What is Internal Audit?
Internal Audit is an independent & objective assurance and consulting activity that is guided by a philosophy of adding value to improve the operations of the organization. It assists organization in accomplishing its objectives by bringing a systematic & disciplined approach to evaluate & improve the effectiveness of the organization’s governance, risk management, internal control.-The Institute of Internal Auditors, Florida, USA.
Who are responsible for Internal Audit?
Board of directors assign responsibilities to Audit Committee to oversee the internal audit activity of the organization. Audit committee normally consists of 3 to 5 members from Board of Directors. One of whom act as a chairman(independent director) of the Audit committee. Meets after every three months to discuss & review the audit findings & action to be taken to mitigate the risk as reported in the internal audit report. Class of companies to appoint internal auditor is defined in Rule 13 of Companies (Accounts) Rules, 2014.
Steps to create internal audit function
1) Appoint the Chief Audit executive(Head Internal Audit), responsible for conducting the internal audit as per audit plan & submit the report to Audit Committee.
2) Establish the scope of internal audit function(to be stated in Internal Audit charter) in consultation with the Audit committee & senior management.
3) Develop an Internal Audit charter(It is a formal written document that defines the activity’s purpose, authority and responsibility. The charter should (a)establish the internal audit activity’s position within the organization; (b)authorize access to records, personnel and physical properties relevant to the performance of engagements; and © define scope of internal audit activities.
4) Assess risk & develop an Audit Plan.
Roles of Chief Audit Executive/Head Internal Audit
1) Responsible for preparing an annual audit plan & conducting audit as per audit plan & should effectively manage the internal audit activity to ensure it adds value to the organization. Provide training to the audit staff.
2) Responsible for conducting a preliminary assessment of the risks relevant to the activity under review.
3) Responsible for reporting periodically to the board & senior management on the internal audit activity’s purpose, authority, responsibility and performance relative to its plan.
4) Keep the audit committee informed of emerging trends and successful practices in internal auditing.
5) Assist in the investigation of significant suspected fraudulent activities within the organization and notify management and the audit committee of the results.
Internal Audit Department charter(Every Internal Audit department within an organization needs to have an Internal Audit Charter which contains the following elements & approved by the chairman audit committee)
The Internal audit department’s mission is to provide independent, objective assurance and consulting services designed to add value and improve the organization’s operations. Also helping the organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance process.
2) Scope of work of internal audit department:-It includes ensuring the following:
a) Risks are appropriately identified and managed.
b) Interaction with the various governance groups occurs as needed.
c) Significant financial, managerial and operating information is accurate, reliable & timely.
d) To ensure that the organizational policies, procedures, standards and applicable laws and regulations are complied with.
e) To ensure that resources are acquired economically, used efficiently and adequately protected.
f) To ensure programs, plans and objectives of the organization are achieved.
g) To ensure that quality and continuous improvement are fostered in the organization’s control process.
h) Significant legislative or regulatory issues impacting the organization are recognized and addressed appropriately.
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