Page 60 - MA - May 2017

Companies Act

COMPANIES ACT
O world and provided strong but we only touch upon a few

encouragement to politician and among the followings:
regulators to develop an effective  What is IFC and what are its
objectives?
monitoring mechanism for
enhanced corporate governance  What are its attributes? How
and risk management techniques
is it expected to promote better
ne of the
Act in 2002, Dodd-Frank Wall  Are there strategic, operational
and people-oriented challenges?
significant developments in India (e.g. in the USA, Sarbanes-Oxly corporate governance?
Street Reform, and Consumer
in 2012 was the enactment Protection Act in 2010). If so, how to overcome them?
of Companies Act, 2013. It is  In many countries, the regulators  Are the developments in India
a comprehensive but concise introduced measures to revamp in this respect in line with
legislation (470 sections as against internal control system (ICS) international trends?
658 in the earlier Act) and is to reduce, among others, risk Are there interrelationships
considered to be forward looking of operations and enhance among internal financial
in that the Central Government compliance with general controls, ERM and financial
enjoys the power to make rules, etc. principles of management and statements leading to high
through delegated legislation. Many accounting system. To evaluate quality reporting and promoting
of its provisions are internationally the role of corporate boards value maximisation objective of
competitive. in implementing the ERM and the firm?
The Act has introduced many new understand the organisational  What are potential areas of
provisions in line with international links among mechanisms, one research in IFC?
developments. In this article, we has therefore to examine the
consider one such area. Included interaction. Legal Provisions
in this category are Enterprise Risk  Professional bodies also highly (a) Provisions in the Companies Act,
Management (ERM) and Internal recommend that all companies 2013:
Financial Controls (IFC), among should develop their own policies
others. While there have been and a framework for ERM,and A mandatory provision [section
some publications on ERM (Jaggi, introduce effective and efficient 134(5)(e)] has been introduced in
2015; Banerjee, 2016), there is IFCs that will enable the top the Companies Act for the directors
good scope for contributing to the management to keep a watch to lay down internal financial
existing literature on IFC in view of over different aspects of corporate controls for compliance by the
its importance and Guidance Notes management. company and (to report that) such
issued by the Institute of Chartered  In India, the Companies Act, IFCs are “adequate and effective”.
Accountants of India (ICAI and 2013 requires, in the context Explanation to sub-section (e) gives
KPMG in India). Hence, an attempt of preparation and presentation the purport of IFC.
is made to share some of the aspects of Financial Statements, It may be further stated that
of IFC which may provoke research development and implementation Directors’ Responsibility Statement
and publication. of a risk management policy and is part of Financial Statements
operation of effective Internal which are subject to audit by an
Backdrop Financial Controls by its Board independent auditor.
Why and how Internal Financial of Directors for a listed company. Internal Financial Controls (IFC)
Controls became an important are essential as tools for enhancing
issue throughout the world? The The Issues Involved effectiveness of Enterprise Risk
following few points give some Internal Financial Control (IFC) is Management (ERM). The Directors’
indications. a fundamental element of corporate Responsibility Statement has to
management. The management is state that IFC “are adequate and
 Financial crisis in the beginning of responsible for effective and efficient operating effectively”.
the century affected the business operation of IFC. Therefore, there Internal Control has been
environment throughout the are many issues that concern IFC operating as part and parcel of

60 The Management Accountant l May 2017 www.icmai.in