Internal auditor can act as a friend, guide, and philosopher in addition to being a watch-and-ward and investigator for frauds. For boards and directors, internal audit can be the first line of defence that they can rely on and use as a shield to prevent and detect fraud
January 26, 2023 / 06:06 PM IST
Internal auditors need to make significant investments in acquiring domain expertise. (Representative Image)
The role and significance of an internal audit, unlike a statutory audit, has not received the attention that it deserved in the debates and reforms that followed cases of corporate collapses in India and other countries. The cases of corporate collapse like Satyam in 2008 or cases of material failure or errors as admitted in financial reporting in the recent case of GoMechanic could have been averted or at least forewarned if a strong internal audit mechanism was in place.
Conceptually internal audit has evolved from being merely a watch-ward function for the effectiveness of financial controls and compliance mechanisms to become much wider. It now embraces within its scope strategies, operations and policies in order to respond to risks that an organisation is exposed to in a highly complex business environment. It is now increasingly considered a highly value-added service for the board of directors, statutory auditors and management at all levels.
Historically, the Companies Act merely required companies to have internal audits commensurate with the nature and size of the organisation. The Companies Act 2013, and the Listing Obligations and Disclosure Requirement (LODR) of the Securities and Exchange Board of India (SEBI) now also require the audit committee to review the adequacy of the internal audit function including the structure of the internal audit department, reporting structure, and its coverage and frequency.
Need To Evolve