Internal Financial Controls

Control design to manage, operate and excel the internal monetary control on the organization in order to enhance the transparency and effectiveness of finance utilization.

Burst of Satyam Scandal of 2009 in India gives thinking and thought of failure of existing regulatory and legal framework dealing with Board of Directors and auditors of company, as a result subject to international finance control mechanism regulator mandate internal financial control under section 134(5) of Companies Act, 2013 to ensure the financial governance in an organization.

Internal financial controls are defined in the explanation to Section 134(5)(e) of the companies Act 2013 as the policies and procedures adopted by the company for ensuring

• a)the orderly and efficient conduct of its business, including adherence to company police
• b)safeguarding of its assets
• c)Prevention & deduction of frauds and errors
• d)Accuracy & completeness of accounting records and
• e)Timely preparation of reliable financial information

On reading of the above definition, it is clear that intent of the legislation is to have control framework beyond financial reporting controls. 

Framework of IFC

Management and Auditors need some set of benchmarks to assess the adequacy and effectiveness of IFC. Without these benchmarks assessment will be subjective without any guiding posts. The bench marks are called as framework. Like the Accounting Standards which are used the framework to evaluate the financial statements, The frame work of IFC is given by Standard on Auditing (SA) 315 issued by the Institute of Chartered Accountants of India (ICAI). The frame work explains the following components.

• Control Environment
• Risk Assessment
• Control Activities
• Information system and communication
• Monitoring

The introduction of IFC regulations has definitely given us the chance to improve the internal control environment in most organisations by drawing the attention of Board of Directors and auditors to this neglected concept earlier.

It has been 2 years since the IFC regulations has been introduced, now it is our responsibility as the management and auditors to look at it from a fresh perspective beyond compliance and use it as an opportunity to promote risk management and governance process within their organisations.