The 2013 Companies Act marks a major step towards raising the bar on corporate governance in India. The Companies Act has re-emphasised the importance of a robust internal controls environment by introducing the term ‘Internal Financial Controls’, and by casting specific responsibilities on the Board, Audit committee, Management as well as the Auditors.
Internal Financial Controls Framework
Internal Financial Controls Framework (IFC) has been developed keeping in mind the requirements of the Companies Act, 2013. This framework focuses on financial controls’ effectiveness through a continuous cycle of self-assessment and independent credence based on various internal financial control elements.
Internal Financial Controls Framework considers a holistic approach by focusing on two levels i.e.
The framework and approach is in alignment with globally accepted guidelines such as COSO 2013.
Internal Financial Controls – Applicability on Private Limited Companies
As per provisions of Section 143(3)(i) of companies Act, The Auditor Report shall state whether the Company has adequate internal financial controls system in place and the operating effectiveness of such controls.
MCA vide its notification dated 13th June 2017 (G.S.R. 583(E)) amended the notification of the Government of India, In the ministry of corporate of affair, vide no G.S.R. 464(E) dated 05th June 2015 providing exemption from Internal Financial Controls to following private companies:
Which is one person Company (OPC) or a Small Company; or
Which has turnover less than Rs. 50 Crores as per latest audited financial statement or which has aggregate borrowings from banks or financial institutions or any body corporate at any point of time during the financial year less then Rs. 25 Crore.
The above exemption shall be applicable to a private company which has not committed a default in filing its financial statements under section 137 of the Companies Act 2013 or annual return under section 92 of CA 2013 with the Registrar.