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With the rising complexity of commercial transactions, accuracy and transparency have become paramount. Internal Control Over Financial Reporting (ICFR) and Internal Financial Control (IFC) play a major role in ensuring the reliability of financial records. Let’s understand the nuances of the Internal Control Over Financial Reporting (ICFR Applicability) and Internal Financial Control (IFC) in detail.
ICFR Audit are more specific rules within the set of IFC that focus on the financial reporting
Some of the key differences between IFC and ICFR include the following:
Following are the legal provisions that govern the IFC Applicability and ICFR Applicability in the Indian legal landscape:
| Section /Rule | Area | Regulatory Requirement | Applicable on |
| Section 134(5) | Director Responsibility Statement | It should state that the directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and are operating effectively. | Listed Companies |
| Section 177 | Audit Committee | The audit committee shall conduct the evaluation of internal financial controls and risk management systems. Further, it should call upon the auditors to comment on the IFC. | Companies having audit committees |
| Section 149(8) read with Schedule IV | Independent Directors | Independent directors should satisfy themselves as to the integrity of the financial information and whether the financial controls and the risk management systems are defensible and robust. | Companies having independent directors |
| Section 143(3)(i) | Auditor’s Report | The auditor’s report shall state whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls. | All companies |
| Rule 8(5) of Companies (Accounts) Rules, 2014 | Board of Directors Report | The Director’s report shall state the adequacy of internal financial controls with regard to the financial statements. | All companies |
| Clause 49 of the Listing Agreement | CEO / CFO Certification |
The CEO and the CFO shall certify to the board the following matters: · They have accepted the responsibility for the establishment and maintenance of internal controls for financial reporting. · The effectiveness of the internal control systems that pertain to financial reporting has been evaluated by them. · The deficiencies in the design and operation of such internal controls of which the CEO / CFO is aware have been communicated to the audit committee and auditors and necessary steps have been taken or proposed to be taken to rectify such deficiencies. · Necessary changes during the year pertaining to the internal control over financial reporting have been indicated to the audit committee and the auditor. · Significant frauds involving an employee or management having a significant role in the internal control system over the financial reporting of the company have also been indicated to the audit committee and the auditors. |
All the companies whose equity shares are listed on a recognized stock exchange except, · Companies with paid-up share capital not exceeding Rs. 10 crores and Net Worth not exceeding Rs. 25 crores. · Companies have their equity shares listed exclusively on SME and SME-ITP platforms. |
The application of IFC and ICFR compliances is important for the following reasons:
ASC Group is one of the leading professional firms in India with deep experience dealing with IFC and ICFR matters. Here’s how ASC Group helps businesses dealing with IFC and ICFR:
ASC Group has been a reliable partner in helping organizations build and improve their financial controls and reporting processes. This not only ensures enhanced transparency and reduced risks but also ensures compliance with the legal requirements. Contact the ASC Group now for more information.
Q: What are the key differences between IFC and ICFR?
A: IFC is a broad framework that takes into account internal controls while the ICFR specifically focuses on the accuracy of financial reporting.
Q: Who is required to comply with the requirements of IFC and ICFR?
A: IFC is mandatory for the listed companies i.e., companies whose shares are listed on any recognized stock exchange. Further, most companies are encouraged to comply with ICFR in order to ensure financial integrity.
| Requirement | Applicability | Public Listed | Paid-up Share Capital >= INR 10 Cr | Turnover >= INR 100 Cr | Loans, Borrowings >= INR 50 Cr | Others |
| Public Unlisted | ||||||
|
Director’s Responsibility Statement (Section 134) |
IFC | Yes | ||||
| Auditor Report (Section 143) | ICFR | Yes | Yes | Yes | Yes | Yes |
| Audit Committee (Section 177) | IFC | Yes | Yes | Yes | Yes | |
| Independent Directors (Schedule IV) | ICFR | Yes | Yes | Yes | Yes | |
| Rule 8(5)(viii) of the Companies Accounts) Rules, 2014 – BOD report - Financial Statements only (ICFR) –ALL** | ICFR | Yes | Yes | Yes | Yes | |
Other Companies Having:-
Q: How can businesses identify the potential risks in the case of financial reporting processes?
A: In order to identify the potential risks in relation to the financial reporting processes, businesses should conduct thorough risk assessments and implement IFC or ICFR. This not only enhances transparency but also mitigates potential risks.
Q: How does ASC Group assist businesses with IFC and ICFR compliances?
A: ASC Group is a reputed professional organisation that assists the businesses with identification of risks, thorough assessments and implementation of safeguards in order to ensure IFC and ICFR compliances.
Q: How do IFC measures benefit businesses in the long run?
A: Effective IFC measures help mitigate financial risks, promote transparency, enhance trust and ensure regulatory compliance. This contributes significantly to the long run success of any business.
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