Internal financial control (IFC) reporting as per section 143(3)(i) of the Companies Act, 2013
Section 143(3)(i) of the Companies Act, 2013, pertains to the statutory auditor’s responsibility to include a statement in their audit report regarding the adequacy and effectiveness of the company’s internal financial controls (IFC).
The section reads as follows:
“(3) The auditor’s report shall also include his opinion on the following matters, namely:—
(i) whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls;”
Section 143(3)(i) of Companies Act, 2013
As per provisions of Section 143(3)(i) of the Companies Act, 2013, the Auditor Report shall state whether the Company has an adequate internal financial controls system in place and the operating effectiveness of such controls.
However, MCA vide its notification dated 13th June 2017 provides exemption from Internal Financial Controls to the following private companies:
- One-person Company (OPC) or a Small Company; or
- which has a turnover of less than Rs. 50 Crores as per the 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 than Rs. 25 Crore.
Key Provisions of Section 143(3)(i) of Companies Act
Here are the key points related to Section 143(3)(i):
This provision is applicable to all companies registered under the Companies Act, 2013, including public and private companies, as well as government companies.
Meaning of Internal Financial Controls (IFC)
Internal financial controls refer to the policies and procedures put in place by a company to ensure the accuracy and completeness of its financial records, safeguard its assets, and prevent and detect fraud.
These controls help in providing reasonable assurance about the reliability of financial reporting and the preparation of financial statements in compliance with applicable laws and regulations.
Responsibility of the Auditor for IFC
The statutory auditor is responsible for evaluating the company’s internal financial controls system. They should assess whether the company has established adequate internal financial controls to ensure the reliability of financial reporting and the preparation of financial statements.
The auditor’s role is to express an opinion on the adequacy and operating effectiveness of these controls.
In addition to assessing the adequacy of internal financial controls, the auditor is also required to evaluate the operating effectiveness of these controls. It means the auditor should verify whether these controls are implemented and functioning as intended.
Based on their evaluation, the auditor should provide their opinion in the audit report. If they find that the company has adequate internal financial controls, and these controls are operating effectively, they will express a positive opinion.
Conversely, if there are deficiencies or weaknesses in the internal financial controls, the auditor will express an adverse or qualified opinion.
The auditor’s opinion on the adequacy and operating effectiveness of internal financial controls should be clearly stated in the audit report. The opinion should be unambiguous and easy to understand by the users of the financial statements.