The Internal Financial Control (IFC) has grown to be a significant component of corporate governance and compliance in India. It also makes companies manage to have checks and balances in their financial operations. The aim is to develop more transparency and accountability; however, organizations are usually faced by some hindrances in ensuring the applicability of IFC requirements. The challenges are due to operation, structural and practical issues that must be given keen consideration.
Understanding the Applicability of IFC
All the listed companies and some non-listed companies, as enshrined under the Companies Act, 2013, have applicability of IFC. It compels businesses to implement and observe proper financial controls and has the auditor’s report on whether or not they are effective. Although citizens may think that this framework is easy on paper, in practice it is not easy to implement the framework effectively.
Lack of Awareness and Expertise
Lack of awareness is one of the biggest issues that companies undergo when complying with the applicability of IFC. Most organizations, especially the smaller businesses or the growing businesses, are not conversant fully with the requirements. They can also consider IFC as a mere compliance exercise and not a wider agenda of enhancing financial discipline. Moreover, the lack of those professionals who bear real experience in the field of designing and implementing the IFC systems complicates the process further.
Resource Constraints
The resource constraints are experienced by smaller companies. Application of IFC is time consuming, monetary, and needs qualified personnel. Costs reasons have forced many businesses not to set up special teams of staff or to hire outsiders as consultants. Consequently, they slow down the adoption or implement less than comprehensive systems, hence not complying with the applicability of the IFC requirements.
Complexity of Business Operations
The contemporary businesses are multidimensional not only in terms of location and functions but also in terms of technology. This is a type of complexity that makes it complicated to come up with internal controls that can fit all sizes. An example is a company that has diverse revenue sources; it could hardly manage to get all the financial procedures under one framework; the wider the scope of operations, the greater the challenge in meeting the applicability of IFC in a consistent and efficient manner.
Resistance to Change
The implementation of the IFC usually entails alteration of conventional workflow, reporting and monitoring routines. There are chances of employees and management staff opposing these changes particularly when they think that the new system introduces an additional workload that does not have direct positive results. This opposition impedes the implementation process and causes compliance lapses. Decreasing such hesitation is among the realistic difficulties that the businesses need to surmount to achieve the applicability of IFC effectively.
Technology and System Integration
Though there are some advantages in the use of technology in facilitating simple system of financial control, there are challenges. Most firms use obsolete software or detached systems that do not conform to IFC requirements. The process of integrating such systems to maintain an adequate data flow and reporting is usually a complex one. When there is no IT support, companies can expect errors, inefficiencies, and lapse in financial control.
Auditor’s Expectations
The role of the auditors is crucial in the determination of compliance of IFC. Nonetheless, businesses tend to be unsure of what auditors would require demonstrating satisfactory control. The absence of standard benchmarks at times creates confusion and disagreement between the management and auditors. This complicates the move of companies to prove their cases of demonstrating the applicability of IFC with confidence.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.