INTERNAL AUDIT :

Internal audit is an evaluation and analysis of the business operation conducted by the internal audit staff. It is the part of overall system of internal control established in an organization.

Internal audit is the independent appraisal activity within an organization for the review of accounting, financial and other business practices as protective and constructive arms of management. It is a type of control which functions by measuring and evaluating the effectiveness of other type of controls.

According to Professor Walter B. Meigs, Internal Auditing means “Internal auditing consist of a continuous, critical review of financial and operating activities by a staff of auditors functioning as full time salaried employees.”

In big organization, an internal audit is carried out by the team of professionals in the organization. The internal audit is not mandatory but organization gets the internal audit done with a view to evaluate the effectiveness of internal control, the soundness of financial system, effectiveness of business processes etc. This provides management an assurance about the control process in the organization and it aids in early detection of inefficiencies/fraud etc. it helps the statutory auditors too in getting the statutory audit done effectively.

Section 138 of the Companies Act, 2013 contains provisions regarding internal audit. As per Companies Act, 2013, certain class or classes of company as may be prescribed shall appoint an internal auditor who will conduct an audit of the functions and activities of the company and make a report thereon to the Board of Directors. Any chartered Accountant (except statutory auditor of the company) or Cost Account or other professional as may be decided by the Board, can be appointed to conduct the internal audit.

According to Rule 13 of The Companies (Accounts) Rules, 2014 following class or classes of companies shall be required to appoint an internal auditor or firm of internal auditors, namely:

(a) Every listed company;

(b) Every unlisted public company having-

(i) Paid up share capital of 50 crore rupees or more during the preceding financial year; or

(ii) Turnover of 200 crore rupees or more during the preceding financial year; or

(iii) Outstanding loans or borrowings from banks or public financial institutions exceeding 100 crore rupees or more at any point of time during the preceding financial year; or

(iv) Outstanding deposits of 25 crore rupees or more at any point of time during the preceding financial year; and

(c) Every private company having-

(i) Turnover of 200 crore rupees or more during the preceding financial year; or

(ii) Outstanding loans or borrowings from banks or public financial institutions exceeding 100 crore rupees or more at any point of time during the preceding financial year:

The rules also provide that every existing company covered under above criteria in Financial Year 2013-14 shall comply with requirements of Section 138 and Rule 13 of Companies (Accounts) Rules, 2014 before 30th September, 2014 (within 6 months of the commencement of Section 138, i.e. 01st April, 2014).