Internal Financial Controls (IFC) and Internal Control Over Financial Reporting (ICFR)
Understanding
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.
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
IFC/ICFR is applicable without any terms and conditions for public unlisted companies
In case of private companies, IFC/ICFR is applicable wherein Turnover > 50 Cr and outstanding loan & borrowings from bank > 25 Cr
IFC/ICFR is mandatory for all listed companies
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
- 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.
Tag: IFC/ICFR