Companies get their accounts audited every year by a reputed CA. As it is conducted by the company itself, it is an internal audit. An internal private company audit includes an evaluation of the documents provided, by a private firm, and creating an audit report. The recommendations or suggestions provided by the management play a major role in these audit reports.
The financial condition and working efficiency of a company are monitored through an audit report. The audit provides a reference point to the companies using which they can make changes in their ongoing and upcoming projects.
What’s an Internal Audit?
The internal audit meaning is to check a company’s inside systems, like how it manages its money and follows rules. It makes sure the company’s actions are legal and its money records are correct and on time. Internal auditors are people hired by the company to do these checks for the management team. These audits also help the management find and fix problems early, before an outside audit does.
Complete Process of Internal Audit of Private Limited Company
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1 Audit Schedule
While scheduling an internal audit for private companies, the management must confirm that every team member attends it. It is because a single piece of information can make a huge difference in the accuracy of the audit reports. Therefore, companies usually convey the auditing date well in advance and urge everyone to be present on that particular date.
2 Audit Planning
The internal audit for private companies must be planned carefully as the auditor needs to provide enough time to review all the important financial aspects of a company.
3 Results
The results of an audit report are conveyed to the management once all the auditing work has been completed. These results usually include the flaws, gaps, or inconsistencies that are affecting a company’s performance. The auditor also suggests some policies that can be employed to overcome these issues.
Along with the flaws, the outcomes of the internal audit for private companies report must also be clearly mentioned. Companies usually tend to compare their performance before and after conducting an internal audit to check whether the recommendations of the auditor have resulted in any significant changes or not.
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Internal Audit Checklist Of Private Limited Company
A checklist for audit of private limited company are given below:
| Sr. Number | Form Number | Form Compliance |
| 1 | Form ADT (1) | To select the auditor |
| 2 | Form ADT (2) | To evict the auditor |
| 3 | Form ADT (3) | To register the auditor |
| 4 | Form AOC (4) | To file financial statements annually |
| 5 | Form MGT (7) | To file annual returns of the firm that includes the list its debentures and shareholders |
| 6 | Form MGT (14) | To file an agreement to ROC and resolution |
| 7 | Form CAR (1) | To maintain record and cost |
| 8 | Form CAR (2) | To assign the cost auditor |
| 9 | Form CAR (3) | To submit the cost audit records to the BOD (Board of Directors) |
| 10 | Form CAR (4) | To File Cost Audit Report as required |
| 11 | Form ITR (6) | To file ITR of the firm |
| 12 | Form GSTR (9C) | To file GST audit form |
| 13 | GSTR (3B) with GSTR (1) & GSTR (2A) | For cross-examination purposes |
Conditions Must Be Met For Internal Audit For Private Companies
- The auditor must be appointed by the private firm within a month of its incorporation.
- Only the appointed auditor can carry out the internal audit of a company.
- The companies have to pass a resolution in the general board meeting to select an auditor.
- An auditor is initially appointed as an AGM for a minimum period of 5 years.
- The auditor needs to be appointed as one AGM before appointing any other AGMs in the company.
- The auditor must be a certified CA (Chartered Accountant) as per the regulations of the Chartered Accountant Act, 1949.
- Suppose the company is not able to appoint the auditor within the first 30 days of its incorporation. In that case, it can hold an extraordinary general meeting before the completion 3 months from its date of incorporation. This meeting should be held to appoint an auditor for the company.
- The financial statements of the private company must be signed by at least two of its directors. One of these directors must be the MD or Managing Director. In the absence of an MD, some other directors can sign the financial documents.
- The audit report is considered to be valid only if it is duly certified by the auditor. The auditor can also report frauds done by an employee, officer, or any designated authority in the management. He should do it only if he thinks that the person was rendering his duties when the crime was being committed.
