It all started in October 2001 when, for six years in a row, one of the world’s leading companies listed by Fortune as ‘America’s Most Creative Company’ reported that it had incurred a net loss of USD 618 million for the third quarter and that it would decrease shareholder equity by USD 1.2 trillion. While it was assumed that this scam was an anomaly – at the time, another major telecommunications company announced an even greater fraud in 2002. It was an accounting scam with a larger sales restatement and a larger filing for bankruptcy.

Last revised in September 2002, the Forbes Corporate Scandal Sheet reports scores of companies falling victim to financial accounting fraud. The more recent incidents are those of a global financial services company that failed to report Repo 105 investor transactions in 2010, prominent information, communications, and technology firm that presented falsified records in 2009, and a secret loan dispute between a business and commercial bank in 2008. This pattern highlights the need for corporate governance to usher in a greater transparency system.         

It is against this context that in the United States, the Sarbanes-Oxley Act (SOX) was passed. The Turnbull Internal Control Guidelines for Listed Firms on the London Stock Exchange and the Japan Financial Instruments and Exchange Regulation (J-SOX) are related regulations for public companies. Establishing the proper internal financial controls gives greater certainty that an organization can meet its activity goals, internal control over financial reporting, and compliance.

The process of ‘Internal control over financial reporting’ has been in effect for a long time but has recently been important, as risk management has become much more important. It is necessary to create internal financial controls, whether an entity is large or small, public or private, to ensure that the policies, directions, and procedures placed in place by the board and management work well.

Efficient IFC Audit and internal financial controls, in our view, matter to a business in the following five critical ways:

• This guarantees precision in financial statements
• Internal financial controls ensure compliance with legislation and rules.
• It builds efficient and productive activities
• This makes for a peaceful night’s sleep, ensuring that the management team and stakeholders do not face threats because they comply with the requisite regulations.
• It makes money savings

Difficulties affecting businesses when developing a Compliance Policy for Financial Reporting 

Publicly traded companies must obey the rules laid down in the guidelines. The board of the company is solely responsible for internal financial controls and internal audit controls. Employees are responsible for following the board’s management and risk policies.

The best technique where the tone and objectives are set at the highest level is a top-down approach. In Internal Financial Controls Over Financial Reporting, all corporations, regardless of their scale, face the task of maintaining internal control. Some of these common challenges are:

1. Overkill Of Enforcement 

Most companies operate compliance programs in isolation to demonstrate compliance with particular laws/regulations, thus raising the total compliance expense.

2. Lack Of Resources

Companies frequently face a resource challenge in managing Internal Financial Controls Over Financial Reporting processes and achieving the required division of duties. Some also believe that unless a scam is detected, there is no segregation of duty issue.

3. Absence Of Management Resolve 

Many private companies believe that they do not need to invest in this sector because there is no legal requirement. There are also lapses in the current processes of IFC Audit and Internal Audit Controls. As management trains its energies to achieve business goals and priorities, the problem is likely to be side-lined.

In The Sense Of Outsourcing, Internal Controls On Financial Statements 

Businesses must choose to outsource and automate non-key finance processes, considering the importance of taking internal control over financial reporting. This will encourage standardization and allow businesses to gain better and quicker access to information, leading to cost savings.

Large companies with various procedures, corporate rules, account charts, and finance structures that operate in numerous finance environments consider the practice of outsourcing internal financial controls process as it can be difficult to handle.

How Partnering With TRC Corporate Consulting Helps? 

• Establish a single accounting approach across an organization as well as a core general ledger
• Eliminate non-value-added measures in the functions of finance and minimize complexity due to various business units
• Ensure that subsidiaries maintain ownership processes and account maps
• Enables cost savings due to slimmer and quicker procedures
• Establish and retain a Center of Excellence compliance that allows the company to enforce compliance as a BAU and not as a different mission or operation to be carried out.

TRC Corporate Consulting, A IFC Audit Specialist 

In order to ensure that any business process with a financial effect is tracked, there is an increased focus on the Internal Controls Over Financial Reporting and control system. TRC Corporate Consulting has the required expertise and willingness to work with clients in the finance and accounting space across the full range of processes.

Three levels of collaborations with the client include the following:

• Develop the entire Internal Control Over Financial Reporting system- This includes conducting risk evaluation at all levels and recommending controls that need to be established. To determine compliance maturity, an agency-level assessment is performed.
• Examination of the current internal control system- Our internal financial controls over financial reporting team performs a meticulous evaluation of an organization’s internal controls framework. All controls are analyzed in terms of design efficiency and overall efficiency with skilled process understanding and reporting. Each control that is established is checked by the team. Our IFC Audit team would suggest discontinuing it if a specific procedure is found to be redundant. This results in substantial benefits in terms of cost.
• To review the current risk management mechanisms-By running an operational efficiency test and find any device vulnerabilities and then plugging the holes, TRC’s IFC Audit and internal financial controls team help mitigate risk.

TRC Corporate Consulting’s Internal Financial Controls expert brings considerable experience in managing Internal Control over Financial Reporting processes for a wide variety of sectors. Our team draws from the experiences it has acquired to help customers set up best-in-class control environments through its deep knowledge of process nuances.