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accounting and reporting systems prevention and detection of frauds reporting cannot be considered
since the early days of corporate and errors, the accuracy and com- effective if one or more material
history. Earlier, it was guided by the pleteness of the accounting records, weaknesses exist, to form a basis
definition of SAP 6 in the following and the timely preparation of reliable for expressing an opinion, the
words (Gupta, 1998): financial information. auditor must plan and perform
It is “the plan of organisation We have already given some of the audit to obtain appropriate
and all the methods and procedures the reasons for introduction of the evidence that is sufficient to
adopted by the management of term “internal financial controls” obtain reasonable assurance
an entity to assist in achieving earlier (Section 2). about whether the material
management’s objective of (b) Guidance Note issued by the ICAI: weaknesses exist as of the
ensuring, as far as practicable, the balance sheet date. A significant
orderly and efficient conduct of The Institute of Chartered deficiency or material weakness
its business, including adherence Accountants of India (ICAI) issued a in internal financial controls
to management policies, the Guidance Note on IFC in November, over financial reporting may exist
safeguarding of assets, prevention 2014. It was revised and issued even when financial statements
and detection of fraud and errors, on 16th September, 2015. Section are not materially misstated.
the accuracy and completeness IV of the Guidance Note deals 71. The auditor should use the
of the accounting records, and with audit of IFC over Financial same system of internal financial
the timely preparation of reliable Reporting (Clauses 67 to 165). controls over financial reporting
financial information. The system This regulation has been designed to perform his or her audit
of internal control extends beyond based on the Sarbanes Oxley Act – of internal financial controls
those matters which relate directly Internal Control Section. KPMG in over financial reporting as
to the functions of the accounting India also issued in 2016 Internal management uses for its annual
system.” Financial Control Perspectives. evaluation of the adequacy and
In most cases, therefore, internal Some of the important points effectiveness of the company’s
control was an essential operating of ICAI Guidance Note are quoted internal financial controls.
system. Internal audit has not below: 73. In a combined audit of
been made compulsory for all 67.This guidance provides direction internal financial controls
organisations. But in big companies, that applies when an auditor over financial reporting and
particularly the listed ones, internal is required to report under financial statements, the auditor
audit is required to be done. This has Clause (i) of Sub-section 3 of should design his or her testing
its impact on the statutory audit. Section 143 of the 2013 Act of controls to accomplish
But the Companies Act, 2013 on whether the company has in the objectives of both audits
introduced internal financial place adequate internal financial simultaneously:
controls by replacing the term controls over financial reporting To obtain sufficient evidence to
“internal control”. and the operating effectiveness of support the auditor’s opinion on
Interestingly, the explanation such controls. internal financial controls over
given after sub-section (5)(e) of 68. Effective internal financial financial reporting as of year-
Section 134 of the Act of 2013 controls over financial reporting end.
in respect of Internal Financial provide reasonable assurance
Controls appears almost the same. regarding the reliability Some portions of this Guidance
It is given below: of financial reporting and Note are reproduced from Auditing
Explanation- For the purpose of this the preparation of financial Standard (AS) 5, An Audit of
clause, the term “internal financial statements for external Internal Control over Financing
controls” means the policies and purposes. If one or more material Reporting.
procedures adopted by the company weaknesses exist, the company’s
for ensuring the orderly and efficient internal financial controls cannot Interrelationship among ERM, IFC,
conduct of its business, including be considered effective. FS and Value Maximisation
adherence to company’s policies, 69. Because a company’s internal This interrelationship can be
the safeguarding of its assets, the financial controls over financial summed up in the following steps:

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