{"id":190,"date":"2019-10-18T09:29:32","date_gmt":"2019-10-18T09:29:32","guid":{"rendered":"https:\/\/www.akgvg.com\/blog\/?p=190"},"modified":"2025-08-05T14:39:49","modified_gmt":"2025-08-05T09:09:49","slug":"internal-control-over-financial-reporting","status":"publish","type":"post","link":"https:\/\/www.akgvg.com\/blog\/internal-control-over-financial-reporting\/","title":{"rendered":"Internal Control Over Financial Reporting"},"content":{"rendered":"

INTERNAL CONTROL OVER FINANCIAL REPORTING (ICFR)<\/strong> can be defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. IFCR is mandatory for unlisted companies where<\/p>\n

a. Turnover is >= Rs. 50 Cr. and
\nb. Borrowing >= Rs. 25 Cr.<\/p>\n

1.1 ICFR DOMAIN:<\/strong>
\nICFR domain consists of internal controls placed at following levels:
\n\u2022<\/strong> Entity Level
\n\u2022<\/strong> Process Level
\n\u2022<\/strong> General IT Controls Level<\/p>\n

In addition, there may be internal controls that prevent or detect frauds (termed as \u2018anti-fraud controls\u2019) and controls that ensure appropriate financial reporting and closing (termed as \u2018period-end financial reporting and closing controls\u2019). Such controls may be combination of category mentioned above.<\/p>\n

1.2 IDENTIFYING SIGNIFICANT ACCOUNTS AND RELEVANT ASSERTIONS<\/strong><\/p>\n

The auditor should identify significant accounts and disclosures and their relevant assertions. Relevant assertions are those financial statement assertions that have a reasonable possibility of containing a misstatement that would cause the financial statements to be materially misstated.<\/p>\n

The financial statement assertions include:
\n\u2022 Existence or occurrence;
\n\u2022 Completeness;
\n\u2022 Valuation or allocation;
\n\u2022 Rights and obligations;
\n\u2022 Assertions relating to presentation and disclosure<\/p>\n

1.3 CONTROL ACTIVITIES<\/strong><\/p>\n

The policies, procedures, practices, and organizational structures designed to provide reasonable assurance that the business objectives will be achieved and undesired events will be prevented or detected.<\/p>\n

1. Detective control<\/strong>
\nControls that can detect a financial statement misstatement.
\n2. Preventive control<\/strong>
\nControls that can prevent a financial statement misstatement.<\/p>\n

1.4 POTENTIAL ERRORS IN FINANCIAL STATEMENTS<\/strong>
\nIn relation to account balances, there are six potential errors that may occur. These are:
\n\u2022 Completeness \u2013 All transactions are not recorded
\n\u2022 Validity \u2013 Recorded transactions are not valid
\n\u2022 Accuracy \u2013 Transactions are inaccurately recorded
\n\u2022 Cut-off \u2013 Transactions are recorded in accounts in the wrong period
\n\u2022 Valuation \u2013 Assets or liabilities are incorrectly valued
\n\u2022 Presentation \u2013 Account balances are presented in a misleading way<\/p>\n

1.5 TEST OF OPERATING EFFECTIVENESS \u2013 SAMPLING:<\/strong><\/p>\n\n\n\n\n\n\n\n\n\n\n
Frequency of performance of the control<\/strong><\/td>\nMinimum number of Selections<\/strong><\/td>\n<\/tr>\n
Lower risk of deviation<\/strong><\/td>\nHigher risk of deviation*<\/strong><\/td>\n<\/tr>\n
Recurring manual controls (multiple times a day)<\/td>\n25<\/td>\n40<\/td>\n<\/tr>\n
Daily<\/td>\n15<\/td>\n25<\/td>\n<\/tr>\n
Weekly<\/td>\n5<\/td>\n8<\/td>\n<\/tr>\n
Monthly<\/td>\n2<\/td>\n3<\/td>\n<\/tr>\n
Quarterly (including period end)<\/td>\n2<\/td>\n2<\/td>\n<\/tr>\n
* To be used for extended testing in case of one actual \/ expected control deviation<\/em><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

1.6 DOCUMENTATION:<\/strong><\/p>\n

Proper documentation should be done for test plans, test results and assertions that are fulfilled by the controls. The documentation may be in the form of control matrix.<\/p>\n

1.7 EVALUATING DEVIATIONS:<\/strong><\/p>\n

The results of each test must be evaluated. When deviations from the control design occur, the evaluator should understand the reasons for deviation.<\/p>\n

The evaluator would also need to consider compensating, complementary or redundant controls that may achieve the control objective.<\/p>\n

1.8 FINALIZING CONCLUSIONS AND SIGN-OFF:<\/strong><\/p>\n

Once the evaluator and process\/control owner have analyzed each exception or deviation, the conclusion for each test should be finalized and documented. These should be escalated to the required levels of management for remediation.<\/p>\n

1.9 CONTROL DEFICIENCIES:<\/strong><\/p>\n

These may be dealt with at the level of process\/control owners. The process owners would obtain approval from the respective functional heads and implement the action plan for remediating the deficiency.<\/p>\n

1.10 REMEDIATION MONITORING<\/strong>
\nOnce the remediation plans have been approved, these should be tracked periodically.<\/p>\n

ICFR implementation is a stepping stone which has shaped the way corporate India considers its financial reporting responsibility.<\/p>\n

This content is meant for information only and should not be considered as an advice or opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.<\/strong><\/p>\n

Posted by:<\/strong>
\nCA Aman Aggarwal
\nAKGVG & Associates<\/p>\n","protected":false},"excerpt":{"rendered":"

INTERNAL CONTROL OVER FINANCIAL REPORTING (ICFR) can be defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. IFCR is mandatory for unlisted companies where a. Turnover is >= Rs. 50 Cr. and b….<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1541],"tags":[41,39,40],"class_list":["post-190","post","type-post","status-publish","format-standard","hentry","category-internal-financial-control","tag-icfr","tag-internal-control","tag-internal-control-over-financial-reporting"],"_links":{"self":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/190","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/comments?post=190"}],"version-history":[{"count":1,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/190\/revisions"}],"predecessor-version":[{"id":191,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/posts\/190\/revisions\/191"}],"wp:attachment":[{"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/media?parent=190"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/categories?post=190"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.akgvg.com\/blog\/wp-json\/wp\/v2\/tags?post=190"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}