Internal Audit​

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.

We at VJM & Associates LLP ensure that we  deliver top notch quality services. We make sure the organization complies with all necessary sets of rules and policies and highlight the weakness, suggesting the remedies for the same.

Internal Audit

Know More about 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.

Know More about Basic principles

As per the standard on Internal Audit issued by the Institute of Chartered Accountants of India following are the basic principles governing an Internal Audit:

  • Independence: An internal auditor should be independent and free from any undue influence which can force him to deviate from truth.The internal auditor does not accept activities which may be incompatible to his independence and objectivity
  • Integrity and Objectivity: Internal Auditor should be honest, truthful, and a person of high integrity. He must be fair enough to not to be prejudiced or bias towards his objectivity. His attitude should be impartial
  • Due Professional Care: Internal Auditors must exercise reasonable care while carrying out work to ensure that all planned objectives are achieved. The Internal Auditor shall pay particular attention to certain key audit activities
  • Confidentiality: All information obtained in professional capacity should remain confined to auditor himself
    • Skills and Competence: Internal Auditor must have sound knowledge, strong interpersonal skills, practical experience and professional expertise in certain areas and other competence required to conduct a quality audit.
    • Risk Based Audit: It is not worth investigating all the activities in detail during internal audit. The Internal Auditor shall identify the important audit areas through a risk assessment exercise and he must decide audit activities based on such identifications.
  • System and Process Focus
  • Participation in Decision Making: The focus of the Internal Auditor should remain restricted to quality and operating effectiveness of the decision making process and how best to strengthen it. Auditor shall avoid participation in operational decision making which may be subject of a subsequent audit. 
  • Sensitive to Multiple Stakeholder Interests
  • Quality and Continuous Improvement 

We at VJM & Associates LLP ensure that the auditors conducting an internal audit of any enterprise have the following qualifications and knowledge:

  • They have special expertise essential for evaluating management control systems
  • Our auditors have a total financial and accounting expertise enough to discharge the duties efficiently
  • They have all the basic knowledge of technical, technological and commercial practices required to evaluate operational performance, non-monetary and operational controls
  • They have required knowledge of laws, commerce, cost accounting, taxation, quantitative methods 
  • All the auditors have a thorough understanding of management techniques and principles so as to deal with the people there
  • Also, we maintain the confidentiality of all the information that is provided to us

The internal audit is conducted in the following manner:

  • Examine evidence to support the amounts and disclosure in financial statement
  • Assess the strength, design and operating effectiveness of internal controls at the process level and identifying areas of control weakness, business risk and vulnerability in the system and procedures adopted by the organization
  • Assess the accounting estimates and principles used in the preparation of financial statements
  • Evaluate the overall entity-wise risk management and governance framework

After this, we issue an internal audit report after discussing the same with the management. Our report includes a description of engagement background, internal audit methods and process adopted, and a reasonable basis for the comments in it.

We ensure and take care that our report is clear, factual, specific, concise, unambiguous, timely, and complies with generally accepted audit procedures as applicable.


The major and important task that VJM & associates LLP do is we review that the follow-up action is taken by the management on our report and ascertain the reason if this is not done. Here we also periodically review the extent of implementation of our recommendation and report the same to the management.

Internal Audit plays an important role in increasing the efficiency of an organization. Following are the major advantages of conducting internal audit periodically:

  • An internal audit prepares the organization for external audits.
  • It enhances efficiency in not only financial matters but also in operational functions of an enterprise
  • Internal audit is like assistance to the management for taking decisions and keeping all the functions and departments in control
  • It helps in protecting the organization from fraudulent practices
  • Internal audit helps management in setting up objectives and goals to achieve so that the it benefits the organization efficiency and also reduces the cost
  • The internal audit establishes systematic processes for risk assessment and also recommends measures to prevent losses