Internal Audit​

Enterprises and business organizations have become sophisticated and huge. Every organisation having multiple segments like a company may have separate segments of Construction, Trading, Consultancy etc. Each segment has various departments like Marketing, Procurement, Inventory, Accounts, Admin & HR etc. Each department has various processes like for procurement team is first required to get acquisition form filed from site, calling for tenders for placing order, selection of appropriate supplier, raising purchase order, placing order etc.

For every activity, pre-defined procedures, list of documents is prescribed. However, involvement of multiple employees, process, documents etc. may not end up giving expected results to the organisation. To solve this issue, the requirement of internal audit arises.

Need arises that all processes are implemented properly and are giving the desired results. Internal audit is not confined only to financial transactions but also is extended to the task of reviewing the internal process and internal control to ensure efficiency and economy of resource utilization. This makes it essential to review all the operations, process and internal controls of the entity and also evaluate the effectiveness of management.

In India, even the statute has recognized that internal audit is necessary for the efficient running of business enterprise. The aim of any organization behind conducting the internal audit is assuring that various internal processes, rules, regulations, policies, compliances, corporate governance, and risk management are intact and followed properly.

Discrepancies, frauds, incorrect, or lesser efficient processes can be identified and improved before it is pointed out by an external auditor. Also, this boosts the efficiency of the operations of the business if conducted periodically.

1. As per the standards on Internal Audit, the definition of Internal audit is, 

   “ An independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity, including the entity’s strategic risk management and internal control system.”

   Therefore, internal audit ensures review of all internal processes and internal controls of the entity and identifying the underutilised area, area of improvisation, redundant process etc and providing suggestions about improvisation.

1. As per Section 138 of the Companies Act, 2013 read with Rule 13 of Companies (Accounts) Rules, 2014, following companies are mandatorily required to appoint an internal auditor:

   1. Every listed company
   2. Every unlisted Public company having:
   • Paid up share capital Rs. 50 crores or more during preceding financial year; or
   • Turnover of Rs. 200 crore or more during preceding financial year; or
   • Outstanding loans or borrowings from banks or any public financial institutions exceeding Rs. 100 crore at any point of time during preceding financial year or
   • Outstanding deposits of Rs. 25 crore or more at any point of time during preceding financial year
   1. Every private company having:
   • Turnover of Rs. 200 crore or more during preceding financial year; or
   • Outstanding loans or borrowings from banks or any public financial institutions exceeding is Rs. 100 crore or more at any point of time during preceding financial year
   
   

   Apart from above mentioned companies, Any other business enterprise or organisation or company may appoint an internal auditor at their own will or by the decision of management

• As per Section 138(1) of the Companies Act, 2013, an Internal Audit shall either be a Chartered Accountant or a cost accountant or any other professional (whether holding certificate of practise or not) as may be decided by the board of directors.. 

  An internal auditor may or may not be the employee of the organization  Further, internal auditor can be an individual, partnership firm or a body corporate.

  However, an internal auditor must have an authority to investigate every phase of the organizational activity, from the financial angles, under any circumstances.

1. VJM & Associates LLP exercise due care while carrying out internal audit as defined in Standards on Internal Audit:

   
   
   • We maintain high integrity while executing internal audits and carry out work in a highly objective manner especially in gathering information and evaluating the facts and evidence.
   • We exercise due professional care while carrying out internal audit, i.e., entire work is carried out to achieve desired objectives.
   • An enterprise involves multiple processes and most of the time it is not worthy to analyze each and every process deeply to get best results in limited time. Therefore, We don’t analyze complete processes, rather our review is limited to important controls in the process that have material impact on productivity of the enterprise.
   • We adopt a system and process focused methodology in conducting audit procedures. It requires a root cause analysis to be conducted on deviations to identify opportunities for system improvement or automation, to strengthen the process and prevent a repetition of such errors. 
   • We observe facts and situations and makes the higher authorities aware of the same, critically appraise policies of the management, and highlight the deficiencies whenever and wherever required
   • Though we have independent status we associate closely with the management and keep ourselves updated with all the important changes in the policies or any events occurring.
   • We at VJM & Associates LLP indulge with the Audit Committee to formulate the scope, functions, methods, and periodicity of Internal Audit.
   • Our objective is to continuously improve the quality of the internal process and the internal control. 

The scope of the internal audit includes a review of:

• Internal control system and procedures

VJM & Associates LLP determines if the internal control system is in consonance with the organizational structure.  Each control system is analyzed in terms of its cost and benefits, and also that these systems are followed and controlled throughout the period

• Custodian and safeguarding of assets

We review the control systems in terms of that all the assets exist and are accounted for fully, that the assets are properly safeguarded from any losses and also insured. These controls are assessed for both tangible and intangible assets.

• Compliance of policies, plans, procedures, and regulations

VJM & associates LLP ensures that an organization complies with all the relevant and set rules, policies, procedures, plans, and regulations. The impact of the change in policies is also monitored. And after all the review and assessment we highlight the weakness and suggest remedies for the same

• Relevance and reliability of the information

We examine the accuracy and reliability of financial and operational records, the usefulness of the reports with reference to the cost incurred, and also highlight the significant and distinctive features of the same

• Organizational structure

We conduct an appraisal of the organization structure to evaluate the harmony between objective and assignment of the responsibilities of the enterprise.

• Utilization of resources

VJM & associates LLP keep a check on if the operating norms and standards are established to measure efficient and economic use of resources

• The accomplishment of goals and objectives

We examine if the objectives are expressed in precise quantifiable terms so as to facilitate detailed planning to achieve the set goals. Also, we check periodically if these goals and objectives are updated according to the situation and are achieved to the full.