To define Audit, in general, means re-verifying the values, finding discrepancies and knowing the reason for happening of such discrepancies. In India, based on the reporting and financial standards, the audit has been made necessary for companies for keeping a regular check over operations and administration.
Internal Audit, on the other hand, is an independent management function that is performed for taking out the core and critical issues of a company in different aspects and improving them with suggested thoughts of professionals or management hired. It is inclusive of strategic risk management, building values for the company and handling the internal control system.
The following Acts prescribe the guidelines for handling the audit, the qualifications, and the reporting, responsibilities, powers, and functions and Authorities that regulate the auditors:
- Institute of Chartered Accountants of India (ICAI)
- Companies Act, 2013
- National Financial Reporting Authority (NFRA) etc.
As per Companies Act, 2013 the internal audit team of a company shall be held responsible for following and the list is not exhaustive:
- Ensuring timely review and appraisal of the control system across the organization
- Proper compliance following policies, procedures, regulations, and legislation.
- Ascertaining risk, managing litigations, and dispersion of risk.
- Safeguarding assets, minimizing frauds and reducing chances of inefficiency.
Companies to hold ‘Compulsory Internal Audit ‘
As per Section138(1) Read with are compulsorily required to appoint an internal auditor or an Internal Auditing firm :
- All listed companies (irrespective of any other criteria specified).
- .All Producer Companies (Irrespective of any specific criteria).
Who to appoint as an Internal Auditor?
As per the Companies Act,2013 provisions the following persons to be appointed as an Internal Auditor of any firm:
- Any Chartered Accountant / CA Firm (a registered member of ICAI whether in practice or not).
- For Producer companies, only Chartered Accountant (CA) can be appointed as an internal auditor.
- A Private limited company cannot be appointed as an Internal Auditor.
How an Internal Auditor is appointed?
An internal auditor can be appointed only by means of a resolution passed in the board meeting of directors as specified under Rule 8 of the Companies (Meetings of Board and Powers) Rules. The appointing company shall also file e-form MGT-14 with the Registrar of Companies (ROC) within 30 days of The specified company’s need to file such Form MGT 14 to the registrar.
Why appoint an Internal Auditor?
An internal auditor is appointed and expected to serve the following duties:
- To prepare an internal audit plan and strategy.
- To ensure effective risk management.
- To ensure timely preparation of reports, the conduct of analysis and reporting discrepancies.
- To ensure financial reliability and integrity
- To check for compliance following of company.
- To detect frauds and check on internal control of the organization.
Key Sections of Companies Act, 2013 for Internal Auditors
- Section 144– For restricting auditor appointed by any company to hold an internal audit of the same company or any of its subsidiary or holding company.
- Section 177(4)(ii) – For the evaluation of internal financial control and risk management systems by the Audit Committee.
- Section 179(3)– For the appointment of Internal auditor by the company
- Section 117(3)
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