Applicability of Internal Financial Controls (IFC)
Meaning of internal financial controls
Section 134(5) of the Companies Act explains the meaning of internal financial controls as, “the policies and procedures adopted by the company for ensuring
- Orderly and efficient conduct of its business, including adherence to company’s policies,
- Safeguarding of its assets,
- Prevention and detection of frauds and errors,
- Accuracy and completeness of the accounting records, and
- Timely preparation of reliable financial information.”
Exemption to some Private Limited Companies from IFC applicability
Ministry of Corporate Affairs (MCA) vide notification has exempted the following companies from reporting over internal financial controls-
(i) One-person company (OPC).
(ii) A private limited company having a turnover of less than Rs 50 crores as per latest audited financial statement or having aggregate borrowings from banks or financial institutions or body corporate at any point of time during the financial year less than Rs 25 crore.
In simple words, IFC applicable to private companies wherein turnover is > 50 crore or outstanding loans & borrowings from banks > 25 crore.
Further, the private companies will be exempted from IFC Applicability only if it has not committed a default in filing their financial statements under section 137 of the Companies Act 2013 or annual return under section 92 of Act with the Registrar.
Strengthen internal financial controls by thoroughly checking various controls:
- Documentation & revision of controls
- Testing of controls
- Remedial planning & recommendations
- Remediation of control weaknesses
- Implementation of control framework
- Project management/Outsourcing
