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“Clause 138. – This is a new clause and seeks to provide that prescribed ComPANies shall be required to conduct an internal audit of functions and activities of the Company by an internal auditor appointed by the Company. Manner of conducting the internal audit shall be prescribed by the Central Government.” 




Internal Auditing gives the fundamental purpose, scope and nature of the organisation or the firm. It is an independent consulting activity which tells us the worth of an organisation and is designed to add worth to the organisation. Internal audit provides an objective assurance and helps in the betterment of the organization’s operations. 


The internal auditing in an organisation helps in accomplishing the objectives by the copyright of  ICSI. This means that any material or content could now only be brought to a systematic and disciplined approach for the evaluation and improvement in the effectiveness of the control, risk management and governance pROCesses under the ICSI.


What all does the internal audit looks after:


The internal audit contributes to the following areas of an organisation: 

  1. The Internal audit provides you with the independent review and appraisal of control systems across the organization. The audit is responsible for both the financial control systems as well as operational areas by which the organisation may benefit from the auditings.
  2. It looks after the extent of compliance of policies, regulations, pROCedures and legislation and also checks the compliance management systems of an organization.
  3. The Internal audit facilitates good practices in the field of risk management. The audit requires systems for ascertaining, measuring, managing and mitigation or dispersion of the risk (wherever possible).
  4. The audit also helps an organisation to identify the waste and find the inefficiency and duplication of effort of the organization. Thus it helps in benefitting the savings of the Organisation.
  5. The Internal auditings help us to structure activities and programs which would safeguard the Company assets. Also, there are many internal check systems which reduce fraudulent activities and provide us with early warnings if any fraud is detected.

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FAQ - Frequently asked questions

Is internal audit compulsory for listed companies?

Listed/unlisted public/private or class of companies required to compulsory appoint the internal auditors under section 138 of the Companies Act, 2013. There was no provision for Internal Audit under the Companies Act, 1956 i.e. appointment of Internal Auditor was not mandatory according to the Companies Act 1956.

Can internal auditor do a tax audit?

Yes a CA can do an internal audit as well as tax audit. Tax audit is required as per Section 44AB of Income Tax Act, 1961 whereas internal audit is not required by any law.

How is an internal audit done?

The internal auditor shall sight and examine sufficient hard-copy or electronic records to verify; evidence of compliance with the management system procedures; and effective implementation of process and internal control.

What are the criteria for an internal audit?

An effective, inclusive internal auditing endeavour should help assure hospital management that 1. An adequate system of internal control exists to assure the safeguarding of assets and the reliability of data produced by the financial information system, 2. Uneconomic operating practices are detected promptly so they can be remedied. 3. Program results and effectiveness levels are of sufficiently high quality to demonstrate managerial competence.

Can internal auditor be an employee of the company?

The Rule states that “the internal auditor may or may not be an employee of the company”.

Which resolution is required for the appointment of an internal auditor?

The appointment of the internal auditor can be done only by means of a resolution passed at the meeting of the Board as specified under rule 8 of the Companies (Meeting of Board and its Powers) Rules, 2014.