Internal Audit:
- What is Internal Audit?
Preface to the Standards on Internal Audit issued by ICAI defines “Internal Audit” as “An independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity, including the entity’s strategic risk management and internal control system.”
It can be understood as a continuous audit with respect to functioning of any organization, in order to identify and rectify in timely manner any loophole, with an overall purpose to strengthen the organization. Whereas a Statutory Audit is a post-mortem, an internal audit is a regular check of health of any organization.
- Mandatory requirement of Internal Audit in Companies Act 2013?
Section 138 of the Companies Act 2013, read with Rule 13 of the Companies (Accounts) Rules 2014, prescribes certain circumstances wherein it is mandatory for a Company to appoint an Internal Audit. The circumstances and types of companies which are mandatorily required to appoint internal auditor is explained in short as follows:
| Type of Company | Deposit for Previous Year | Capital for Previous Year | Loan for Previous Year | Income for Previous Year | Applicability for Previous Year |
| Private | No Considered | Not Considered | 100 Crore | 200 Crore | Applicable if any one of 2 given limit is crossed |
| Public | 25 Crore | 50 Crore | 100 Crore | 200 Crore | Applicable if any one of 4 given limit is crossed |
| Listed | No Limit | No Limit | No Limit | No Limit | Always Applicable |
- Frequency of Internal Audit
An internal audit can be conducted monthly to quarterly depending on the size, requirement and risk exposure of any organization.
- Purpose and outcome of Internal Audit
In order to conduct a successful internal audit, the process of the organization needs to be very well identified, defined and followed. The process can be broken down in simple steps and check required in each step can be monitored and checked regularly for any scope of improvement. The deficiencies observed can be rectified