In case the question, ‘what is internal control over financial reporting?’ is something you have on your mind right now, then you have come to the right place. In today’s highly dynamic market, internal financial controls are essential for all organizations and companies. Why? Because with the help of internal audit controls and ICFR audits, you can ensure all your resources are being utilized instead of getting wasted or poorly allocated. You can analyze, enhance, and protect your financial resources with the help of internal financial controls from a scam, wastage, and incompetent allocation.

Thus, to explain internal financial controls or ICFR audits in simple words, you can say that internal financial controls are the practices or approaches by which any organization can administer and control the direction, delivery, and usage of its financial resources through the ICFR audits. The financial resources are at the very core of management and operational efficiency in an organization. Thus, internal financial controls are vital for the development and growth of the business. To give you a clearer idea about what is internal control over financial reporting, here are two types of internal financial controls:

Preventative Controls 

Preventative controls, as the name suggests, are internal audit controls that prevent any mismanagement of financial resources. They recognize the potentials and probabilities of a fraud or a mistake in advance. The ICFR audit is responsible for initiating separation of duties, ensuring proper circulation of control and authority within the organization, and, most significantly, preventative internal financial controls are responsible for limiting the physical access to inventory, cash, equipment and other valued assets. In addition, these internal control procedures ensure proper approval of invoices and confirmation of expenses before any sanction or repayment.

Detective Controls 

Detective internal audit controls include practices and procedures that are intended to point out or recognize the items or actions that have been missed from the first line of defence. These internal financial controls and audits are essential because they allow organizations and businesses to avoid the duplication of errors and safeguard smooth workflow and communication flow within the organization. The most critical activity in this type of internal control is the settlement, assessment, and drafting of corrective actions to avoid material differences in the organization. Besides, detective controls also comprise external audits done by accounting firms or chartered accountants and internal audits of assets.

Internal Control Over Financial Reporting Applicability For Private Limited Companies

Internal Financial Controls (IFC) are defined under Section 134(5)(e) of the Companies Act 2013 as the policies and procedures accepted by the companies for making sure the systematic conduct of its business, together with compliance with the company policies, safeguarding of its assets prevention & deduction of frauds and mistakes precision & extensiveness of accounting archives and timely preparation of dependable financial data.

Section 134(5)(e) of the Companies Act,2013 mentions the internal control over financial reporting applicability for the following people:

• Directors, to mention in their Director’s accountability statement & Board’s Report, if they had put down acceptable and efficient internal financial controls for the company to follow.
• Auditors, to furthermore present a view on whether or not an organization has a satisfactory internal financial controls system in place and the operating effectiveness of such controls. This should be in addition to the predominant audit opinion on financial statements.

Internal financial controls over financial reporting refer to as the process intended to deliver reasonable assurance about the dependability of financial reporting and the preparation of financial statements for external purposes following the generally recognized accounting principles.

Advantages

The 2013 Act aims to bring into line corporate governance and financial reporting principles with global best practices by putting more oversight and liability on the Board and Audit Committee regarding internal financial controls. Some of the many advantages that companies will cherish with appropriate and efficient internal financial controls include:

• Senior Management Accountability 
• Better internal financial controls over the financial reporting procedure
• Improved stockholder confidence in the actions of the company and the financial reporting progression
• Inspiring a culture of accountability and transparency in the firm
• Trickling back on operational management accountability
• Developments in the financial reporting and financial controls of the Board, Audit Committee, and senior management
• More precise, detailed financial statements
• Make IFC audits and internal financial controls over financial reporting highly detailed
• Internal financial controls also prove vital as they help gain values in the form of:

Independent review of crucial business procedures

Identification of new opportunities for operational developments

Enhanced CEO / CFO credentials help

An improved atmosphere of regulation, thereby minimalizing risk

Better information about the hazards of intrinsic and remaining nature in internal controls.

How Partnering With TRC Corporate Consulting Can Help? 

When you team with an efficient consultancy like TRC Corporate Consulting, you can rest assured about all your financial audits. We have consultants qualified to deliver excellent services by producing strategies and performing audits based on their years of on-field experience with diverse clients. Thus, joining hands with us can help you:

• Come up with a single accounting method across an organization
• Eliminate non-value-added events in the functions of finance and decrease complexities
• Make certain that subsidiaries are sustaining ownership procedures and account maps
• Save costs with quicker methods

Choose TRC Corporate Consulting For Internal Financial Controls? 

Choose TRC Corporate Consulting’s effective services and solutions to unravel the full potential of your business by minimizing the risk of fraud, eradicating surprises in financial statements, and encouraging long-term sustained achievement for your business in today’s unpredictable market conditions. So, collaborate with TRC Corporate Consulting and guarantee operative internal financial controls over financial reporting and internal audit.

Have questions? Contact our team for a quick response!