In case the question, ‘what is internal control over financial reporting?’ is something you have on your mind right now, then you have come to the right place. In today’s highly dynamic market, internal financial controls are essential for all organizations and companies. Why? Because with the help of internal audit controls and ICFR audits, you can ensure all your resources are being utilized instead of getting wasted or poorly allocated. You can analyze, enhance, and protect your financial resources with the help of internal financial controls from a scam, wastage, and incompetent allocation.
Thus, to explain internal financial controls or ICFR audits in simple words, you can say that internal financial controls are the practices or approaches by which any organization can administer and control the direction, delivery, and usage of its financial resources through the ICFR audits. The financial resources are at the very core of management and operational efficiency in an organization. Thus, internal financial controls are vital for the development and growth of the business. To give you a clearer idea about what is internal control over financial reporting, here are two types of internal financial controls:
Preventative controls, as the name suggests, are internal audit controls that prevent any mismanagement of financial resources. They recognize the potentials and probabilities of a fraud or a mistake in advance. The ICFR audit is responsible for initiating separation of duties, ensuring proper circulation of control and authority within the organization, and, most significantly, preventative internal financial controls are responsible for limiting the physical access to inventory, cash, equipment and other valued assets. In addition, these internal control procedures ensure proper approval of invoices and confirmation of expenses before any sanction or repayment.
Detective internal audit controls include practices and procedures that are intended to point out or recognize the items or actions that have been missed from the first line of defence. These internal financial controls and audits are essential because they allow organizations and businesses to avoid the duplication of errors and safeguard smooth workflow and communication flow within the organization. The most critical activity in this type of internal control is the settlement, assessment, and drafting of corrective actions to avoid material differences in the organization. Besides, detective controls also comprise external audits done by accounting firms or chartered accountants and internal audits of assets.
Internal Financial Controls (IFC) are defined under Section 134(5)(e) of the Companies Act 2013 as the policies and procedures accepted by the companies for making sure the systematic conduct of its business, together with compliance with the company policies, safeguarding of its assets prevention & deduction of frauds and mistakes precision & extensiveness of accounting archives and timely preparation of dependable financial data.
Section 134(5)(e) of the Companies Act,2013 mentions the internal control over financial reporting applicability for the following people:
Internal financial controls over financial reporting refer to as the process intended to deliver reasonable assurance about the dependability of financial reporting and the preparation of financial statements for external purposes following the generally recognized accounting principles.
The 2013 Act aims to bring into line corporate governance and financial reporting principles with global best practices by putting more oversight and liability on the Board and Audit Committee regarding internal financial controls. Some of the many advantages that companies will cherish with appropriate and efficient internal financial controls include:
Independent review of crucial business procedures
Identification of new opportunities for operational developments
Enhanced CEO / CFO credentials help
An improved atmosphere of regulation, thereby minimalizing risk
Better information about the hazards of intrinsic and remaining nature in internal controls.
When you team with an efficient consultancy like TRC Corporate Consulting, you can rest assured about all your financial audits. We have consultants qualified to deliver excellent services by producing strategies and performing audits based on their years of on-field experience with diverse clients. Thus, joining hands with us can help you:
Choose TRC Corporate Consulting’s effective services and solutions to unravel the full potential of your business by minimizing the risk of fraud, eradicating surprises in financial statements, and encouraging long-term sustained achievement for your business in today’s unpredictable market conditions. So, collaborate with TRC Corporate Consulting and guarantee operative internal financial controls over financial reporting and internal audit.
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