Understanding Internal Audit: Applicability, Approach & Benefits

Understanding

• • Internal Auditing is an independent, objective assurance and consulting activity wherein business processes are reviewed in terms of compliance/control perspective.
  • The objective of the Internal Audit also includes identification of process design-related concerns incl. documenting recommendations considering Industry analysis.

Applicability (as per Sec 138 of Companies Act, 2013)

• • Where in Paid-up share capital > 500 million applicable for public unlisted companies and not applicable for private companies.
  • Where in Outstanding deposits > 250 million applicable for public unlisted companies and not applicable for private companies.
  • Where in turnover > 2,000 million applicable for public unlisted companies and private companies.
  • Where in Outstanding loan & borrowings from bank > 1,000 million applicable for public unlisted companies and private companies.

Internal Audit is mandatory for all listed companies

Approach

• • Planning includes scoping of the process, the study of company financials, applicable laws & regulations, industry & company news, company policies and procedures, the result of previous audits, and accordingly arrive at key areas/sub-areas wherein considerable focus shall be required (in discussion with the Management).
  • Kick-off meeting with the relevant stakeholders.
  • Fieldwork includes walkthrough (System, physical, documentation), understanding process & controls from key personnel, data analytics and identification of the sample, reviewing relevant documents & vouchers, and verification related activities (where ever applicable).
  • Reporting includes clear root causes and recommendations for actions post discussion at stakeholders and management officials.
  • Follow-up is critical to ensure that the recommendations have been implemented to address the findings identified.

Benefits

• • Add value (Process & Monetary terms) and improve an organization’s operations.
  • Effectiveness and efficiency of operations.
  • Reliability of financial reporting.
  • Compliance with laws and regulations.
  • Evaluate and improve the effectiveness of risk management, control, and governance processes.

Last Updated: 30th July 2020 This article is contributed by: 

Vikram Prabhakar Associate Director, RITS

Tag: Internal Audit