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Documents Required For Internal Audit
- Balance Sheet
- Notice Form MGT-9
- Form 3CD
- Director’s Report
- Profit and loss statements and notes to which the company’s account is to be linked
- A tax audit is also present if it was conducted by the auditor
- The notes linked with the financial statements are also included at the end of the internal audit report
Things Can Be Seen In An Internal Audit Report
- Audit’s title
- Grounds on which the opinions have been formed by the auditor
- The viewpoint of the auditor
- Signature of the auditor
- The information that supports the financial reports and statements
- Date of the audit report
- The responsibilities which an auditor/auditors are responsible for related to the financial account statements
- Other responsibilities of the auditor/auditors who have participated in the internal audit of a private limited company.
- Important facts and data concerned with the internal audit
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Final Thoughts
As auditors are responsible for monitoring the accounts and tracking the financial activities of a firm, they play a pivotal role in its development and growth. The internal auditors who have designed an internal audit of a private company from the start can carry out the auditing works more precisely.
They can choose specialized areas to audit or the entire company can be audited as well. However, internal audits usually include the areas that are regularly audited by the company.
The organization must allow the internal auditors to spend more time with the various stakeholders and employees of the company while auditing. Also, they must be allowed to work freely without any pressure from the management. Finally, their suggestions must be positively approached and incorporated into the organization.
FAQs
1. What is the purpose of an internal audit in a private limited company?
The primary purpose of an internal audit is to evaluate and enhance the effectiveness of the company’s risk management, control, and governance processes. It helps ensure compliance with regulations, safeguard assets, and improve overall operational efficiency.
2. What is internal audit applicability?
Internal audit applicability refers to the requirement for certain companies to conduct internal audits based on specific criteria set by laws or regulations. An internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
In the context of the Companies Act, 2013, and related rules, internal audit applicability means that companies meeting certain financial thresholds or conditions must appoint an internal auditor to regularly review and assess their financial and operational processes to ensure accuracy, efficiency, and compliance with laws and regulations.
3. Is it mandatory for a private limited company to have an internal audit?
As of now, there is no statutory requirement for private limited companies to conduct internal audits. However, many companies opt for internal audits voluntarily to strengthen their internal controls and risk management processes.
4. How often should internal audits be conducted in a private limited company?
The frequency of internal audits depends on the company’s size, nature of operations, and industry regulations. Typically, internal audits are conducted annually, but some companies may choose to perform them more frequently, especially if there are significant changes in operations.
5. What is the role of the internal auditor in a private limited company?
The internal auditor is responsible for evaluating the company’s internal controls, risk management processes, and financial reporting systems. They provide independent and objective assessments, identify areas for improvement, and ensure compliance with policies, procedures, and regulations.
6. Can the internal auditor be an employee of the private limited company?
Yes, it is permissible for the internal auditor to be an employee of the company. However, they should maintain independence and objectivity in their assessments to ensure the integrity of the internal audit process.
7. How does the internal audit contribute to corporate governance in a private limited company?
The internal audit function plays a crucial role in enhancing corporate governance by providing assurance to the board and stakeholders that the company’s internal controls are effective, risks are managed appropriately, and operations are in compliance with relevant laws and regulations.
8. How can a private limited company benefit from an internal audit?
An internal audit can help a company identify and mitigate risks, improve operational efficiency, enhance financial reporting accuracy, and ensure compliance with legal and regulatory requirements. It also provides valuable insights for strategic decision-making.
9. Can the findings of an internal audit be shared with external stakeholders?
While the specific findings of internal audits are typically confidential, the overall outcomes and improvements made as a result of the audit can be communicated to external stakeholders in a transparent manner to build trust and confidence.
10. How should a private limited company prepare for an internal audit?
Companies can prepare for internal audits by conducting a risk assessment, ensuring documentation of processes and controls, providing access to relevant information, and fostering open communication between management and the internal audit team. This collaboration ensures a smoother and more effective audit process.
Please note that these FAQs provide general information, and specific requirements may vary based on the jurisdiction and the company’s individual circumstances. It is advisable to consult with legal and financial professionals for tailored advice.