Audit and Corporate Governance in India

The term “audit” refers to review of the activities or functions of an organisation. In India, the Comptroller and Auditor General (CAG) of India is the authority that has been established to review the receipts and expenditure of the government of India and the state governments. The CAG is also responsible for external audit of the government owned corporations. In the Indian corporate world, the role of auditing cannot be underestimated as it strengthens the corporate governance in the country.

Generally, auditing is classified into two types i.e. internal audits and statutory audits. The internal audit is conducted by a person or department within an organisation to assess or evaluate a company’s internal accounts. It ensures that the activities of the organisation are within the laws and rules and regulations laid down by the government. The role of an internal auditor is to provide the organisation with an unbiased review in order to improve its performance. Statutory audits are conducted in order to review and report the performance of the company to the government of India. The statutory audits are governed by the Indian Accounting Standards issued by the Institute of Chartered Accountants of India and thus, only a chartered accountant holding a certificate of practise in India can conduct a statutory audit. Internal audits, in particular, are conducted with the objective of providing the organisation with a risk-management system which suits the needs and nature of the organisation’s activities. It ensures that the organisation’s activities or business does not come to a stand-still due to the changes in the market, lack of finances or any other adverse changes.

 Corporate Governance can be understood as a mechanism of keeping check on the activities of the companies through means of various policies, rules, regulations, guidelines etc. Corporate governance plays a crucial role in bridging the gap between the way a company is performing and the way it should be performing. Regular audits assist in strengthening the hold corporate governance by ensuring that the organisation is following the rules and regulations.