Internal Audit Services

What is an Internal Audit?

Internal Audit is an independent and objective evaluation of a company’s internal controls, risk management, and governance processes. Unlike Statutory Audit (which is legally mandated), Internal Audit is a management tool that helps organizations improve efficiency, detect irregularities, and ensure compliance with policies and laws.

It is carried out by the Internal Auditor, who may be an in-house professional or an external consultant like Nexgenca.

Objectives of Internal Audit

The primary objectives of Internal Audit are:

• To evaluate the effectiveness of internal controls.
• To identify operational inefficiencies and leakages.
• To check compliance with laws, regulations, and internal policies.
• To prevent and detect fraud, errors, and irregularities.
• To improve risk management and governance practices.
• To provide recommendations for process improvement.

Applicability of Internal Audit

Under Section 138 of the Companies Act, 2013, Internal Audit is mandatory for:

• Listed Companies
• Unlisted Public Companies having:
  • Turnover ≥ ₹200 crore, OR
  • Outstanding Loans/borrowings ≥ ₹100 crore, OR
  • Paid-up Share Capital ≥ ₹50 crore, OR
  • Deposits ≥ ₹25 crore.
• Private Companies having:
  • Turnover ≥ ₹200 crore, OR
  • Outstanding Loans/borrowings ≥ ₹100 crore.

 Even if Internal Audit is not mandatory, many companies voluntarily opt for it to strengthen controls and improve governance.

Scope of Internal Audit

Internal Audit covers multiple business functions, including:

1. Financial Audit – Verification of financial records, accounting accuracy, and statutory compliances.
2. Operational Audit – Checking efficiency and effectiveness of operations.
3. Compliance Audit – Ensuring adherence to laws (GST, Income Tax, PF, ESI, etc.).
4. IT & Systems Audit – Evaluating IT infrastructure, cybersecurity, and data protection.
5. HR & Payroll Audit – Ensuring proper payroll, PF/ESI compliance, and employee policies.
6. Inventory & Stock Audit – Physical verification of stock, detecting losses and wastage.
7. Risk Management Review – Identifying risks and recommending risk mitigation strategies.

Process of Internal Audit

At Nexgenca, we follow a structured Internal Audit methodology:

1. Planning & Risk Assessment
   • Understand the business, industry, and risk environment.
   • Define audit objectives and scope.
2. Evaluation of Internal Controls
   • Study internal processes and identify gaps.
   • Test compliance with company policies.
3. Fieldwork & Testing
   • Verify accounting records, vouchers, and documentation.
   • Perform transaction testing and process walkthroughs.
4. Analysis & Findings
   • Compare actual vs. expected performance.
   • Identify inefficiencies, errors, and fraud indicators.
5. Reporting
   • Prepare a comprehensive Internal Audit Report with findings, observations, and recommendations.
   • Present it to management and audit committee.
6. Follow-up & Implementation
   • Monitor corrective actions taken.
   • Ensure recommendations are implemented effectively.

Benefits of Internal Audit

• Strengthens internal control system.
• Enhances operational efficiency.
• Detects fraud and mismanagement early.
• Ensures compliance with laws & regulations.
• Provides insights for better decision-making.
• Builds confidence among investors, lenders, and stakeholders.
• Supports preparation for Statutory and Tax Audits.

Internal Audit Report – Key Contents

• Scope and objectives of audit.
• Areas covered and methodology used.
• Key findings and observations.
• Non-compliances and risk exposures.
• Fraud indicators (if any).
• Practical recommendations for improvement.

Difference Between Internal Audit & Statutory Audit

Penalty for Non-Compliance

If Internal Audit is mandatory but not conducted:

• The company and officers in default may face penalties under the Companies Act, 2013.
• Non-compliance may also lead to regulatory issues and reputational damage.