In view of the above, answer the following questions: (b) Explain in detail the objectives and scope of Risk Based Internal Audit of NBFCs, UCBs and HFCs.

Objectives and Scope of RBIA in NBFCs, UCBs and HFCs: An effective Risk-Based Internal Audit (RBIA) is an audit methodology that links an organisation's overall risk management framework and 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. The internal audit function should broadly assess and contribute to the overall improvement of the organization's governance, risk management, and control processes using a systematic and disciplined approach. The function is an integral part of sound corporate governance and is considered as the third line of defence. Historically, the internal audit system in NBFCs/UCBs / HFCs has generally been concentrating on transaction testing, testing of accuracy and reliability of accounting records and financial reports, adherence to legal and regulatory requirements, etc. However, in the changing scenario, such testing by itself might not be sufficient. Therefore, Supervised Entities (SEs) will have to move towards a framework which will include, in addition to selective transaction testing, an evaluation of the risk management systems and control procedures in various areas of operations. This will also help in anticipating areas of potential risks and mitigating such risks. While the Risk Management Function should focus on Identification, Measurement, Monitoring, and Management of Risks, Development of Risk Policies and Procedures, use of Risk Management Models, etc., 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.