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Design & Evaluation- SOX & IFC/ ICFR

Brief introduction on Internal Financial Controls over Reporting | IFC | ICFR

August 06, 2020

Understanding of Internal Financial Controls and Internal Financial Controls over Reporting

As per Section 134 of the Companies Act 2013, the term 'Internal Financial Controls' means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company's policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records, and timely preparation of reliable financial information.

Internal Control over Financial Reporting (ICFR) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Applicability of IFC and ICFR

IFC/ICFR is applicable without any terms and conditions for Listed companies and public unlisted companies.

In case of private companies, IFC/ICFR is applicable wherein Turnover > 500 million or outstanding loan & borrowings from bank > 250 million.

Areas of Review

  • Order to Cash
  • Logistics & Distributions
  • Procurement to Payment
  • Inventory Management
  • Human Resources & Payroll
  • Finance & Accounts
  • Capital Expenditure
  • Information Technology
  • Entity Level Controls

Approach

  • Identifying financial reporting elements, critical processes, supporting systems
  • Account-level materiality and chart of accounts analysis
  • Prepare a project plan and Identify process owners
  • Prepare the RCM(Risk Control Matrix) & draft process flowcharts
  • Identify gaps and what could go wrong in existing processes
  • Testing of control design effectiveness
  • Discuss & understand the root cause for the design weakness
  • Suggest remedial action for gaps identified, in line with leading practices

Benefits

  • An accurate and fair reflection of transactions and dispositions of the assets of the company;
  • Provides reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
  • Provides reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Deliverables

  • Process Flows
  • Risk Control Matrix
  • Testing Results/Report

This article is contributed by: 

Abhijeet Sharma

COO – Risk, Assurance, Transaction Advisory Services & Business Development Director 

Vikram Prabhakar

Associate Director, RATAS

 

Our Service Deck:-  Internal Financial Controls IFC and Internal Financial Controls over Reporting ICFR

Also Read:- Design & Evaluation- SOX, JSOX & IFC/ICFR

 


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