Knm Assurance Services

By Author: KNM
Total Articles: 14
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INTERNAL CONTROL OVER FINANCIAL REPORTING
BACKGROUND
ICFR is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.
ICFR is a Preventive control tool that has the objective of preventing errors & frauds that could
result in a misstatement of the financial statements.


ICFR REQUIREMENTS: COMPANIES ACT, 2013

●Section 134(5)(e) of the Act requires the Board of Directors of listed company to state in
the Directors’ Responsibility Statement that the company has laid down internal
financial controls to be followed by the company and that such internal financial controls
are adequate and were operating effectively.

●Rule 8(5)(viii) requires the Board of Directors’ Report of all companies to state the
details in respect of adequacy of internal financial controls with reference to financial
statements. This Rule lays down the ...
... responsibility on Board of Directors of all
companies which covers private limited companies also.

●Reporting by Statutory Auditor: It is Auditor’s responsibility to state in Audit report
whether the company has adequate internal financial control system in place and the
operating effectiveness of such controls.


HOW IT IS BENEFICIAL APART FROM ROUTINE AUDITS?
●Provides an accurate and fair reflection of transactions and dispositions of the assets of the
company;

●Closer look over each department’s functioning and plug in leakages in system functioning;

●Whether an organization carried out effective authorization procedures in undertaking its
transactions;

●Provides an organization with cost optimization techniques necessary to maximize
profitability;

●It provides reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on
the financial statements;



●Effective ICFR provides reasonable assurance that corporate records are not intentionally or
unintentionally misstated.

●Provides the external auditors an independent source for relying on internal control system
framework of an organization

●With Covid-19 scenarios, evaluating impact of risks associated with remote work
arrangements and reduced reliance on entity’s internal controls, has taken significance.


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