How to Appoint an Internal Auditor for Your Company  

Introduction

Appointing an internal auditor is an essential step for any business. Internal auditors play a crucial role in evaluating the accuracy of records and the effectiveness of operations. This process not only helps to ensure compliance with laws but also strengthens internal audit controls, ultimately contributing to the company’s success. In this article, we will explore how to appoint an internal auditor for your company.

Who is internal auditor?

An internal auditor in a company checks how well things are running, making sure that everything is done correctly and efficiently. They look at financial records, see if the company is following rules and regulations, and check that resources are used wisely. If they find any problems or areas to improve, they suggest solutions to help the company run smoother and avoid risks. Their job is to help keep the company honest, safe, and on the right track for long-term success.

Understanding the Role of an Internal Auditor  

An internal auditor is responsible for examining a company’s internal controls, processes, and compliance. Their main tasks include:

1. Evaluating Control Systems: They review the control systems of both financial and operational segments to ensure they are effective and efficient.

2. Protecting Assets: By identifying inefficiencies, internal auditors help safeguard the organization’s assets.

3. Managing Risks: They assess potential risks and implement practices to manage them effectively.

4. Preventing Fraud: Internal auditors establish checks to minimize the risk of fraud or theft.

5. Ensuring Compliance: They ensure that the company follows policies, procedures, and regulations as required by law.

6. Monitoring Liabilities: Internal auditors develop programs to oversee and prevent liabilities for the company.

Why You Need a Certified Internal Auditor  

Hiring a certified internal auditor (CIA) is important because they possess specialized knowledge and skills. A CIA has undergone rigorous training and has demonstrated expertise in internal audit practices. This certification assures you that the auditor understands compliance and risk management, making them a valuable asset for your organization.

Eligibility Criteria for Internal Auditors  

According to Rule 13(1) of the Companies (Audit and Auditors) Rules, 2014, there are specific eligibility criteria for appointing an internal auditor:

• The internal auditor must be a Chartered Accountant (CA) or a Cost Accountant. They do not necessarily need to be in practice but must have the required qualifications.

• The appointed internal auditor should not be an employee of the company to maintain objectivity and independence.

Steps to Appoint an Internal Auditor  

1. Identify Your Needs  

Before you begin the hiring process, assess your company’s specific needs. Consider the following questions:

• What areas require auditing? (financial, operational, compliance)

• How often do you need audits conducted?

• Are there specific regulations or standards (like ISO) you must adhere to?

2. Create a Job Description  

Draft a clear job description that outlines the responsibilities and qualifications you are looking for in an internal auditor. Include:

• Detail the tasks, such as conducting audits and evaluating internal controls.

• Specify that the candidate should be a certified internal auditor or possess relevant credentials.

• Highlight essential skills, like analytical thinking and effective communication.

3. Advertise the Position  

Post the job description on various platforms to attract suitable candidates. Consider using:

• Popular sites can help you reach a wide audience.

• Platforms like LinkedIn are great for connecting with potential candidates.

• These organizations may provide leads on qualified professionals.

4. Screen Applications  

Once you receive applications, start the screening process. Look for:

• Candidates should have prior experience in internal auditing, preferably in your industry.

• Ensure they hold the necessary qualifications, such as being a CIA.

• Contact previous employers to gain insights into the candidate’s reliability and work ethic.

5. Conduct Interviews  

Shortlist candidates and conduct interviews to assess their suitability further. During the interview, consider asking:

• How do you approach internal audit controls?

• Can you give examples of risks you’ve identified and addressed in previous roles?

• What methods do you use to report findings to management?

This helps you gauge their experience and approach to auditing.

6. Evaluate Skills Practically  

If possible, conduct a practical assessment to see how candidates handle real-world scenarios. This could involve analyzing a case study related to your company’s operations, helping you assess their problem-solving skills.

7. Make Your Decision  

After interviews and evaluations, decide on the best candidate. Factors to consider include:

• Fit with company culture

• Understanding of your specific needs

• Ability to communicate findings effectively

   

8. Formalize the Appointment  

Once you’ve selected your internal auditor, follow:

• Call a board meeting to discuss the appointment and set the auditor’s compensation.

• Obtain a written consent letter from the chosen auditor confirming their eligibility.

• For public companies, file a certified copy of the board resolution with the Registrar of Companies, following the necessary regulations.

9. Onboard the Internal Auditor  

An effective onboarding process is crucial. Provide your new auditor with:

• Access to relevant documents and systems

• An overview of company processes and internal audit controls

• Introductions to key personnel

Conclusion  

If it is a government firm, the Comptroller and the Auditor General of India shall appoint the auditor under the sub-section (5) or sub-section (7) of Section 139. Thereupon the auditor appointed shall compulsorily submit a copy of the audit report to the Controller and the Auditor General of India.

Section 138(2) gives all the guidelines to the Central Government to make the rules and manners to carry out the proceedings.

In case, if any auditor or the Cost Accountant or the Company Secretary, who is in practice, does not comply with the provisions of the sub-section (12), he or she shall be punishable with a penalty which can’t be less than one lakh rupees but which can be extended to twenty-five lakh rupees.

Related Read- Resignation of an Auditor- Formalities and procedure