NBFCs Internal Audti Policy

A Non-Banking Financial Company (NBFC) refers to a company registered under the Companies Act, 1956 engaged in business of loans and advances, acquisition of shares, stocks, bonds, debentures, securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business, but does not include any institution whose principal business is of agriculture activity, industrial activity, purchase or sale of any goods (other than securities), or providing any services, and sale, purchase, construction of the immovable property.

What are the different types of NBFCs?

There are different types of NBFCs, and they are as follows:

  • Infrastructure Finance Company
  • Investment and Credit Company 
  • Asset Finance Company
  • Loan Company
  • Investment Company
  • Core Investment Company
  • Housing Finance Company
  • Mortgage Guarantee Company
  • Micro Finance Institutions
  • Infrastructure Debt Fund

How to classify NBFCs?

NBFCs can be classified on the following basis:

Non-Deposit (Accepting or Holding)

  • Systematically important NBFCs
  • Others

Deposit (Accepting or Holding)

  • Residuary NBFCs
  • Others

What are the objectives of NBFC Internal Audit?

Objectives of NBFCs Internal Audit are as follows:

  • Comply with statutory laws, rules, and regulations. 
  • Comply with policies and guidelines laid by the company.
  • Review reliability of the operating system.
  • Determine integrity and security of information system.
  • Determine control management.
  • Verify the quality of assets.
  • Detect inefficiencies and recommend remedies.

What is the process and procedure of NBFC Internal Audit?

The process and procedure of NBFCs Internal Audit:

  • Firstly, an audit plan is drafted by the internal audit department at the beginning of the year.
  • Then that audit plan requires the approval of the Audit Committee of the Board.
  • The frequency of audit of all activities depends on its risk level. It is mandatory that all activities of the company must be audited once a year. Thus, internal audit department has the access to complete information and documents of all the activities. 
  • The internal auditor prepares an audit report after each audit.
  • The audit report is discussed with the head of the internal audit department before finalization.
  • There is a time crunch for making suggestions to the inefficiencies found in the audit report. 
  • The head of the internal audit department reports to the Audit Committee of the Board, as per the frequency laid down by them.
  • The internal auditor prepares an audit documentation based on the audit reports.
  • During the process of an audit, the department under review should fully co-operate and provide all the required information to the internal audit department. 
  • The internal audit policy must be reviewed every three years.
  • The Audit Committee of the Board is accountable for the analyses and modification of the internal audit policy. 

NBFCs conduct internal audit on a yearly basis. Internal audits are essential to detect errors in the working of the company and suggests suitable solutions. Internal audit is also essential because it betters the environment of the company by determining the efficiency of the company. It gives assurance to the management that all business assets of the company are sound and secure. 

Like internal audit is an essential element for efficient working of the company, it is equally important for NBFCs. For a company to succeed, internal audit plays a vital role in effective business impact of the company.

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