What are Internal Financial Controls?
Internal financial controls mean policies and procedures adopted by the company for ensuring:
- Orderly and efficient conduct of its business, including adherence to the company’s policy and procedure,
- Safeguarding of company’s assets,
- Prevention and detection of malpractices, frauds and errors,
- Accuracy and completeness of accounting records and
- Timely compliance with various statutes and
- Timely preparation of books of accounts
It includes policies and procedures adopted by the company for ensuring the orderly and efficient conduct of business, including regulatory compliance and prevention and detection of frauds and errors.
Internal control = internal control over financial reporting + operational control reporting + fraud prevention reporting.
Benefits That Can be Derived From IFC:
- Enhance governance framework
- Defines clear accountability and transparency
- Controls automation
- Reduction in number of surprises
- Streamline/standardize controls
- Opportunity to plug leakages/potential frauds
Internal controls over financial reporting (ICFR): regulatory mandate under Companies Act, 2013
Reporting on Internal Financial Control (IFC):
As per Sec 143(3)(i) of Companies Act 2013, the report of the auditor should state whether the company has an adequate Internal Financial Control System in place and the operating effectiveness of such controls.
Further, Rule 10A of Companies (Audit & Auditors) Rules 2014 states that:
- For the financial years commencing on or after 1st April 2015, the report of the auditor should state about existence of adequate Internal financial controls and its operating effectiveness.
- The auditor of a company may voluntarily include the statement referred to in this rule for the financial year commencing on or after 1st April 2014 and ending on or before 31st March 2015.
- which is one-person company (OPC) or a small company
- which has turnover less than Rs. 50 crores as per latest audited financial statements and which has aggregate borrowings from banks or financial institutions or any body-corporate at any point of time during the financial year less than Rs. 25 crores.
We at SBS Global have a strong team who work in various industry sectors to bring up effective internal process controls and to establish standard Internal Financial Controls. Our over a decade of expertise offers our clients an utmost value addition by placing globally accepted process controls designed by our expert team for your organization.