The evolvement of financial instruments and markets has enabled banks and financial institutions to undertake varied risk exposures. In the context of these developments and the progressive deregulation and liberalization of the Indian financial sector, having in place effective risk management and internal control systems has become crucial to the conduct of banking/financing business. This has become more significant after Reserve Bank's move towards risk-based supervision (RBS) of banks. A similar supervision is therefore required for financial institutions other than banks. A sound internal audit function plays an important role in contributing to the effectiveness of the internal control system.