INTRODUCTION:- As per the definition given by the Institute of Internal Auditors , the Global Body of Internal Auditors “Internal Audit is an independent, objective assurance and consulting activity designed to add value and improve an organisation operations. It helps an organisation to accomplish its objective by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management , control and governance process.”
^ As a Consultancy service IA is expected to provide inputs to the formulation and implementation of Strategies. As far as Assurance is concerned it should conduct strategy audits and review management decisions, in addition to Operational and Financial Audits.
Standards on Internal Audits:-
SIA 210 Managing the Internal Audit Function
SIA 220 Conducting Overall Internal Audit Planning
SIA 310 Planning the Internal Audit Assignment
SIA 320 Internal Audit Evidence
SIA 4 Reporting
SIA 5 Sampling
SIA 6 Analytical Procedures
SIA 7 Quality Assurance in Internal Audit
SIA 8 Terms of Internal Audit Engagements
SIA 9 Communication with the Management
SIA 11 Consideration of Fraud in Internal Audit
SIA 12 Internal Control Evaluation
SIA 13 Enterprise Risk Management
SIA 14 Internal Audit in IT Environment
SIA 16 Using the Work of an Expert
SIA 17 Consideration of Laws and Regulations in an IA
SIA 18 Related Parties
Internal Audit (Mandatory Requirement for Appointment of IA in Listed and Specialised Companies)
SECTION 138 of Companies Act 2013 + Rule 13 of Company (Accounts) Rules 2014 intends that :-
Following are the Class of Companies Shall be Required to Appoint an Internal Auditor who may be either an Individual or a partnership firm or a body Corporate :-
- Listed Companies
- Every Unlisted Public Company having:-
- Paid up Share Capital of Rs 50 Crores or More during the Preceding Financial Year, or
- Turnover of Rs 200 Crores or more during the Preceding Financial Year , or
- Outstanding Loans or Borrowings from Banks or Public Financial Institutions Exceeding Rs 100 Crores or more at any point of time during the preceding financial year , or
- Accepted Deposits of Rs 25 Crores or More at any point of time during the last financial year , and
- Every Private Company having
- Turnover of Rs 200 Crores or More During the Preceeding Financial Year , or
- O/S Loans and Borrowings from Banks and Public Financial Institutions exceeding Rs 100 Crores or more at any point of time during the preceeding Financial Year
*The Audit Committee of a Company or the Board of Directors shall in consultation with the Internal Auditor formulate the scope, functioning, Periodicity and methodology for conducting the Internal Audit.
Statutory Auditors cannot be appointed as Internal Auditors
Internal Auditors are appointed is appointed by the management and hence is in the position of an employee whereas the statutory auditor is appointed under the provisions of section 139 of Companies Act 2013.
Statutory Auditor has to include in his report where there is adequate internal control procedure with the size of the company and the nature or its business for the purchase of stores, raw materials including components (having more paid up share capital or Rs 25 Lakhs) whether there is any internal audit system with the size of business. If the statutory and Internal Auditor are same it will not be possible for him to give independent and objective report. Hence Both cant operate in same manner.
Requirement for Filing of e-Form MGT-14 with the RoC on the Appointment of Internal Auditor :-
Companies are required to file resolution for the appointment of Internal Auditor in Form Mgt-14 under Section 117 of the Companies Act 2013 within the period of appointment of 30 Days from the appointment of Internal Auditors in the Company.