ntroduction
 
Internal Audit is defined as under:

“Internal audit provides independent assurance on the effectiveness of the internal controls and risk management processes to enhance governance and achieve organisational objectives.”

Internal Audit is an independent function established within an organisation to examine and evaluate its activities as a service to the organisation. It serves the organisation to accomplish objectives by bringing a systematic, disciplined and consistent approach to assess and strengthen the effectiveness of risk management, control and governance process.
 
Scope and Objectives of Internal Audit
 
The scope and objectives of internal Audit are dependent upon the size and the structure of the entity and its management’s requirements.
 
The internal Audit operates typically in one or more of the following areas:

1. Review of the accounting system and related internal controls.
2. Examination of the management of financial and operating information.
3. Examination of the effectiveness and efficiency of operations including the financial controls of an organisation.
4. Physical examination and verification.

The objects of Internal Audit are stated as below:
 

1. Verification of the accuracy, reliability and authenticity of the financial, accounting and statistical records.
2. Ascertaining that accepted accounting policies, principles and practices have been developed while preparing the financial accounts.
3. The assets are purchased/disposed under proper authorisation. Also, ensuring that the access to the assets is restricted to the authorised persons at the permitted times.
4. Ascertaining that the liabilities are incurred for the authorised activities of the organisation.
5. The internal checks system operating in the organisation is sound and economical.
6. Fraud and errors are prevented and detected.
7. Reviewing overall operations of the internal control system and if deviations or weakness are noted, the same is communicated to the appropriate authorities on a timely basis. 

Internal Audit Framework
 
The operation of the internal audit function must comply with the following code:

• Formal Charter
• Documentation of Reporting Structure
• Detailed Testing
• Competency
• Liasioning with external auditors
• Audit committee and the external auditors
• Reviewing 

Effectiveness of Internal Audit
 
External Auditor should consider the following factors in relying on the work of Internal Auditor:
(a) The adequacy of audit programmes about the scope of the audit report.
(b) The planning of the work, supervision, evaluation and review of the documentation of the assistants;
(c) The availability of sufficient appropriate audit evidence.
(d) The appropriateness of conclusion attained and the audit report thereon.
(e) Any expectations or suspicious matters disclosed by the Internal Audit.