May-2015

THE ENGAGEMENT OF THE INTERNAL AUDITOR
WITH THE AUDIT COMMITTEE SHOULD BE MORE
INTENSIVE AND HEALTHY SO THAT THE INTERNAL
AUDITOR CAN SERVE THE BOARD BETTER
Internal audit and management accounting
Cotemporary internal audit’s scope is very wide and it
primarily serves the Board, although the management
also benefits from internal audit services because both
the board and the management work together to achieve
strategic and subordinate objectives. The boundary of
internal audit is no more confined to financial transactions
and related internal controls. It covers all the
decisions, including decisions by the top management,
and activities of the firm. Therefore, internal audit draws
professionals from diverse disciplines.
Management Accountant is the right professional
to lead the team. Management accounting aims to
improve decision-making in the firm by providing
decision-relevant insights and analysis to every decision-maker
within the firm. Management Accountants
are trained to collate data (both internal and external),
analyse the same at dis-aggregated level and
provide insights to support formulation and execution
of strategies and operating-level decisions. They
are also trained in ERM and Enterprise Performance
Management (EPM). They have understanding of audit
techniques. Therefore, they can use their skills and
knowledge in strengthening internal audit. A Management
Accountant with adequate experience in the
management accounting function or internal audit
function is capable of providing leadership to the internal
audit team.
Conclusion
The Companies Act 2013 requires the Audit Committee
to decide the functioning, scope, periodicity and
methodology of internal audit in consultation with
the internal auditor. This provides a great opportunity
to the internal auditor to up-grade the internal auditing
function within the firm. It is the responsibility of
the internal auditor to educate the Audit Committee
about contemporary ideas in internal auditing and internal
audit’s potential in serving the Board and improving
governance.
The effectiveness of internal audit depends on audit
independence and resources (quantity and quality)
allocated to the audit function. It is in Board’s interest
to protect the independence of the internal audit
and to allocate adequate resources to the internal audit
function.
The engagement of the internal auditor with the
Audit Committee should be more intensive. A healthy
relationship with the Audit Committee is important
for internal auditor to serve the Board. The internal
auditor, who interacts with the chairman of the Audit
Committee regularly, clearly understands the needs
of the Audit Committee, and that enables it to serve
the Audit Committee better. Moreover, once the Audit
Committee appreciates the value of internal audit
services, it becomes easier for the internal auditor
to bargain for more resource, particularly human resource,
which is necessary for providing higher level
of services. The Audit Committee discharges its duties
better with the support of independent internal audit.
In India, the internal auditing profession is approaching
an inflection point that will give internal
audit its rightful place in the system of corporate governance.
asish.bhattacharyya@gmail.com
www.icmai.in
MAY 2015 the MANAGEMENT ACCOUNTANT 69