Fri, May 26, 2017 | updated 01:45 AM IST

Are your internal financial controls in control?

Updated: Nov 21, 2016 15:12 IST      
Are your internal financial controls in control?

New Delhi [India], Nov 21 (ANI-BusinessWireIndia): The new Companies Act, 2013, now requires auditors to also opine on whether a company has an adequate internal financial controls (IFC) system in place and the operating effectiveness of such controls. This is in addition to the existing audit opinion on financial statements. While this requirement was originally applicable to financial statements ending 31st March 2015, considering the lack of guidance, this applicability was deferred and is now effective for the year ending 31st March 2016. Due to the deferral of this reporting requirement, the Ministry of Corporate Affairs (MCA) retained the reporting requirement relating to internal controls in certain specific areas under the Companies (Auditor's Report) Order, 2016 (CARO).

Reporting on IFC is undoubtedly a paradigm shift from the reporting required under CARO. The ICAI has now reissued the long awaited 'Guidance Note on Audit of Internal Financial Controls over Financial Reporting' (guidance note), which provides detailed guidance on this topic.

Section 134(5) (e) explains internal financial controls as the policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business, including adherence to Company's policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information. Section 143(11) of 2013 Act requires that the auditor's report of specified class of companies should include a statement on prescribed matters.

The guidance note provides the necessary criteria for maintaining effective IFC for companies. It draws upon the 'Internal Control Components' of Standard on Auditing (SA) 315, 'Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment', which includes the following five required components control environment, entity's risk assessment process, control activities, information system and communication and monitoring of controls.

The guidance note explains that for auditor reporting, the term 'IFC' is restricted within the context of the audit of financial statements and relates to internal control over financial reporting only (ICFR). This is also consistent with the practice adopted internationally, e.g. Sarbanes-Oxley (SOX) reporting in the US.

This is a relief as it removes unnecessary ambiguity by excluding from the scope operational controls, i.e. those facilitating the effectiveness and efficiency of company's operations, and also differentiates ICFR from enterprise risk management and risk management policies which boards of companies have to maintain.

Role of Various Authorities

Management: In case of listed companies, section 134(5)(e) of the Companies Act, 2013 requires Directors Responsibility Statement to state that the Directors had laid down internal financial controls and the same were adequate and operating effectively. In case of ALL companies, Rule 8(5)(viii) of Companies (Accounts) Rules, 2014 requires the Board of Directors' Report to state the details in respect of adequacy of internal financial controls with reference to the financial statements. Clause 49 IX(C) of Equity Listing Agreement requires CEO's of listed entities to certify effectiveness of internal control systems pertaining to financial reporting. In all cases, it is the management responsibility to establish Internal Control over Business Operations.

Auditor: Section 143(3) (i) of the Companies Act, 2013 requires the auditors of ALL companies to state in their report whether the company has adequate internal financial control system in place and the operating effectiveness of such controls. The auditor will have to modify its audit methodology to obtain reasonable assurance on the adequacy of internal financial controls over financial reporting and its operating effectiveness. It should be noted that when forming the opinion on internal financial controls, the auditor should test the same during the financial year under audit and not just as at the balance sheet date, though the extent of testing at or near the balance sheet date may be higher.

Independent Director: Schedule IV of the Companies Act, 2013 requires the Independent Directors of the Company to satisfy themselves on the integrity of financial information and financial controls and also to ensure that the systems of risk management are robust and defensible.

Audit Committee: Section 177(4) (vii) requires Audit Committee to evaluate internal financial controls and risk management systems. Also, section 177(5) gives power to the Audit Committee to call for comments of the auditors on internal control systems, scope of audit, their observations on internal control systems and financial statements before submission of the same to the board. They may also discuss any related issues with the internal auditors and the management of the company.

Integrated audit

Both corporate and auditors in India will need to come to terms with the concept of a combined or an integrated audit, which includes an audit of ICFR over financial reporting and financial statements. The guidance note acknowledges that while the objectives of the audit of ICFR and audit of financial statements are not identical, the auditor now needs to plan and perform work in such a way that it achieves the objectives of both the audits in an integrated manner.

To conclude

The introduction of IFC has helped companies enhance their internal control environment. For the IFC framework to be sustainable, each stakeholder is expected to play an important role during its implementation. IFC implementation is a journey and Indian companies over the next few years should focus on adopting the right approach to reap the potential benefits for their stakeholders as well as for themselves. (ANI-BusinessWireIndia)

New Delhi [India], May 25 (ANI-NewsVoir): Rakesh Kapur, Joint Managing Director, Indian Farmers Fertiliser Cooperative Limited (IFFCO), has been elected as the Chairman of the International Fertilizer Association (IFA) at the recent IFA's Annual Conference held from May 22nd - 24th in Marrakech, Morocco in which 1400 participants were present.

Full Story >>

New Delhi [India], May 25 (ANI-NewsVoir): Unveiled at its Insights 2017 customer conference, Epicor Software Corporation, a global provider of industry-specific enterprise software to promote business growth, has introduced the latest version of Epicor ERP, the global enterprise resource planning solution in use today by thousands of customers in 150 countries worldwide.

Full Story >>

New Delhi [India], May 25 (ANI): Credit rating agency ICRA expects Indian GDP and gross value added (GVA) at basic prices to expand by 7.1 percent and 6.9 percent, respectively, in year-on-year (YoY) terms in Q4 FY2017.

