The Companies Act, 2013 has introduced some new requirements relating to audits and reporting by the statutory auditors of companies. One of these requirements is given under Section 143(3)(i) of the Act which requires the statutory auditor to state in his audit report whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls. Here is Brief and simple explanation about IFC.

1. MORE THAN JUST COMPLIANCE..
INTERNAL FINANCIAL CONTROLS

2. 1
INTERNAL
FINANCIAL
CONTROL
MORE THAN JUST COMPLIANCE..
REQUIREMENTS AS PER THE COMPANIES
ACT, 2013
The Companies Act, 2013 has introduced many new reporting
requirements. One eminent requirement introduced is ‘Board to
confirm that internal financial controls are adequate and operating
effectively for the statutory auditors of companies. (Rule 8(5)(viii) of the
Companies (Accounts) Rules, 2014 )
Further, the Statutory Auditor to state in his audit report whether the
company has adequate internal financial controls system in place and
the operating effectiveness of such controls (Section 143(3)(i) of the
Act).
The scope for reporting on Internal Financial Controls is significantly
larger and wider than the reporting on internal controls under the
Companies (Auditor’s Report) Order, 2015 (“CARO”) for Auditors.
Under CARO, the reporting on internal controls is limited to the
adequacy of controls over purchase of inventory and fixed assets and
sale of goods and services. As such, The Board directors’ and Auditors
responsibility has increased as earlier Directors Reports and CARO,
did not require reporting on all controls relating to financial reporting
and also does not require reporting on the “adequacy and operating
effectiveness” of such controls.
To whom does this apply?
The guidance note clarifies that reporting on IFC by auditors will be
applicable to both listed and unlisted companies, including
small and one person companies.
MORE THAN
JUST
COMPLIANCE..
Well documented
SOPs and Control
Frameworks helps in
review and monitoring
the business processes
for revenue
opportunities, leakages
and Cost cutting
opportunities.
IFC shall result in
better management
resulting from review of
various automated and
manual controls
IFC shall help in
identification of
loopholes, if any in
SOPs. Standardization
of SOPs for Multi
location businesses.
Better Business
performance through
the Review and
Monitoring of IFCs

3. 2
ROLESAND RESPONSIBILITIES
When does this apply and for financial statements of which period?
The guidance note clarifies that auditors will have to report whether a company has an adequate ICFR
system in place and whether the same was operating effectively as at the balance sheet date of 31
March 2016. In practice, this will mean that when forming its audit opinion on ICFR, the auditor will
surely test transactions during the financial year ending on 31 March 2016.
Directors of “LISTED” Companies need to Statein “Directors Responsibility
Statement” that the Directors had laid down internal financial controls and the
same were adequate and operating effectively and CEO Needs to Certify it.
In case of “ALL” Companies Board of Directors’ Report to state the details in
respect of adequacy of internal financial controls with reference to the
financialstatementsManagement
Section 143(3)(i) of the Companies Act, 2013 requires the auditors of “ALL”
companies to state in his report whetherthe company has adequate internal
financial control system in place and the operating effectiveness of
suchcontrols. The auditor will have to modify its audit methodology to obtain
reasonable assurance on the adequacy ofinternal financial controls over
financial reporting and its operating effectiveness
Auditor
Schedule IV of the Companies Act, 2013 requires the Independent Directors of
the Company to satisfy themselves onthe integrity of financial information and
financial controls and also to ensure that the systems of risk managementare
robust and defensible
In. Director
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
controlsystems, scope of audit, their observations on internal control systems
and financial statements before submission ofthe same to the board. They may
also discuss any related issues with the internal auditors and the management
ofthe CompanyAdt Committee

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5. 4
How can WE assist you in your IFC implementation/identification?
 Identify and document the current a comprehensive Risk Management Framework
 Identify and document the current standard operating procedures (SOPs) including relevant
policies and guidelines
 Identify and document current internal controls framework covering both Entity Level Controls
and Process Controls for finance and accounts, business processes, compliance and IT
 Benchmark current controls against leading practices; IT controls, prevent v. detect, manual v.
automated
 Identification, documentation and review of current controls to reduce overall cost of control
while improving effectiveness
 Design and assist in implementation of new controls and delegation of authority, segregation of
duties etc.
GET ready, Get Started
For any queries on how can we assist you please contact us at:
CA Pritesh Ostwal
+91-95-03-390009
CA Rahul Mehta
+91-90-21-311803
CA Vaibhav Phatak
+91-86-98-877339
Email-
startup.ifc@gmail.com