Audit technique underlying internal auditing is derived from management consulting and public accounting professions, the theory of internal auditing was conceived primarily by Lawrence Sawyer (1911-2002), often referred to as "the father of modern internal auditing"
Internal audit was not expressly provided in the 1956 Act, but was required to be reported in Companies (Auditor’s Report) Order, 2003 (CARO). But the 2013 Act has an express provision about internal audit recognizing the utility of such an audit in terms of better internal control and corporate governance.
Internal Audit provisions in Companies Act 2013 – Section 138:
As per Section 138 of the 2013 Act, such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company.
Thus bringing opportunity for a chartered Accountant.
Massive recruitment are being done by both organization for their own Internal control departments and by Practising Chartered Accountant firms for giving service to their clients.
Applicability (Rule 13(1)):
The following class of companies shall be required to appoint an internal auditor or a firm of internal auditors, namely:-
(a) every listed company;
(b) every unlisted public company having-
(i) paid up share capital of fifty crore rupees or more during the preceding financial year; or
(ii) turnover of two hundred crore rupees or more during the preceding financial year; or
(iii) outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or
(iv) outstanding deposits of twenty five crore rupees or more at any point of time during the preceding financial year; and
(c) every private company having-
(i) turnover of two hundred crore rupees or more during the preceding financial year; or
(ii) outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year.
For an existing company covered under any of the above criteria shall, it shall then comply with the requirements of section 138 and this rule within six months of 1st April, 2014.
Internal auditing activity is primarily directed at evaluating internal control.Internal control is broadly defined as a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of the following core objectives for which all businesses strive:
- Effectiveness and efficiency of operations.
- Reliability of financial and management reporting.
- Compliance with laws and regulations.
- Safeguarding of Assets
Quality of Internal Audit Report
Objectivity - The comments and opinions expressed in the Report should be objective and unbiased.
Clarity - The language used should be simple and straightforward.
Accuracy - The information contained in the report should be accurate.
Brevity - The report should be concise.
Timeliness - The report should be released promptly immediately after the audit is concluded, within a month.