Introduction: Internal audit serves as a vital component of an organization’s governance structure. It plays a multifaceted role in ensuring that a company operates efficiently, complies with regulations, and manages risks effectively. This article delves into the objectives and detailed scope of internal audit, shedding light on its significance in modern organizational management.
Objectives of Internal Audit
- Reduction in Cost of production and other Expense.
- Identification of Income escaped.
- Increase in operational efficiencies.
- Identification of Statutory non-compliance .
- Compliance of internal standard operating practices.
- Tax Compliance.
- Identification of potential business or financial risks.
Detailed Scope of Internal Audit
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Particulars
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Illustrative areas |
| Cash and Banking |
- Controls over handling of petty cash including IOU
- Performing a surprise cash count / check evidencing of past independent cash counts
- cash and cash equivalents collections , custody, access, safety and timely deposits.
- Segregation of duties on cash handling
- Bank Reconciliation Review and approval process.
- Un-reconciled receipts and payments.
Employee reimbursements if any including travel & Entertainment expenses |
| Procurement Analysis |
- Control check of the procurement and payment process and adequacy of approvals and supporting
- Creditor Ageing Analysis
- Agreements if any with third party service providers
- Outsourced Labour agreements and payments
- Long outstanding of Debit Balances in the creditors ledger.
- Supplier master data maintenance and controls ( review and approval process) over the changes to the same and compliances of those changes.
- Review of any nature of any miscellaneous payments and the approval process.
- Complying MSMED Act, 2006
- KYC of Suppliers
- Advance Payments
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| Debtors Management |
- Customer on boarding and credit evaluation process
- Validity of credit limits and credit period in the system.
- Debtor ageing analysis.
- Customer agreements and compliances
- Long outstanding balances follow up process.
- Credit note application and approval
- Bad debts management and adequacy of debtors provisioning.
- Customer complaints handling process.
- Customer master data maintenance and controls ( review and approval process) over the changes to the same and compliances of those changes.
- Any customer claims settlements during 12 months and the approval process
- Bad Debts write of during last 12 months and approval process.
- Complying with Credit Period and Credit Limit
- KYC of Customers
- Advances received
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| Month End Accounts Closure |
- Compliance towards month end accounts closure checklist.
- Inter- Branch Balance confirmations and reconciliation process.
- Monthly accruals and provisioning process prior to month end reporting
- Month End journal entries review and Provisioning process
- Month End cutoff terms for Revenue recognition.
- Payroll Entries and related statutory provisions.
- Checking for unallocated receipts and payments.
- AP and AR Credit/Debit Balances Verification
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| Customer Invoicing and Receipts |
- Customer invoicing Delays.
- Compliance towards revenue recognition.
- Loan outstanding of credit sales.
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| Compliances |
- Statutory Payments and Submission of returns of last months.
- Internal controls pertaining to Data Protection Regulations.
- Assignment of power of attorney and Supporting approval/ evidence
- Segregating of Duties pertaining to conflicting activities
- Compliances pertaining to Finance Policies like A/C Receivables, A/C Payables, Cash Management and Fixed Assets.
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| Month Overview |
- Sales Analysis and sales trends
- Expense Analysis and Expenses trends
- Profit Analysis and profit trends
- Net Cash Generation
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| Cash Flow, BRS |
- Preparation of detailed Cash flow statement with comparison from each activities
- Verification of BRS
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| GST |
- Correctly charging GST on sales invoices as per the applicable rates.
- Correctly availing input tax credit (ITC) on eligible purchases and expenses.
- RCM and E-Way Bill
- Complying Due dates
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| TDS |
- Challan reconciliation
- Verification of PAN of customers, TDS Rate and Amount of Bill
- Complying Due dates
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| Human Resource |
- Salaries and Wages Analysis and workforce structure.
- Compliance with Professional Tax, Provident Fund and ESI laws
- Employee cost analysis
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| Cash Transactions |
- Complying with Income Tax Act,1961
- Surprise Physical Verifications
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| Inventory |
- Input and output analysis
- Price analysis
- Stock statements and detailed data of stock used.
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| Fixed Assets |
- Periodical verification
- Capital Expenditure analysis and GST utilisation.
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| Others |
- Verification of Sales and Purchase orders
- Corrections of Previous month remarks
- Sales Returns and refund analysis
- Compliance with organisation policies
- Ledger Scrutiny
- Verification of Following Physical Books-
1. Cash book
2. Bank book
3. Sales book
4. Purchase book
5. Journal book
6. Stock records
7. Salary register |
Conclusion: The Detailed examination of internal audit’s objectives and detailed scope reveals its pivotal role as a cornerstone of organizational integrity and growth. By ensuring compliance, identifying risks, and enhancing efficiency, internal audit guides entities towards sustained success. This exploration underscores the profound significance of internal audit as a steadfast guardian of operational excellence within the ever-evolving landscape of organizational management.
