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internal auditAs per the Institute of Chartered Accountants of India Internal Audit (IA) can be defined as

Internal audit is an independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity, including the entity’s risk management and internal control system.”

The above definition aptly defines the objectives and purposes of an IA engagement. For an IA function to be effective the IA team must follow certain principles these include the following

 The internal auditor should be straightforward, honest and sincere in his approach to his professional work.

He should maintain an impartial attitude. He should not only be independent in fact but also appear to be independent.

The internal auditor should not, therefore, to the extent possible, undertake activities, which are or might appear to be incompatible with his independence and objectivity.

The internal auditor should maintain the confidentiality of the information acquired in the course of his work and should not disclose any such information to a third party, including the employees of the entity, without the specific authority of the management/ client or unless there is a legal or a professional responsibility to do so.

The internal auditor should exercise due professional care, competence and diligence expected of him while carrying out the internal audit.

The internal auditor must be committed to continuous learning and improvement.

The internal auditor should carefully direct, supervise and review the work delegated to assistants.

He should be satisfied that he has no reasons to believe that he should not have relied on the work of the expert.

The internal auditor should document matters, which are important in providing evidence that the audit was carried out in accordance with the prescribed Standards on Internal Audit and support his findings or the report submitted by him.

The internal auditor should plan his work to enable him to conduct an effective internal audit in a timely and efficient manner, ensuring that appropriate attention is devoted to significant areas of audit, identification of potential problems and appropriate utilisation of skills and time of the staff.

The internal audit plan should be based on the knowledge of the business of the entity.

A plan once prepared should be continuously reviewed by the internal auditor to identify any modifications to the plan required to bring the same in line with the changes, if any, to the audit universe.

The internal auditor should, based on his professional judgment, obtain sufficient appropriate evidence to enable him to draw reasonable conclusions therefrom on which to base his opinion or findings.

the internal auditor should obtain an understanding of the risk management and internal control framework established and implemented by the management, perform steps for assessing the adequacy of the framework developed in relation to the organisational set up and structure, review the adequacy of the framework and perform risk-based audits on the basis of risk assessment process.

The internal auditor should carefully review and assess the conclusions drawn from the audit evidence obtained, as the basis for his findings contained in his report and suggest remedial action.

The internal auditor must be insightful, proactive and future focused.

The internal auditor must promote organisational improvements.

The above principles are based on those prescribed by the Institute of Chartered Accountants of India (ICAI) and the Institute of Internal Auditors (IIA). Adherence to above principles in letter and spirit would greatly enhance the quality of internal audit function and enable it to realize the objectives and purposes as enshrined in the above described definition of internal audit.

ca rishabhkumar(The author practices as a Chartered Accountant under the name and style of Rishabh Kumar Barmecha and Associates and is an expert in auditing, financial investigation, direct and indirect taxation. The author can be reached at rishabhkumarbarmecha@gmail.com Mobile No.  91 9007909221 or Twitter @CARKBarmecha.)

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