ALL INDIA CA STUDENTS’ CONFERENCE
ON 16TH & 17TH DECEMBER,2016
ERNAKULAM, KOCHI
TOPIC
REPORTING ON
INTERNAL FINANCIAL
CONTROLS
OF COMPANIES 1
What are IFCs??
Orderly and Prevention & Accuracy & Timely preparation
Safeguarding of
efficient conduct of Detection of fraud Completeness of of reliable financial
assets
business & errors Accounting Records information
As per
companies
2
What is the Objective of IFC?
The primary objective is to :
Identify opportunities for Improvement
Set up a benchmark
Enhance the reliability of FS
Increase efficiency in operations
Prevention and detection of fraud
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INTERNAL CONTROL
OVER FINANCIAL
REPORTING
OPERATIONAL INTERNAL
CONTROLREPORTING CONTROL
FRAUD PREVENTION
REPORTING
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Internal Fraud Internal
control over Operational
control prevention Financial
financial
reporting Control
(ICFR)
• Sales Correct Access of
reporting dealer control
• Revenue selection as rights
recognition per Pricing +
• Correct approved discount
disclosure guidelines Incentives
What are IFCR?
As per the GN on Audit of Internal Financial
Controls Over Financial Reporting (Sept 2015):
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 GAAP.
6
ICFR are those policies and procedures which ensure
that Accounting is:
Relevant
In accordance with Ind AS
Authorized
Timely detection of Fraud
7
How to establish effective IFC?
Follow a Systematic and Risk oriented approach.
Risk & Controls are positively related. Ensure risky
areas have stronger controls in place and no excessive
controls in less risky areas.
RISK
CONTROL
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REPORTING RESPONSIBILITY
ON IFC: What does the Statute
say?
Sec 149(8) and
Sec 134(5)(e) Rule 8(5) Sec 143(3)(i)
Sch IV
• Directors’ • ID Code • Board Report • Auditor’s
Responsibility • Companies • All Companies Report
• Listed having IDs
Companies
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• It requires the Board of Directors to confirm that the
Internal Financial Controls are adequate and operating
Sec 134(5)(e) effectively.
• This applies to all the Listed Companies.
• IDs to satisfy themselves on the integrity of financial
Sec 149(8) and information and that financial control are robust and
defensible.
Sch IV • This applies to all companies having Independent
Directors
Rule 8(5) of • It requires Board report to state the details in respect
of the adequacy of IFC with reference to the financial
Companies statements.
(Accounts) Rules • This is applicable to all companies.
• This requires that the Auditors of the company to
report if the company has adequate Internal Financial
Sec 143(3)(i) System and that they are operating effectively.
• This section is again applicable to all companies.
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Auditor's Top Down Approach
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What are the assertions to look for
during Audit of IFC?
C : Completeness
E : Existence
A : Accuracy
V : Valuation
O : Obligation
P : Presentation
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Basis of Audit Opinion?
As per the guidance note, auditors will have to issue a
qualified or an adverse opinion on ICFR if ‘material
weaknesses’ in the company’s ICFR are identified as
part of their audit.
Material weakness is a deficiency, or a combination of
deficiencies, in ICFR, such that there is a reasonable
possibility that a material misstatement of the
company’s annual or interim financial statements will
not be prevented or detected on a timely basis.
13
Indicators of Material
Weaknesses in IFCs?
Identification of fraud, whether or not material, on
the part of senior management.
Errors observed in previously issued FS in the
current FY.
Identification by the auditor of a material
misstatement that would not have been detected by the
company’s IFC.
Ineffective oversight of the company’s external
financial reporting and internal financial controls. 14
Audit Opinion?
Based on evaluation of deficiencies if auditor
concludes that deficiencies individually or in common
result in one or more material weaknesses he need to
consider to give an opinion that is –
Qualified
Adverse or,
Disclaimer of Opinion.
15
ICs in Life?
Duty- Know what to do
Devotion- Love what you do
Discipline- Have a systematic approach
Discrimination- Question your conscience
Dedication- Do it with complete dedication
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Thank You
Be Happy today & Always remain so..!!
Presented By:
BHAIRI MEENAKSHI
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