Guj firms seek better internal audit to increase efficiency

With increasing engagement of foreign companies with local players through acquisitions and equity partnerships, small and medium enterprises as well as large corporate are increasingly looking for an effective internal audit mechanism for the companies.

According to account professionals, the internal auditing, which was considered to be an unnecessary burden to the company, has found many takers now. The reason being foreign investors and equity players look for competent internal auditing mechanism.

Notably, the Clause 138 of the Companies Bill by the Union Ministry of Corporate Affairs has made it mandatory for a class of companies to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant.

"An internal auditor needs to understand the processes of the business. He has to bring in the solution for optimum utilization of resources for a company," said PremRaj Kashyap, MD, KYB-Conmat in his address during the third annual conference of Vadodara Audit Club and the Institute of Internal Auditors India on Saturday in Vadodara.

"PE players and mainly the foreign players prefer those companies which have strong internal audit mechanism in place. There are instances of deals getting cancelled in absence of internal audit system," said Anil Bhandari of ANB Consulting - a financial advisory firm.

Account professionals maintained that the importance of internal auditors has increased in recent times because their purview of work has exceeded beyond merely cost accounting or financial accounting to marketing, processes, taxation, risk management, IT knowledge besides advising on strategic decisions.

"An internal auditor has to know everything about the business and has to participate in business strategy for the company. Auditors have to think like a business man and not just as a policing auditor. This requires a change in mindset of auditors and companies too," said T Sankar, chief internal auditor, Blue Star Ltd. "Till recently, the companies were not so active in appointing the internal auditors. But with increasing awareness and visible improvement in the operations and profitability, many companies including SMEs are now taking up internal auditing," said Rohit Kothari, a CA and president of Vadodara Audit Club.

Unlike statutory auditors, the internal auditors have proved to be generally harmless for the company and still their presence gets noticed through the company's performance.