An Internal Auditor: Why are they important in a Company?

Narendra Kumar

05 Sep, 2022

Internal Audit is an Independent function carried out by the Internal auditor which involves the risk management, continuous monitoring, accounting, Corporate Governance depending upon the functionality of the Company. The Audit itself suggests improvement to be carried out or to add value to strengthen the functionality of the Company.

It ensures that the Company has done proper Compliance with respect to laws, regulations and to maintain the transparency in the Company.

Applicability for Appointment of Internal Auditor for Conducting an Internal Audit

The following class of Companies required appointing the Internal Auditor of the Company:

If the existing Company covered under any of the above criteria shall be required to appoint the Internal Auditor of the Company.

Who can be an Internal Auditor of the Company?

Internal Auditor can be Individual, Body corporate or partnership firm.

1. Internal Auditor may or may not be an employee of the Company.
2. Internal Auditor can be a Chartered Accountant or Cost Accountant whether engaged in practice or not or such other professional as may be decided by the Board.

Scope of Internal Audit

Under section 138(2) of the Companies Act, 2013 gives power to the central Government to make rules and prescribed the manner and the intervals in which the internal audit shall be conducted and reported to the Board.

In rule 13 of Companies (Account) Rules, 2014 the scope of internal audit is not defined. However the audit committee of the Company or the Board shall in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit.

What is the Main Purpose of Internal Audit?

It is advisable to carry out the Internal Audit on quarterly basis so that the Company can monitored its compliance properly and to analyze there is no fraud or deviation in the Company.

The Internal Auditor prepare the report mentioning the compliances and deviations if it found any deviations the method should be mention to rectify. The report should be carry out in fair and transparent manner.Internal Auditor analyses that compliance are timely done. The Audit should carry out in fair and transparent manner.

Areas of Internal Audit to be Carried Out

• Financial Audit

It ensure the compliance with laws and regulations timely financial reporting and data collection to maintain operational efficiency and correcting lapses before they are discovered in external audit.

• Compliance Audit

To ensure that the Compliance has been done within the stipulated period of time. If there is any delay the valid reason should be mentioned.

• Risk Management Audit

It analyze the risk involved in the Company

• Internal audit of Bank

It helps to reduce the risk of loss and reputational damage to the bank.

Appointment of Internal Auditor

Firstly it is necessary to take the consent from the board of directors. In Board Meeting resolution to be passed for the appointment of Internal Auditor. After appointment the resolution is required to be filed with ROC within 30 days from the date of appointment.

Suggested: Roles and Responsibilities of Internal Auditor

Punishment and Compoundability

There are no specific penal provisions provided in this section 138. Therefore the penal provisions under section 450 would apply in case of any non-compliance of this section. Accordingly, for contravention, the company and every officer of the company who is in default shall be punishable with a fine up to Rs.10,000, in case the contravention is a continuing one then the further fine shall be Rs.1,000 everyday.

Conclusion

Internal Audit should be mandatorily carried out by the internal auditor in every company who is fulfilling the criteria for carrying out the assessment of the Company internal functionality, system, accountability, transparency, Fraud Detection, Statutory Compliance to make the functionality of the Company easier, transparent and visible.