Full Story >>

New Delhi [India], May 25 (ANI): Alibaba Mobile Business Group on Thursday announced appointment of Young Li as Head of International Business Department.

Full Story >>

New Delhi [India], May 25 (ANI): JobsForHer (JFH), an online connecting portal that enables women on a professional break to restart their careers and achieve their full potential, announces the launch of its second roadshow.

Full Story >>

Aye Finance raises USD 8 mn from Blue Orchard

Updated: May 25, 2017 13:09 IST     

New Delhi [India], May 25 (ANI): Non-banking finance company (NBFC) committed to transforming micro and small enterprise financing in India Aye Finance has announced raising USD eight million from Blue Orchard, a leading global impact investment manager.

Full Story >>

New Delhi [India], May 25 (ANI-BusinessWireIndia): International Career and College Counseling (IC3) Conference has announced the second edition of the Annual Conference, that will be held in New Delhi on August 30 and 31 2017 at JW Marriott, Aerocity.

Full Story >>

Chennai, (Tamil Nadu), [India], May 25 (ANI-NewsVoir): MindHour, one of the fastest growing Edu-tech startup based out of Kolkata takes a step ahead and excited to launch its exclusive products in Tamil Nadu to touch the lives of school going children of class 6-10, ICSE and CBSE boards.

Full Story >>

Taxmann recognised as GST Suvidha Provider by Govt. of India

Updated: May 25, 2017 10:40 IST     

New Delhi [India], May 25 (ANI): Leading publisher of tax and corporate laws in India Taxmann.com has announced its recognition as the Goods and Services Tax Suvidha Provider (GSP) by the Government of India.

Full Story >>

New Delhi [India], May 25 (ANI-NewsVoir): Shardul Amarchand Mangaldas announced today that Shuva Mandal, National Practice Head of Corporate, M&A and Private Equity at SAM & Co., will be joining the USD 100b TATA Group as its Group General Counsel. He will be part of N. Chandrasekaran's special team that will assist in transforming the TATA Group.

Full Story >>

New Delhi [India], May 25 (ANI-NewsVoir): Excelity Global, India and Asia Pacific's largest payroll service provider has announced the launch of ezpayroll, a SaaS based payroll solution specifically targeted at SMEs and start-ups in India. Priced from Rs. 9.99, ezpayroll addresses the entire gamut of modern and complex payroll needs of SMEs to ease the administrative burdens associated with payroll processing, government-related compliance and scaling up with growing needs while at the same time providing employees with Tax saving options.

Full Story >>

Aviva Life Insurance Bags 'Product of the Year 2017'

Updated: May 24, 2017 20:42 IST     

New Delhi [India], May 24 (ANI-Businesswire India): Aviva Heart Care has been voted as Product of the Year 2017, for product innovation in the insurance category.

Full Story >>

Union Cabinet scraps FIPB

Updated: May 24, 2017 19:07 IST     

New Delhi [India], May 24(ANI): The Union Cabinet on Monday abolished the 25 year old Foreign Investment Promotion Board (FIPB) that oversees Foreign Direct Investment proposals requiring the government's approval.

Full Story >>

Studying bottom of pyramid banking habits

Updated: May 24, 2017 18:40 IST     

New Delhi [India], May 24 (ANI-Businesswire India): T he Institute of Rural Management Anand (IRMA), along with Grameen Foundation India, recently concluded a study entitled "Scaling Digital Financial Services: Research and Innovation". Aimed at gauging savings and banking habits of the Bottom of the Pyramid (BoP) populace - both rural and urban - the study threw up some interesting revelations.

Full Story >>

New Delhi [India], May 24 (ANI): Income Tax Directorates of Investigation have identified more than 400 benami transactions up to 23 May, 2017.

Full Story >>

BI Worldwide India wins big at the 31st MAA worldwide globes

Updated: May 24, 2017 16:56 IST     

New Delhi [India], May 24 (ANI-Businesswire India): BI WORLDWIDE India, a global leader in delivering technology-enabled engagement and loyalty solutions, has won the Bronze award in the 'Best Business to Business or Trade Marketing Campaign' at the 2016 MAA Worldwide Globes.

Full Story >>

Uttarakhand/Noida, Uttar Pradesh, [India], May 24 (ANI- Business WireIndia): CETPA Infotech, one of the most preferred technical and industrial training companies in the country, offering multi-location training solutions, expert training that is tailored to the requirements of students, corporate and colleges, and virtual training technologies, has announced its updated list of training programmes for this summer.

Full Story >>

New Delhi [India], May 23 (ANI): Largest fertiliser cooperative IFFCO on Tuesday announced its collaboration with Bank of Baroda to launch its co-branded debit card for farmers at a card distribution ceremony organized at their corporate office in New Delhi.

Full Story >>

New Delhi [India], May 23 (ANI): Indian markets are growing at a rapid pace, involving new stakeholders whom until a few years ago did not have any visible and significant presence as far as supply chain space was concerned.

Full Story >>

New Delhi [India], May 23 (ANI-NewsVoir): Adding a new strength to Khadi India's fashion power-house, Aditya Birla Fashion and Retail Ltd. and Khadi and Village Industries Commission, Ministry of MSME, Government of India today announced a strategic collaboration to strengthen the synergies between the two iconic Indian brands.

Full Story >>