Internal Financial Control (IFC) & Internal Control Over Financial Reporting (ICFR): How to Navigate?

Internal Financial Control (IFC) & Internal Control Over Financial Reporting (ICFR): How to Navigate?

ICFR Applicability | ICFR Audit | IFC Applicability | ASC Group

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.

Understanding ICFR Applicability and IFC Applicability as per the Indian Regulatory Environment

Internal Financial Control (IFC)

  • It is akin to a company-wide system to ensure checks and balances
  • IFC Audit is mandatory for all the listed companies in India
  • IFC Audit ensures that the overall operations of the company are in line with the regulatory requirements and are running efficiently. For instance, it is fruitful in determining that the purchases of the company are approved by the authorized personnel, safeguarding of the assets of the company etc.

Internal Controls Over Financial Reporting (ICFR Reporting)

ICFR Audit are more specific rules within the set of IFC that focus on the financial reporting

  • It is not mandatory to follow the ICFR as per the law. However, it is encouraged to follow the same by the companies.
  • The board of directors of the company are required to report on the controls over financial reporting in the company. Therefore, it is beneficial to have the ICFR practices in place.

Key Differences Between IFC and ICFR

Some of the key differences between IFC and ICFR include the following:

  • IFC is mandatory for listed companies while ICFR is not mandatory but recommendatory.
  • IFC overlooks the entire business control while the ICFR specifically focuses on the control over accuracy of the financial reporting.

Provisions Governing IFC Applicability and ICFR Applicability

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.

Why IFC and ICFR Compliance is Important in the Indian Business Environment?

The application of IFC and ICFR compliances is important for the following reasons:

  • Enhanced Transparency: The reporting associated with the IFC and ICFR enhances the transparency manifold. Checks and balances have been placed at each level, from the audit committee to the director’s report and then the auditor’s report. This also helps attract investors and partners.
  • Smoother Operations: The scope of IFC is not limited to just finances. It also helps ensure that everyday business is run smoothly and in line with the applicable laws and regulations. This can help save time and money in the long run.
  • Reduced Risks: IFC can help reduce risk significantly. It helps in the identification and prevention of financial problems before they happen. This saves the company from significant fraud and other costly repercussions.

How ASC Help with IFC and ICFR Audit?

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:

  • Identification of Risks: With years of experience, ASC Group is well-equipped to detect the potential risks and loopholes in your financial reporting processes. We help you identify the areas where the financial reporting processes are vulnerable followed by recommendations and effective strategies to mitigate those risks.
  • Building Safeguards: After the vulnerabilities are detected, what follows are the effective steps to bridge the gaps and create robust internal controls. ASC Group helps you establish strong safeguards to improve your financial processes. This ensures the elimination of loopholes and efficient systems for proper control and reporting.
  • Detailed Assessment: We conduct a detailed assessment of each and every aspect of your internal financial controls and reporting processes. This includes a thorough evaluation of the effectiveness and efficiency of your internal controls followed by tailored recommendations to improve the same.

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.

Frequently Asked Questions

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:-

  1. Turnover > 50 as per the last audit report
  2. Outstanding loans & Borrowings > INR 25 at any time during the current FY.

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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