Internal control and internal audits are interlinked mechanisms and processes, within an organization to ensure that it adheres to certain standards in its conduct and management.
Internal control, as the name suggests, refers to the 'controls' that are put in place within a company to help steer it towards its defined goals and objectives. Examples of such controls include a clear segregation of duties, internal performance reviews and appraisal systems, checks on access to cash among other policies, and standards that serve the overarching goal of enforcing controls.
Internal audit is an activity that examines, monitors, and analyzes specified activities related to a company's operations. It is an independent management tool used to review as well as to evaluate the functioning of a business and to strengthen its overall governance mechanisms, such as its strategic risk management and internal control system.
The audit process starts with the auditor assessing the existing processes and procedures followed in the company. The outcomes of the audit are compared against an audit checklist, including the predetermined objectives driving the internal controls processes, the internal policies and predefined procedures within the company. The audit results are also assessed to analyze if they are legally compliant.
Based on his analysis, the auditor compiles and presents an audit report to the business owner.
Section 138 of Indian Companies Act, 2013 (including Rule 13 Of Companies (Accounts) Rules, 2014) directs that the class of companies specified below must appoint an internal auditor or an agency to outsource the audit to:
(a) Every listed company
(b) Every unlisted public company with:
paid up share capital of INR 50 crore or more during the preceding financial year; or
turnover (income) of INR 200 crore or more during the preceding fiscal year; or
outstanding loans or borrowings from banks or public financial institutions exceeding INR 100 crore or more at any point of time in the previous financial year; or
outstanding deposits of INR 25 crore or more at any point of time during the preceding financial year.
(c) Every private company with:
income of INR 200 crore or more during the preceding financial year; or
outstanding loans or borrowings from banks or public financial institutions exceeding INR 100 crore or more at any point of time in the previous financial year.
Irrespective of the size and nature of an organization, a quality internal audit can help an organization achieve its internal control objectives and progress. It is a part of Internal Financial Control stipulated under the Companies Act, 2013 and a certified chartered accountant can fulfill this requirement. A skilled audit professional such as a Chartered Accountant can assist an organization in compliance as well as with internal audit processes.
If you are a business, small or big, looking for auditors in Bangalore to help you with internal audit procedures, contact us.