Internal and concurrent Audits
What is an internal audit?
As per the standards on Internal Audit by ICAI , Internal Audit is an independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity, including the entity's strategic risk management and internal control system- or in simple terms - It was, and is, a way of ensuring businesses and public sector organizations use resources efficiently and apply process consistently.
Internal auditors assist management with this task by providing a focus on risk management and the implementation of more stringent internal controls to manage prospective risks and vulnerabilities. Internal Control - As per Explanation to clause [e] of sub-section (5) of section 134 - Financial statement, Board's report, etc. As of today, internal audit undeniably is the backbone of a sound corporate governance system.
Need for Internal Audit:
-
Increased size and complexity of businesses .
-
Enhanced compliance requirements.
-
Focus on risk management - understand risk exposure and internal controls to manage such risks .
-
Intensive use of information technology.
-
Need to create greater transparency, establish sound corporate governance.
What is Concurrent audit?
Concurrent audit is a systematic and timely examination of financial transactions on a regular basis to ensure accuracy, authenticity, compliance with procedures and guidelines. The emphasis under concurrent audit is not on test checking but on substantial checking of transactions
It is an ongoing appraisal of the financial health of an entity to determine whether the financial management arrangements (including internal control mechanisms) are effectively working and identify areas of improvement to enhance efficiency.
Need for Concurrent Audit :
-
Focus of statutory audit - mainly on finalization of financial statements.
-
Lack of timely/ periodical closure of books of accounts.
-
Low quality of book/ account keeping & lack of accuracy of financial reports specially at sub district level.
-
Lack of follow up on Statutory audit observations leading to repetition of observations and hence lack of improvement in the systems.
-
High amount of unadjusted advances and lack of periodical follow up carried to settle outstanding advances.
-
Need of continuous handholding support to the finance staff in improvement of financial management and accounting systems.