Page 322 - CA Final PARAM Digital Book.

cost accountant, whether engaged in practice or not, or such other professional as may be decided by the
Board to conduct internal audit of the functions and activities of the companies.

The internal auditor may or may not be an employee of the company.

QNO Reporting Approach New Course – (SM23)
352.600 TITANIUM CNO -- Unique
"The XYZ Ltd is has appointed Mr. A to conduct their internal audit for new financial year. The Audit
committee requested Mr. A to present their Internal Audit plan for next financial year? What approach
would Mr. A follow to prepare the internal audit plan for next year?"
Answer The internal auditor should, in consultation with those charged with governance, including the audit
committee, develop and document a plan for each internal audit engagement to help him conduct the
engagement in an efficient and timely manner.

Internal audit plan should be developed in such a manner that all the business processes covering both
financial as well as operational activities are reviewed by internal audit function within a defined time
cycle. Also, ensuring that appropriate consideration is made and adequate balance is ensured to the
following:
➢ Risk underlying the business process.
➢ Value that the internal audit can provide to the organization.
➢ Effort involved in conducting the internal audit for a particular business process.
➢ Risk Appetite of the organization
➢ Coverage of all auditable areas within the defined time range

QNO Reporting Structure for Internal Auditor New Course – (SM23)
352.610 TITANIUM CNO -- Unique

The XYZ Ltd has to appoint Mr. A as Chief Internal Auditor to lead the internal audit function for the
Company. The Managing Director of the Company has asked the HR head to define the reporting
structure of the Chief Internal Auditor, so that he can discharge his duties objectively? Suggest the ideal
reporting structure of the Chief Internal Auditor that HR head may propose to the Managing Director?
Answer HR Head need to evaluate multiple options and identify most suitable option in light of the relevant
provisions, guidance and overall governance of the organization. HR head also need to evaluate different
option for his administrative reporting and various options for functional reporting of Chief Internal
Auditor. The possible options to be considered and evaluated include Board of Directors, Audit Committee,
Managing Director of the Company, Chief Executive Officer or Chief Financial Officer.

As per section 138 of the Companies Act 2013, the internal auditor shall either be a chartered accountant
or a cost accountant (whether engaged in the practice or not), or such other professional as may be
decided by the Board to conduct an internal audit of the functions and activities of the company.

As per the revised definition of the term ‘Internal Audit’ as per para 3 of the ICAI’s Framework Governing
Internal Audits, “Internal audit provides independent assurance on the effectiveness of internal controls
and risk management processes to enhance governance and achieve organisational objectives”.

Refer para 3.1, The Internal Auditor shall be free from any undue influences which force him to deviate
from the truth. This independence shall be not only in mind but also in appearance. Also, the internal
auditor shall resist any undue pressure or interference in establishing the scope of the assignments or the
manner in which these are conducted and reported, in case these deviate from set objectives.

As per the requirement of the above stated provision, Chief Internal Auditor need to be independent of the
operational activities and report of Audit Committee / Board of Directors to enjoy his true status of
independent auditor. He may administratively report to CEO or Managing Director for his administrative
reporting purpose or any other similar authority till the time it is approved by Board of Directors and it
does not impact his independence to be able to perform his duties and report to audit committee / Board
of Director independently.
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