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The Companies Act, 2013 has introduced a new requirement for listed companies. Accordingly, the Board of Directors (Sec 134), Audit Committee (Sec 177) and Independent Directors (Sch. IV) are responsible for laying down Internal Financial Controls (IFC) to conform on adequacy and operating effectiveness of the framework for IFC.
Furthermore, under Sec 143 of the Companies Act, external auditors are required to separately issue opinion on the adequacy of IFC and the operating effectiveness of such controls. Considering this, all unlisted companies (public and private) have to gear up to meet the requirements of IFC. The only relief provided by the ICAI guidance note is that the scope of external audit will be restricted to financial reporting controls only.
The revised guidance note issued by the ICAI recently has also extended the requirement of opinion from external auditors to consolidated financial statements, thereby emphasizing the focus required on completing the management design and testing across all companies within a group.
Considering the limited timeframe available to ensure adherence to the requirements and also meet conditions of external auditors, companies need to immediately embark on this initiative.
Mr. H. Unwala