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To comprehend the intricacy of an internal financial control applicable company, we must first examine its origins and evolution. The establishment of Internal Financial Controls (IFC) in the Companies Act 2013 reflects this trend. Indian financial reporting rules are being harmonized with foreign trends. The pattern highlights two key developments in international business: governance and technology. As organizations adopt technology at a faster rate, they must rely on controls more and more, while boards must guarantee that a robust control environment is built and deployed to meet business goals.
To this end, the Companies Act of 2013 has imposed specific responsibilities on the Board of Directors concerning the company’s internal financial controls, requiring the board to state that it has established internal financial controls for the company to follow, and that these internal financial controls are adequate and operating effectively.
Internal financial control applicability companies are expected to build frameworks that provide guarantees regarding the soundness of governance and internal controls as part of internal financial control applicability.
- Management of publicly traded companies would be required to identify and document financial and non-financial controls (referred to in the act as policies and procedures for the orderly and efficient conduct of business), assure the boards of directors of the adequacy of such controls, and demonstrate the results of testing the operating effectiveness of such controls.
- The Directors’ Report for FY 2014-15 would have to disclose the adequacy of financial statement controls for unlisted enterprises. Director Responsibility Statements detailing what actions organizations have done to establish Internal Financial Controls will be needed in annual reports for the fiscal year FY 14-15.
- Furthermore, starting in FY 2015-16, statutory auditors will be expected to offer an opinion on the operating effectiveness of financial reporting controls for both public and private enterprises.
Internal financial control has been made a board and individual director’s responsibility, as has been the case with many other essential elements of the new Act. More board and director engagement are required, as well as a review of a company’s IFC framework and a decision on whether such frameworks are “adequate” and “effective.” Many organizations are already evaluating the impact of these new regulations on their operations and processes, particularly the financial reporting process.
Consult the Experts of CAC We hope you now have a better understanding of what an “internal financial control applicable companies” is and can make an informed decision. If you believe you have what it takes to take your company to the next level, We are the solution for you. At CAC The Corporate Analyst & Consultant Pvt Ltd, we assist you to shine and prosper without the burden of legal trouble or government obligations tasks. Take your company to the next level by consulting with CAC’s specialists.