Assessment and reporting of internal financial controls over financial reporting is a vital responsibility of the auditor. The Companies Act, 2013 introduced Section 143(3)(i) which requires statutory auditors of companies (other than the exempted class of companies) to report on the internal financial controls over the financial reporting of companies. Globally, an auditor’s reporting on internal controls is together with the reporting on the financial statements and such internal controls reported upon relate to only internal controls over financial reporting. For example, in the USA, Section 404 of the Sarbanes Oxley Act of 2002, prescribes that the registered public accounting firm (auditor) of the specified class of issuers (companies) shall, in addition to the attestation of the financial statements, also attest the internal controls over financial reporting. The objective of Internal Financial Control (IFC) testing is to assist the management in evaluating and testing the effectiveness of financial controls that are in place to mitigate the risks faced by the Company and thereby achieve its business objectives.
The Institute of Chartered Accountants of India (ICAI) has issued Guidance Note on the Audit of Internal Financial Controls over Financial Reporting (‘Guidance Note’). The Guidance Note covers aspects such as the scope of reporting on the IFC, essential components of internal controls, technical and implementation guidance on th
