The central bank said the RBIA is an audit methodology that links an organisation’s overall risk management framework. It provides an assurance to the board of directors and the senior management on the quality and effectiveness of the organisation’s internal controls, risk management and governance-related systems and processes, it added. The entities have to implement the RBIA framework by March 31, 2022. The internal audit function is an integral part of sound corporate governance and is considered as the third line of defence, it said.
This year, in February, the RBI launched RBIA system with a view to enhance the quality and effectiveness of their internal audit system. Earlier, RBIA was applicable for only selected non-bank lenders and urban co-operative banks.
All the deposit-taking non-banking financial companies (NBFCs) and the ones with an asset size of over ₹5,000 crore, and urban co-operatives banks (UCBs) with assets of over ₹500 crore will have to migrate to the new system, RBI had said in its February’s circular. ” The above-mentioned entities shall put in place a RBIA framework by June 30, 2022, in accordance with the provisions of the aforesaid circular,” RBI said in a statement.
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RBIA should undertake an independent risk assessment for the purpose of formulating a risk-based audit plan, which considers the inherent business risks emanating from an activity/location and the effectiveness of the control systems for monitoring such inherent risks, it said. A shift to a framework that focuses on the evaluation of the risk management systems and control procedures in various areas of operations, in addition to transaction testing, will help in anticipating areas of potential risks and mitigating such risks, the RBI said.
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