Page 150 - CA Inter Audit PARAM

CA Ravi Taori

QNO Internal audit-Meaning , scope, objectives Old Course -
610.01 Bhaskar CNO- SA610.020 (M19R/SM20/N20E/SM21/M22E/M22R/M16R)
Explain the meaning, objectives and scope of internal audit functions as per SA 610. Also discuss who can be
appointed as Internal Auditor?
OR
Explain the activities of the Internal Audit function.
OR
One of the directors of Stability Establishment Limited was of the view that Internal Audit has no relation
with Internal Control of a company. Comment
OR
Saburi Textile Ltd is an established player in the textile manufacturing sector. It has developed strong internal
controls in almost every area. It has appointed you as an Internal Audit team head. Internal audit has a very
strong relation with internal control of the company. Internal Audit analyses the effectiveness with which
the internal control of the company is operating and also makes suggestions for improvement in that internal
control. Explain stating clearly activities relating to Internal Control.
Answer ➢ Who can be appointed as Internal Auditor?
As per section 138, the internal auditor shall either be a chartered accountant or a 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.

➢ Definition
Internal audit function – A function of an entity that performs Assurance and Consulting activities
designed to evaluate and improve the effectiveness of the entity’s governance, risk management and
internal control processes.

➢ Objective & Scope
The objectives and scope of internal audit functions typically include assurance and consulting
activities designed to evaluate and improve the effectiveness of the entity’s governance processes, risk
management and internal control such as the following:

• Activities Relating to Governance
The internal audit function may assess the governance process in its accomplishment of objectives
on:
• ethics and values,
• performance management and accountability,
• communicating risk and control information to appropriate areas of the organization and
effectiveness of communication among those charged with governance, external and
internal auditors, and management.

• Activities Relating to Risk Management
The internal audit function may assist the entity by identifying and evaluating significant
exposures to risk and contributing to the improvement of risk management and internal control
(including effectiveness of the financial reporting process). The internal audit function may
perform procedures to assist the entity in the detection of fraud.

• Activities Relating to Internal Control
• Review of operating activities:
The internal audit function may be assigned to review the economy, efficiency and
effectiveness of operating activities, including nonfinancial activities of an entity.

• Evaluation of internal control:

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