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Non-Banking Financial Companies (NBFCs) are financial institutions registered under the Companies Act, 1956 which are engaged in the business of loans and advance, acquisition of shares/stocks/bonds/debentures/securities issued by Government or Local authority. NBFCs don’t include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods or providing any services and sale/purchase/construction of the immovable property. An institution which is a company and has the principal business of receiving deposits in one lump sum or installments or any other manner is also a Non-Banking Financial Company (NBFC). In this blog, we will discuss the Internal Audit of NBFCs.
NBFCs conduct an Internal Audit yearly. Internal Audits are critical to identify the problems in the functioning of the company and hence work upon the issues. It assures that all the business assets of the company are adequately secured and safeguarded from the threats. Internal Audit is essential as it improves the environment of an organization by analyzing the efficiency and effectiveness of the company.
NBFCs are further divided into the following types:
Scope of Internal Auditing includes the examination and evaluation of the effectiveness of the internal system and the quality of performance in managing responsibilities at an organizational, departmental, and functional level. Scope of Internal Auditing includes:
The Internal Audit Department serves as a consulting resource for the review of policies and procedures, financial and administrative systems, and other related other administrative activities. Moreover, this department serves as a consultant for the development of new or significantly modified functional areas and computer-based financial and management information systems.
To get the audit done for an NBFC, the Head of the Audit Department prepares an audit plan at the start of the year and gets it approved by the Audit Committee of the Board. The frequency of audit of an activity/function is determined based on the risk perception. All the activities of a Company get audited at least once a year.
Internal Audit has the authority to audit all the functions of the company and hence have complete access to all information, programs, database and all the documents required for audit. The Auditor prepares audit documentation based on all the reports collected by him. These documents may be kept in paper form or electronic form. Documents are recalled in case of any dispute on audit findings.
During an Audit, the department or service under review should provide full cooperation to the Internal Audit Department. In case of verification of valuables like gold, cash, etc, the auditee has no prior information about the audit. There are many occasions when the Audit is planned without any prior knowledge to the auditee. Even in such situations, the auditee unit has to provide all the information required by the Audit department.
The Internal Audit policy should be reviewed once in 3 years. The Audit Committee is responsible for the discussion and modifications of the internal Audit policy.
Internal Audit programs are essential for monitoring and assuring that all of your business assets have been properly secured and safeguarded from threats. By conducting an Internal Audit, a company can avoid penalties that might be imposed on them in case of discrepancies in the audit. NBFCs conduct Internal Audit every and follow the procedure mentioned above to safeguard the company from any threats.