2016.03.08_IFC.pdf - Internal Financial Control(IFC...

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Internal Financial Control (IFC)& Internal Financial Controls over Financial Reporting (IFCoFR) Origin of IFC INTERNAL FINANCE CONTROL The first significant focus on internal control certification related to financial reporting was the Sarbanes Oxley Act of 2002 (SOX 404) Publically listed companies in the UK are required to follow the “Turnbull Guidance on Internal Control” which sets out the best practices for internal controls COSO Framework The UK Corporate Governance Code Arrival in India through ICAI Guidance Note issued in November 2014 New Guidance Note released in September 2015 provides the necessary criteria for IFCoFR for companies 2
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INTERNAL FINANCE CONTROL Introduction to Internal Financial Control (IFC) Internal Financial controls over Financial Reporting (IFCoFR) Fraud Prevention Operational Controls IFC As per Section 134 of the Companies Act, 2013, the term Internal Financial Controls means the policies & procedures adopted by the company for ensuring: Orderly and efficient conduct of its business Safeguarding of its assets Prevention and detection of frauds & errors Accuracy and completeness of the accounting records Timely preparation of reliable financial information Components : Example : Realisation of Sales is correctly recorded in Financial Statements Unauthorised entries/ changes in Books of Accounts/ Price Master Discounts on sale as per Company Policy 3 INTERNAL FINANCE CONTROL Introduction to Internal Financial Control over Financial Reporting (IFCoFR) Maintenance of Financial records Safeguarding of the assets of the Company Authorisation of transactions in accordance with GAAP IFCoFR As per Section 143 of the Companies Act, 2013, the term Internal Financial Control over Financial Reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statement Maintenance of Records Reasonable assurance that transactions recorded Prevention or timely detection of unauthorised acquisition, use or disposition of Company’s assets Components : 4
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Background INTERNAL FINANCE CONTROL Section 134 Rule 8 Section 177 Section 143 Director’s Responsibility Statement Auditor Report Audit Committee Board Report In the case of a listed company, the Director’s Responsibility states that directors, have laid down IFC to be followed by the company and that such controls are adequate and operating effectively The Auditor’s Report should state whether the company has adequate IFC system in place and the operating effectiveness of such controls Audit committee may call for comments of auditors about internal control systems before their submission to the Board and may also discuss any related issues with the internal and statutory auditors and the management of the company Every Company to state the details in respect of adequacy of IFC with reference to financial statements Schedule IV Independent Directors The Independent Directors should satisfy themselves on the integrity of financial information and
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