Page 67 - Quick Insights Book 2022

17 Internal Audit

The internal auditing has evolved significantly during the last
decade. The principle driving factors have been increasing,
management demands for value addition from Internal Auditors,
and the introduction of active Audit Committees. The rising
number and scale of irregularities in the corporate world
has forced the regulator and the legislature to dwell on the
adequacy and the effectiveness of internal control systems
in an organisation. Being internal control experts, the internal
auditors now have a more crucial and visible role to play in
organisations.
Internal auditors carry out their activities in a more effective
manner by directing their efforts in areas where there are
greater risks, thereby enhancing the overall efficiency of the
transaction process and adding greater value with the same set
of resources. Information technology (IT) is invariably embedded
in all spheres of activities of a modern business enterprise. Use
of Information Technology (IT) has, however, increased the risks
associated with data integrity and accuracy.
MANDATORY INTERNAL AUDIT

Requirements under Manufacturing and Other
Companies (Auditor Report) Order,
(MAOCARO), 1975
Internal audit was first made mandatory for a particular set
of companies vide the Manufacturing and Other Companies
(Auditor Report) Order, (MAOCARO, 1975). MAOCARO, 1975
required the auditor to certify whether the company has an
internal audit system commensurate with its size and nature of
its business. And also, whether there is an adequate internal
control procedure commensurate with the size of the company
and the nature of its business, for the purchase of stores,
raw materials including components, plant and machinery,
equipment and other assets, and for the sale of goods. At that Internal Audit
time, internal audit had to provide an assurance to the statutory
auditors and the management that the financial controls are
adequate and operating effectively. The statutory auditor was
to rely on the assertions of the internal auditor. MAOCARO,
1988 and CARO 2003 which came later also emphasized on
the need of internal audit in a similar manner.

Requirements under Companies Act, 1956
Section 581ZF of the Companies Act, 1956 requires that every
Producer Company shall have internal audit of its accounts
carried out by a Chartered Accountant, at such interval and
in such manner as may be specified in articles. In addition,
Section 292A of the Companies Act, 1956, required public
companies having paid up capital not less than Rs. 5 crores to
constitute a committee of the Board, i.e., the Audit Committee.

54 Quick Insights on Professional Opportunities for Chartered Accountants