Page 76 - CA Inter Audit PARAM

CA Ravi Taori
Responsibility With Respect to Internal Financial Controls New Course – (M24E)
QNO--
in Listed Companies (Big Companies)
ICS.33.600
Bhaskar CNO – SA315-P2.380
Mr. Z, at the time of appointment as an independent director in EF Ltd. A listed company, came to know
that the Companies Act, 2013 has placed a greater emphasis on the effective implementation and reporting
on internal controls for a listed Company. He wants to know the responsibilities as casted under Companies
Act, 2013 with regards to Internal Financial Control for (1) Directors (2) Independent directors and (3) Audit
committee as per section 134(5)(e), 149(8) & 177(4) (vii) respectively of the Companies Act, 2013.
Answer Internal financial controls as per regulatory requirements: The Companies Act 2013 has placed greater
emphasis on the effective implementation & reporting on the internal controls for a company. The term
“internal financial controls” is used at some places in Companies Act, 2013 casting responsibilities as under: -
Relevant provision of Companies Act,2013 Nature of Responsibility
Section 134(5)(e) In case of listed Companies, the Directors’
responsibility statement shall state that the
Directors had laid down Internal financial controls
to be followed by the company and that such
Internal financial controls are adequate and were
operating effectively.
As per Section 149(8) of the Act The company and independent directors shall
abide by the provisions specified in Schedule IV
which lays down the Code for independent
Directors. As per this code, the role and functions
of independent directors include that they shall
satisfy themselves on the integrity of financial
information and that financial controls and the
systems of risk management are robust and
defensible.
Section 177(4)(vii) of the Act Every audit Committee shall act in accordance with
the terms of reference specified in writing by the
Board which shall, inter alia, include - evaluation of
internal financial controls and risk management
systems.

QNO IFC Vs IFCR Old Course -- (N21R/N20E)
ICS.34 Bhaskar CNO- SA315-P2.380
Explain clearly the difference between Internal Financial Control and Internal Controls over financial

reporting.
Answer Internal Financial Control as per Section 134(5)(e), “the policies and procedures adopted by the
company for ensuring the orderly and efficient conduct of its business, including adherence to
company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors,
the accuracy and completeness of the accounting records, and the timely preparation of reliable
financial information.”
On the other hand, Internal controls over financial reporting-is required where auditors are required
to express an opinion on the effectiveness of an entity’s internal controls over financial reporting, such
opinion is in addition to and distinct from the opinion expressed by the auditor on the financial
statements.

QNO Weakness in ICS (Case Study) #Unique Old Course -- (P16M/N18R/M19M)
ICS.39 New Course – Relevant, Concept Covered in New Course SM
In a medium size trading organisation the accountant was given additional responsibility of making
recoveries from the trade receivables. On one occasion, when an insurance claim of Rs 45,000 was
received, he credited the same to the account of a trade receivable and misappropriated the cash which

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