Internal Audit

Internal Audit Definition

Internal audit refers to the audit which is conducted in order to evaluate and improve the risk management effectiveness in the company, evaluate the different internal controls followed in the company and ensure that the company is complying with all of the laws and regulation which are applicable on it, etc.

It is a process of checking regularly the deviation from any material compliance instructed laws and regulations. It helps maintain accurate and timely financial reporting and data collection. It is an evaluation done by an internal auditor who could be an employee of the organization or not.

It involves an organization’s governance, accounting processes, risk management, and management controls. It aims at enhancing the efficiency of operations, the reliability of financial and management reporting, and compliance with regulations. Further, it helps identify potentially fraudulent acts, control breakdowns, and also the extent of financial loss.

Internal Audit Requirement

The minimum requirements for a company to mandatorily conduct internal audit depend on the law of the land where the company operates.

For example, in the United States, Section 303A specifies these rules. The NYSE regulations require that listed companies have an internal audit function. The NYSE states that listed companies need to conduct audits for the management to assess the company’s internal controlsInternal ControlsInternal control in accounting refers to the process by which a company implements various rules, policies, or procedures to ensure the accuracy of accounting and finance information, safeguard the various assets of the business, promote accountability in the business, and prevent the occurrence of frauds in the more system and risk management processes. A company can also hire a third-party auditor also for this function.

On the other hand, in India, the Institute of Chartered Accountants of India (ICAI) has constituted the Committee for Internal Audit. It is a compliance test that has been mandated by section 138 of companies act, 2013. This section mandates internal audit to all listed companies as well as to those unlisted companies which have Deposits>=INR 250 million or Paid-up capital>=INR 500 million or Borrowings>=INR 1 billion or Turnover>=INR 2 billion. For privately held companies, the conditions are borrowings>INR 1 billion or Turnover >=INR 2 billion.

If you want to learn more about Auditing, you may consider taking courses offered by Coursera

  1. Auditing I: Conceptual Foundations of Auditing
  2. Auditing II: The Practice of Auditing

Qualifications of Internal Auditor

They can be conducted by Certified Internal Auditor (CIA)Certified Internal Auditor (CIA)A certified internal auditor (CIA) is an accountant recognized as a certified internal auditor conferred by the Institute of Internal Auditors (IIA) in internal audits after passing CIA exams and upon completing the required work more, Chartered Account (CA), Cost Accountant, or any authorized person. Moreover, an auditor should possess the following expertise:

While a statutory auditA Statutory AuditOne of the most common types of audits is the statutory or financial audit. Its main purpose is to gather all relevant information so that the auditor may provide an accurate and unbiased assessment of the company's financial more happens only at the end of the fiscal year, an internal audit is done comparatively more frequently i.e., quarterly, monthly, weekly, daily, and even continuously in many cases.

Functions of Internal Auditor


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  • Monitoring of Internal Controls – Management should maintain Internal control. Internal Auditor may be appointed to monitor whether Internal control is operating or not? And also to suggest any measures to achieve the improvements.
  • Examination of Financial and Operating Information – They may review the means used to measure the financial and other information. Auditor may make inquiries for transaction balances and other specific matters.
  • Review of Operating Activities – They have to review the operating activitiesReview The Operating ActivitiesOperating activities generate the majority of the company's cash flows since they are directly linked to the company's core business activities such as sales, distribution, and more of an organization, for example, the Examination of purchase, Production, HR dept, and also to check that whether these departments are efficient, effective, and economical.
  • Review of Compliance with Laws and Regulation – They are required to examine whether the organization is following the laws and regulations.
  • Governance – They may check whether an entity is following ethical values and whether they are fair or not. Auditor should always suggest measures to improve the same.
  • Risk Management – They should guide the management in improving the risk management system.



  • Availability of Qualified Staff – To conduct any type of audit properly (be it internal or external), one needs to have years of experience. So it is often a tough task finding sufficiently qualified personnel in the company who can conduct an internal audit. And you can’t simply hire an inexperienced auditor since that will do more damage to your company than good.
  • Dependence on Accounting Process – As it does in the dictionary, accounting always precedes auditing. The beginning of an internal audit depends upon the completion of accounting. So a delay in the accounting process results in a delay in the audit process as well.
  • Management’s Ignorant Attitude – Management often does not take the findings of internal audits since they are not made available to all. The findings don’t go beyond the management, and thus it depends upon whether it takes the necessary corrective actions or not.


Internal Audit is an integral part of an organization. It not only helps in the performance of the employees but also helps the management to have a check on whether or not the organization is complying with the laws and regulations.

This article has been a guide to what is Internal Audit and its definition. Here we discuss the requirement, qualifications, and functions of an internal auditor. Here we also discuss the advantages and disadvantages. You can learn more about accounting from following articles –