{"id":26379,"date":"2019-11-06T19:08:42","date_gmt":"2019-11-06T13:38:42","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=26379"},"modified":"2020-06-25T17:35:11","modified_gmt":"2020-06-25T12:05:11","slug":"nbfcs-internal-audit-policy-scope-and-objective","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/nbfcs-internal-audit-policy-scope-and-objective\/","title":{"rendered":"NBFCs Internal Audit Policy: Scope and Objective"},"content":{"rendered":"<h2>What is <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;NBFC&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Non-Banking Financial Companies (NBFC) operate similarly to banks but do not possess the legal status of a bank. Registered under the Companies Act 2013 and governed by the RBI Act&amp;#039;s section(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/nbfc\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>NBFC<\/a>?<\/h2>\n\n\n\n<p class=\"has-drop-cap\">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&rsquo;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 <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Property&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Property refers to the legal designation of ownership over valuable items or assets held by an individual or a business. This ownership grants the holder certain legal rights to use, consume,(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/property\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>property<\/a>. An institution which is a company and has the principal business of <strong><a href=\"https:\/\/enterslice.com\/nbfc-registration\" target=\"_blank\" rel=\"noreferrer noopener\">receiving deposits in one lump sum<\/a><\/strong> or installments or any other manner is also a Non-Banking Financial Company (NBFC). In this blog, we will discuss the <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Internal Audit&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;A glossary on internal audit is a valuable resource that compiles and defines essential terms and concepts in the field of internal auditing. It aids professionals and learners in comprehending(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/internal-audit\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>Internal Audit<\/a> of NBFCs.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Importance of NBFCs Internal Audits<\/h2>\n\n\n\n<p>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. <strong><a href=\"https:\/\/enterslice.com\/nbfc-audit\" target=\"_blank\" rel=\"noreferrer noopener\">Internal Audit<\/a><\/strong> is essential as it improves the environment of an organization by analyzing the efficiency and effectiveness of the company.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Types of NBFC<\/h2>\n\n\n\n<p>NBFCs are further divided into the following types:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/11\/image.png\" alt=\"\" class=\"wp-image-26381\" width=\"403\" height=\"363\" srcset=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/11\/image.png 580w, https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/11\/image-300x271.png 300w\" sizes=\"(max-width: 403px) 100vw, 403px\"\/><figcaption>Types of NBFC<\/figcaption><\/figure><\/div>\n\n\n\n<div class=\"shadow1\">*As per RBIs notification, three categories of NBFC has been merged, these three categories of NBFC are Asset Finance Company (AFC), Loan Company and Investment Company. These three categories are merged into a new category called <strong>NBFC- Investment and Credit Company (NBFC-ICC)<\/strong>.<\/div>\n\n\n\n<h2 class=\"wp-block-heading\">Classification of NBFCs<\/h2>\n\n\n\n<figure class=\"wp-block-image is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/11\/image-1.png\" alt=\"\" class=\"wp-image-26382\" width=\"543\" height=\"321\" srcset=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/11\/image-1.png 581w, https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/11\/image-1-300x178.png 300w\" sizes=\"(max-width: 543px) 100vw, 543px\"\/><figcaption>Classification of NBFCs<\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">Objectives of Internal Auditing<\/h2>\n\n\n\n<ul><li>To find compliance with statutory and regulatory requirements<\/li><li>To find compliance with &nbsp;norms laid down by the company<\/li><li>To verify whether the quality of assets is as per approved rules<\/li><li>To determine, integrity, security, and controls in the information system are at acceptable standards <\/li><li>To identify deficiencies in the internal control system and recommend procedures to plug the control gaps.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Scope of Internal Auditing<\/h2>\n\n\n\n<p>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:<\/p>\n\n\n\n<ul><li>Review of the reliability of financial and operating information<\/li><li>Assessment of compliance with policies, plans, and procedures.<\/li><li>Assessment of compliance with laws and regulations<\/li><li>Verification of quality of assets<\/li><li>Review of the efficiency with which resources such as IT Resources are employed.<\/li><li>Evaluation of the effectiveness of the company&rsquo;s operational risk management<\/li><li>Assessment of the adequacy of internal controls for all new or slightly modified information systems.<\/li><li>Review of specific operations, programs, functions or activities at the request of the Audit Committee or management.<\/li><\/ul>\n\n\n\n<p>The Internal Audit Department serves as a consulting\nresource for the review of policies and procedures, financial and\nadministrative systems, and other related other administrative activities.\nMoreover, this department serves as a consultant for the development of new or\nsignificantly modified functional areas and computer-based financial and\nmanagement information systems.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">NBFCs Procedure of Internal Audit<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Audit Plan<\/h3>\n\n\n\n<p>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.<\/p>\n\n\n\n<p><strong>Audit\nReporting<\/strong><\/p>\n\n\n\n<ul><li>The Auditor prepares an Audit Report after the conclusion of each audit. The report gets finalized after a discussion with the head of the department.<\/li><li>The Report includes a time-frame for the completion of action to be taken for irregularities found in Audit.<\/li><li>The Head of Internal Audit System reports to the audit committee as per frequency laid down <strong>by the board<\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Reserve_Bank_of_India\">[1]<\/a><\/sup>.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Documentation of Internal Audit<\/h3>\n\n\n\n<p>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 <strong><a href=\"https:\/\/enterslice.com\/learning\/statutory-audit-checklist-for-nbfcs-complete-overview\/\" target=\"_blank\" rel=\"noreferrer noopener\">documents required for audit.<\/a><\/strong> 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.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Responsibility of an Auditee<\/h3>\n\n\n\n<p>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.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Review of the Audit policy<\/h3>\n\n\n\n<p>The Internal Audit policy should be reviewed once in\n3 years. The Audit Committee is responsible for the discussion and\nmodifications of the internal Audit policy.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>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.<\/p>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/an-internal-auditor-why-are-they-important-in-a-company\/\" target=\"_blank\" rel=\"noopener noreferrer\">An Internal Auditor: Why are they important in a Company?<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>What is NBFC? 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&rsquo;t include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any [&hellip;]<\/p>\n","protected":false},"author":26,"featured_media":26383,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[2369],"tags":[2806,2805],"acf":{"service_id":"49"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>NBFCs Internal Audit Policy: Scope and Objective of Internal Auditing<\/title>\n<meta name=\"description\" content=\"NBFCs are financial institutions registered under the Companies Act, 1956. 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