Internal Auditing is the evaluation of organizations activities and operations to bring in efficiency add value and improve organizations operations. A team of professional's is hired for consulting and assurance activity for the better working of the organization. Internal audit not only just consults, but it disciplines the working of an organization by bringing in a systematic approach which leads to risk management and provide control and insight to the management.
Internal audit's main motive is to have effectiveness and efficiency in operation. It creates reliability of financials and management reporting in the investors, creditors and shareholders. Internal auditors look into those issues which a key for the survival and prosperity of the organization. Unlike financial auditor's, internal auditor look deep into the financial matters and help with risk assessment providing a better control to the management. Also internal auditors create an ease of communication between the staff and the management being the mediator they are, they describe to the management the problems faced by the organization and also provided viable suggestions to the board.
Due to the importance of Internal Audit in India, the Securities Exchange Board of India (SEBI) has issued some mandatory and recommendatory provision for corporate governance which is covered under clause 49 of listing agreement applicable to all listed entities. As per clause 49 the audit committee should review:
- Whether in the organization, the internal audit is working properly and in a systematic manner, the structure of the Audit Department and the eligibility of the personnel hired by the company;
- The weak spots found in the internal control in the internal audit report;
- Finding of any internal investigation by internal auditor, with the presumption of any frauds of irregularities in the system;
- The CEO and the CFO are required to certify to the Board of Directors that they have accept the responsibility for effectiveness and efficiency of internal controls, also state that they have disclosed every weakness and deficiency in the internal control and any steps taken to rectify the problem to the internal auditors.
Every listed company needs to comply with the above clauses and any other part of the listing agreement. Also the audit report must contain certain elements in the following layout:
c) Report Distribution List;
d) Period of coverage report;
e) Opening or introductory paragraph
- Identification of process and items of financial statement audited;
- A description of methodology and background of internal audit with the procedures performed during internal audit;
f) A description of population and sampling techniques used;
g) Summary, highlight, and key material, observation, control and weakness;
h) Comment from the local management;
i) Action taken report;
j) Date of report;
k) Place of signature;
l) Internal auditors signature with membership no.
Internal audit may not seem a lot but, they are a crucial part of every organization; providing strength to the roots of the organization by keeping in check on the weakness of the organization.