisted public companies that have received a loan of hundred crore rupees or more from multiple banks or public financial institutions at any point in time must follow the applicability of internal audit.
Private companies with an annual turnover of 200 crore rupees or more should comply with the requirement for internal audit.
Private companies that have received a loan of hundred crore rupees or more from multiple banks or public financial institutions at any point in time must follow the applicability of internal audit.

How is it Conducted?

1. Planning and Scoping: Internal auditors in Bangalore identify areas for review, assess risks, and define the scope of the audit. This involves understanding relevant policies, procedures, and regulations.

2. Information Gathering: Auditors or Chartered Accountants in Bangalore gather evidence through various methods like interviews with personnel, document review, observation of processes, and testing of controls. This helps assess adherence to procedures and identify potential weaknesses.

3. Analysis and Evaluation: The gathered evidence is analyzed to determine if controls are effective, risks are managed, and objectives are met. This involves identifying non-conformances, gaps, and opportunities for improvement.

4. Reporting: Auditors prepare a report summarizing findings, conclusions, and recommendations for improvement. This report is presented to management and the audit committee, who then monitor the implementation of corrective actions.

The objectives of Internal Audit

Revenue Audit – Income Leakage Audit
Compliance Audit – Taxation and other regulatory
Payroll Audit
Reimbursement Audit
Procurement Audit
Systems Audit – EDP Audit

Penal provisions for default/non-compliance

According to Section 450 of the Companies Act 2013, if a company, its officer, or any other person violates any provision of the Act or rules made under it, the following penalties will apply:

Any company, employee, or member of the company found to be in violation or non-compliance with the internal audit requirement will be subject to a penalty of 10,000 rupees.
If the non-compliance continues, an additional penalty of Rs 1,000 per day will be imposed, with the possibility of the penalty increasing up to 2 lakh rupees. The company will be subject to a penalty of 2 lakh rupees, while the officer responsible for the non-compliance will face a penalty of 50,000 rupees.

If your company is in search of a chartered accountant in Bangalore, exploring B C Shetty & Co . is a wise choice. Our team comprises highly dedicated chartered accountants committed to delivering exceptional financial and business solutions!