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 Internal Audit

Independent Reporting, Opinion
and recommendations
on the quality and functioning of

Internal Control Systems

Internal Audit Query

What is Internal Audit?

Internal audit is an audit to provide independent assurance to the Management of the Company, that in the Company organisation’s risk management, governance and internal control processes are operating effectively. It is an audit of Internal Control System of the Company for ensuring the quality and functioning of such system and update the relevant authorities of the company about the possible improvement in the system

When Internal Audit is Mandatory?

The requirment of Internal audit is as per the Statute, every listed and unlisted is required to appoint an internal auditor based on the following requirements.

For Listed Company : Internal Audit is must for all the listed Companies without any specific criteria or threshold.

For Unlisted Company : Unlisted Company are required to appoint an internal auditor if

  • Turnover are equal to or exceeds Rs. 200 Crores
  • Outstanding Loans Or Borrowings From Bank Or Public Financial Institutions are equal to or exceeds Rs. 100 Crores
  • Paid up Capital is equal to or exceeds Rs. 50 Crores
  • Outstanding Deposits are equal to or exceeds Rs. 25 Crores

For Private Limited Company are required to appoint an internal auditor if

  • Turnover are equal to or exceeds Rs. 200 Crores
  • Outstanding Loans Or Borrowings From Bank Or Public Financial Institutions are equal to or exceeds Rs. 100 Crores

Apart from the above, if any Company does not fall under the mandatory requirement and it still wilsh to conduct internal audit for batter management and control, that Company can also appoint internal auditor

Advantage of Internal Audit

There is a misconception that internal audits are only necessary for larger, more complex organisations and the cost of an internal audit is higher than its benefits for a smaller entity. As the internal audit’s purpose is to evaluate and improve the effectiveness of an organisation’s risk management, control and governance, an internal audit is beneficial to all entities irrespective of the size of the business. Internal Audit is necessary for all type of well organised businesses.

Advantages of Internal Audits are:

  • Staff remains alert because their work shall be checked by the internal auditor. So, accounting remains correct.
  • Internal audit helps to detect errors and frauds and provide suggestions to improve them which helps  management to take corrective action.
  • Internal audit detects misuse of resources in time which helps to reduce unnecessary expenses.
  • Internal audit checks efficiency of staff which helps to increase efficiency.
  • Internal audit checks books of accounts, detects errors and frauds and helps in its correction which makes act of final auditor easier.
  • Internal audit increases the morale of honest staff because evaluation of performance of any staffs will be made at any time.

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FAQ of Internal Audit

Internal audit is an audit to provide independent assurance to the Management of the Company, that in the Company organisation's risk management, governance and internal control processes are operating effectively. It is an audit of Internal Control System of the Company for ensuring the quality and functioning of such system and update the relevant authorities of the company about the possible improvement in the system
The requirement of Internal audit is as per the Statute, every listed and unlisted is required to appoint an internal auditor based on the following requirements. For Listed Company- Internal Audit is must for all the listed Companies without any specific criteria or threshold. For Unlisted Company: Unlisted Company are required to appoint an internal auditor if

Turnover are equal to or exceeds Rs. 200 Crores

Outstanding Loans Or Borrowings From Bank Or Public Financial Institutions are equal to or exceeds Rs. 100 Crores

Paid up Capital is equal to or exceeds Rs. 50 Crores

Outstanding Deposits are equal to or exceeds Rs. 25 Crores

For Private Limited Company are required to appoint an internal auditor if

Turnover are equal to or exceeds Rs. 200 Crores

Outstanding Loans Or Borrowings From Bank Or Public Financial Institutions are equal to or exceeds Rs. 100 Crores

Apart from the above, if any Company does not fall under the mendatory requirement and it still wilsh to conduct internal audit for batter management and control, that Company can also appoint internal auditor  
There is a misconception that internal audits are only necessary for larger, more complex organisations and the cost of an internal audit is higher than its benefits for a smaller entity. As the internal audit’s purpose is to evaluate and improve the effectiveness of an organisation’s risk management, control and governance, an internal audit is beneficial to all entities irrespective of the size of the business. Internal Audit is necessary for all type of well organised businesses. Advantages of Internal Audits are: Staffs remain alert because their work shall be checked by the internal auditor. So, accounting remains correct. Internal audit helps to detect errors and frauds and provides suggestions to improve them which helps the management to take corrective action. Internal audit detects the misuse of resources in time which helps to reduce unnecessary expenses. Internal audit checks the efficiency of staffs which helps to increase the efficiency of them. Internal audit checks the books of accounts, detects errors and frauds and helps in its correction which makes the act of final auditor easier. Internal audit increases the morale of honest staff because evaluation of performance of any staffs will be made at any time.  
The time to be taken in the internal audit depend on the size, complexity and Strength of the business's Internal Controls. The audit is a dynamic process, the scope of which can be expanded or reduced at any time depending on the issues. Accordingly, time to complete an audit varies significantly.
There is not much of your time requires for internal audit. For each audit, there will generally be an individual of organization who will act as main contact for internal audit. The main contact person will act like an audit coordinator and will be meeting with us on reguler basis. The Audit co-ordinator will help us to determine the scope of the audit, gathering requested documentation, discussing our audit issues and recommendations, and reviewing the final audit report. Our team will also need to meet with other key personnel during planning and fieldwork to complete our understanding of business processes.
The Internal Audit process mainly icludes the following Initial Planning Meeting : Meeting with Key Management to determine the scope of internal audit Initial Meeting with Concerned Department: During this phase we gather various types of information from interviews with department and get an understading of the concerned department. Execution of Audit: Execution of internal audit on the basis of outcome of the Initial Meetings. This phase is where we begin spending time in the department, unit or function. Since each is unique in its size, purpose, staffing, procedures and issues, audit fieldwork can also be unique. We perform tests of various department, unit or function transactions. The number of transactions tested varies from audit to audit depending on our scope. Preparation of Audit Report: This is the compilation phase. During this part of the audit, we prepare audit report on the basis of information/issues/point for discussion gathered during the audit. Discussion of Audit Report: Duirng this phase we discuss our audit report with the concerned department and get their feedback. As a result, some issues are resolved and other unresolved issued are reported in the final report along with the management comment.
First of all an initial meeting will be held to determine the scope of the audit. on the basis of the scope of the audit we will submit intial list of information required for the audit. This request may include general department information, which will help us to get an understanding of the department, unit and function being reviewed. During the process of audit the concerned department, unit or function will need to provide us with various details supporting the transactions we are testing.