Internal audit helps an organization accomplish its objectives by bringing a systematic, disciplined approached to evaluate and improve the effectiveness of risk management, control and governess processes (The institute of Internal Auditors 1999).
Distinct from statutory audits, internal audits are conducted at the behalf of management in the company in order
- To evaluate the effectiveness of running processes,
- To mitigate the risk present in each critical process of the organization,
- To check the organization’s operational efficiency.
Internal auditors, although appointed by the management, is an independent function of management which helps in understanding and assessing risks and evaluates the internal controls and checks. It helps in ensuring optimum utilization of the resources of the entity, ensuring adequacy of system security & controls, as well as timely identification of liabilities including the ones in contingent nature.
Internal audit was not mandatory as per Companies Act, 1956. There was requirement in CARO (Companies Auditors Report Order) to comment on effectiveness if Internal audit in certain companies.
However, section 138 of Companies Act 2013 (read with rule 13 of The Companies (Accounts) Rules, 2014 has made mandatory to appoint internal auditors for certain class of companies basis listing status, turnover, paid up share capital, outstanding loans & borrowing criteria.