As per The Companies Act, 2013, internal audit is a compliance test which has been mandated by section 138 of The Companies Act, 2013.

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

Internal audit is a function that, even though operating independently from other departments and involves reporting directly to the audit committee, the function remains within an organization i.e. the company employees. It is essential for performing audits of both financial and non-financial nature within a wide of areas of operation in a business, as that are directed by the annual audit plan. Internal audit looks at main risks facing the business and what action is being taken to manage those risks in an effective manner, to help the organization achieve its various objectives. For example, they may look at risks threatening a company’s reputation such as the employment of cheap labor in foreign countries, or the strategic risks such as producing too many products in comparison to available resources etc.