Internal Audit Services in Raipur

When internal audit is legally required

The Companies Act requires an internal audit for:

• Every listed company, without exception based on size
• Unlisted public companies meeting any one of four tests in the preceding financial year: turnover of ₹200 crore or more; paid-up share capital of ₹50 crore or more; borrowings from banks or public financial institutions exceeding ₹100 crore at any point; or deposits of ₹25 crore or more at any point
• Private companies meeting either of two tests in the preceding financial year: turnover of ₹200 crore or more, or borrowings from banks or public financial institutions exceeding ₹100 crore at any point

The borrowing test businesses overlook

The borrowing test catches more companies than the turnover test, and it is the one businesses overlook. It is measured at any point during the year rather than at the year end, so a facility drawn down for part of the year counts. Cash credit limits, term loans and working capital facilities all count towards it. A manufacturer with turnover well below ₹200 crore but substantial sanctioned limits can be caught, and would not know it from looking at the profit and loss account alone.

Internal audit under the Act does not apply to LLPs, and applies to a one person company only where its articles provide for it.

Who may be appointed. A Chartered Accountant, a Cost Accountant, or another professional whom the Board approves. The internal auditor may be an employee or an external firm, and the Board or audit committee determines the scope, periodicity and methodology.

Non-compliance attracts a fine on the company's officers in default, with a further daily amount while the default continues.

Where the real value is — and it is usually voluntary

Most private companies in Raipur fall well below both thresholds, so internal audit is not required of them. That does not mean it is not worth having. The businesses that get most from it share a characteristic that has nothing to do with turnover: the owner can no longer personally observe everything that matters.

That point arrives in different ways.

Stock. For a steel stockist, a cement or hardware distributor, a rice mill or a commodity trader, inventory is usually the largest number in the accounts and the easiest to lose. Physical verification against records, movement analysis, valuation consistency, and reconciliation of weighbridge and gate records against the ledger — this is the single most common reason a Raipur business asks for an internal audit, and the one where it most often pays for itself.

Multiple locations. A godown, a second branch, a site office, a mill some distance from the head office. Procedures that are followed at head office are frequently not followed elsewhere, and the difference is invisible from the head office.

Purchases and vendors. Whether purchase orders precede purchases, whether rates are compared, whether the same vendor is being used without review, and whether goods received match what was ordered and what was billed.

Cash and collections. Retail and trading businesses handling cash, and collections from customers in the field.

Payroll and site labour. Particularly for contractors, where labour is engaged at site and attendance is recorded locally.

Statutory compliance. Whether returns are being filed on time, whether tax deducted is being deposited, whether records required by law are actually being maintained. Owners are often unaware of gaps here until a notice arrives.

Preparation for something. A bank enhancing limits, a prospective investor, a family separation, a sale, or simply a statutory audit that has been difficult in previous years. An internal audit ahead of any of these is considerably cheaper than dealing with what they uncover.

What an internal audit actually involves

We agree the scope with the owners or the Board before starting — internal audit has no prescribed form, and an audit that covers everything superficially is worth less than one that covers three things properly.

A typical engagement includes: understanding how the process is meant to work; testing whether it does; physical verification where stock or assets are involved; sampling transactions against approvals and documents; identifying where a single person controls a process end to end; and reporting findings with a recommendation and a named owner for each.

The report is the deliverable, and it is only useful if it is acted on. We prefer engagements with a follow-up review, because a finding that is reported and not corrected simply reappears the following year. Where an engagement is continuing, we track closure of previous findings as part of each visit.

Internal audit may be conducted quarterly, half-yearly, annually, or continuously through the year, depending on the size of the business and what the audit is for.

Internal audit and statutory audit are separate

They serve different people and answer different questions. The statutory audit reports to the members on whether the financial statements give a true and fair view; the internal audit reports to management or the Board on whether controls are working.

They are also required to be kept separate in practice: a company's statutory auditor is not permitted to provide internal audit services to the same company. Where we act as statutory auditor for a client, we do not conduct its internal audit, and vice versa. This is the same principle that applies to RERA certification, and it works in a client's favour — the two functions are a check on each other.

A well-run internal audit does, however, make the statutory audit easier and shorter, because the records are in order and the questions have been asked already.

Scope of our work

We assess whether internal audit is required under the Companies Act, testing both the turnover and the borrowing position; agree a scope with the Board or the owners that reflects what the business actually needs; conduct the audit, including physical verification of stock and assets where relevant; test controls over purchases, sales, cash, payroll and statutory compliance; report findings with practical recommendations rather than observations alone; and follow up on closure in subsequent visits.

For businesses below the statutory thresholds, we will say plainly whether we think an internal audit is worth the cost in their case, and what it should cover if it is.