What is internal audit?
Internal audit is an independent Management function. Here internal Audit department will appraise the functioning of entity continuously as well as critically with an intention to suggest improvements to add value and to strengthen the overall Governance and Risk Management and internal control system. so what we can understand is it's an Independent Management function and this is going to be continuous in nature and seen as an important function that's why I mentioned critical and here continuously the functions of the entity is appraised so as to see that whether any improvements can be made.whether any value addition can be made and whether the governance risk management and internal control system can be strengthened. let us look at the statutory applicability of internal audit. It is Section 138 of Companies Act 2013 (read with rule 13 of companies accounts rules 2014) which mandates internal audit for certain class of companies based on parameters like capital,turnover ,loan, deposits it also varies according to classification of companies. We know companies are classified as listed company,unlisted company,private company .For listed companies internal audit is mandatory for them. when it comes to unlisted company internal audit becomes compulsory. if any one of the parameter which we are going to discuss is attracted . Basically there are four parameters if any one of the parameter is attracted then for unlisted company also internal audit becomes mandatory parameter number 1 is paid up capital. if paid up capital is greater than or equal to 50 crore in the preceding financial year then for a current year internal audit is applicable or say mandatory .Second criteria is turnover. if turnover in the preceding financial year is greater than or equal to 200 crore then internal audit is mandatory. Third criteria is linked with loan outstanding. if loan outstanding is greater than or equal 200 crore from any bank or public financial institution at any point of time,during preceding financial year then for that company also internal audit is mandatory. Next criteria is deposits . If deposits outstanding is greater than or equal to 25 crore in preceding financial year for them also internal audit is mandatory so please understand for loans and deposits what is mentioned is “any time during preceding financial year” so even for one day in preceding financial year if loan is greater than or equal 200 crore or deposits is greater than or equal to 25 crore then internal audit becomes mandatory for unlisted company.
Applicability to Private Companies
If private company is having a turnover greater than or equal to 200 crore in preceding financial year internal audit is mandatory. The next criteria is loan criteria. if loan outstanding is greater than or equal to 100 crore from banks are public financial institution at any time during preceding financial year then internal audit is mandatory .
Who should carry out internal audit
It can be done by chartered accountant or cost accountant whether in practice or not It can also be carried out by other professionals which board of directors May deem fit and these internal auditors may or may not be an employee of a company.