Incorporating Internal Financial Control Over Financial reporting empirically (Listed Companies Call)

As captioned, I will surely not sail through statutory sections sight u/s 134, 143,177 of Companies Act, 2013 but certainly carve into crux of the topic. This article will dive deep intro review as well as testing touch of IFC (Per se means internal financial control over financial reporting). Entire article is parted into static and strategic meaning thereby one which is in as it is form and the other requires professional skepticism.

Draft design depicted as:-

  • ICAI guidance note
  • Seven strata-static snaps of selected processes
  • Deliverable dashboard
  • ICAI guidance note

Those 200 pages are pivotal to pursue IFC. Consideration charged Vs. value derived, defines the depth of the topic.

Static

Following are few static areas:-

1) Applicable framework- One should be well aware of Companies Act 2013 applicable sections, CARO requirements and other areas in financial statements wherever term IFC is stated.

2) SA 200, 240, 250, 315, 320, 560, 610 ,etc and now apply reverse charge mechanism from SA to AS. Entire gamut of AS’s & SA’s comes from inception till end of the project processes.

3) Process flow diagrams- One should be aware of symbols start/end, decisions yes/ no , connectors, comments , sub bifurcations and so on. As good as BS means Balance Sheet, those symbols means what needs to be cleared.

4) IFC terminologies like IPE, test of design & operating effectiveness, entity level controls, etc while other terms like sampling, walk through , materiality, prudence, sample, risks and all are somewhere already versatile in our vein the day we took commerce.

5) Appendices and Illustrative work papers serves as ready reckoner or recent time remdesivir.

Strategic

Following are few strategic areas:-

1) Omnibus call to commence with opening balance. Opening balance in IFC? Yes, it refers to prior reports pertaining to review & /or testing except being 1sttime for company. This will give knowledge if client business, applicable processes and extent of evaluation required. Pocket call can also be taken in basis of extent of engagement.

2) Illustrative work papers templates and ROMM in appendix gives gist of IFC akin to aspect of attending last question first in exam. It aims to gives bird eye view of the project apart from static formats.

3) Definitions, evaluations and understanding the text of guidance notes takes own sweet time to blend in reports.

♦ Seven strata- static snaps of selected processes

1. There should be manner of seamless molded in mind to conduct IFC. One such robustness from our repository includes a clear demarcation of fact that any process will start with SOP which is very specific to that process and very generic in terms of other controls of that process.

E.g. Finance and accounts process, if states that there are SOP for cash limit, approval matrix on record, provisions are done in accordance with applicable framework, then what else is required? SOP’s are present. No, it is not. It ought to take view of entire finance and accounts process as whole and not in parts, never break SOP in parts, specific controls are already present to address particular parts. Yes, we understand the fact that there are n no of department involved in posting till book closure but individual SOP does not depict density of entire process! As simple as a new joinee placed in payable department only after walkthrough of whole fin and accounts.

2. Work papers are the wealth of IFC. Testing templates to be maintained well. As there is liberty to reform it, after doing it maintain same throughout the entire project.

3. Sampling is the start point to select weather to switch the level to substantive procedures or not. Methods of sampling, minimum and maximum samples based on frequency of control activity are defined.

4. GL mapping- a meticulous must to mark. Take trail balance with GL numbers and dissect in either terms of P&L/ BS items or process specific GL list without such bifurcation. This leaves no stone untouched aspect understood in entirety for any processes.

5. Cross Linkages- Connecting dots in a way implicitly tied together tells the true knowledge of client business.

E.g. In P2P process, vendor evaluation done solely by accounts department on basis of frequency of short quantity leading to increase in debits per invoice Vs. quality care and capacity call involves quality/ sourcing department too.

Let it be any process, clarity on cross linkages creates crystal clear canvas!

6. Assertions & Notes- Almost all headings of IFC are demarked with notes. Assertions are to be assigned based on control activity.

“I assure to ascertain these assertions which are categorized into 3 parts as:

√ Profit & Loss account  { Class of transactions and events for the period under  audit}

√ Balance Sheet { Account balance at period end}

√ Presentation and disclosure

How many of us turned sight to such examples along with explanation for each assertion?”

We should solemnly study for all notes even.

7. Drafting or re-structuring risk and control matrix- Though it starts by filling in cell A of excel and ends till Z column, believe me it’s very alluring art to those who are interesting as, “Nothing is interesting if you are not interested!”

Quickster and questioning qualities quickens to complete quantum of task.

Let’s blend by story linked to logistic process:-

E.g.” Imagine yourself travelling via 3 modes of transport i.e. air, water and land.

Air

Waiting for arrival without booking air tickets seems same as any control without Standard operating procedures (SOP). So, planning /scheduling availability at arrival/ departure along with comparison of competitive rate is the starting point. If I select Kingfisher airlines as flight to fly, obviously I will end at Normans land! Credibility, incidents/accidents, services, standard of airlines to land me at my destination is the second step to move ahead. With the best services, I will land at T+2 days like trade settlement, instead of T+1 as generally acceptable time. This fulfills the criteria of TAT( Turnaround time) monitoring. After reaching destination, I see my luggage mix matched with the other person and I rush to get it back, else only option was to rest my case with Insurance Company provided I have opted for it.   So clear demarcation of dismantled drive or definite drive demands Insurance and on destination delivery services.

After landing, I need to reach relative home for which family member would come to pick up; a safe, secure and direct to home sanity Vs. I book cab and keep location on; a costly and risky road. Plan B or commonly called back-ups if anything goes against planned and penalty clause concept in logistics comes to care. Finally reached desired destination home duly with luggage.”

Land

I may not be aware of GST/ TDS or e- way bill practically unless someone packs me in truck full of mangoes to travel the thruways.- Freight, carriage, couriers charges, e-way platforms, lorry receipts etc. are the replacement for air way bills.

Water

Call from customs regarding arrival of courier/carrier requires clarity of concepts like charges pertaining to EDI, Inland and terminal handling, ex-work, demurrage, penalty,CHA etc. and terminologies like LCL  shipments, high sea sale, basically a  sail by origin certificate till  bill of entry clearance.

I tried to cover best possible controls from SOP, on –boarding of vendor, quotations, and transit, insurance, legal and destination aspects.

Later on a length leap towards logistics process..

♦ Deliverable Dashboard

It is essential to empirically evaluate any processes under IFC reporting for drafting dashboard of deliverables. I will come up with process specific skeptic and static series soon, so stay tuned!

Author Bio

Qualification: CA in Job / Business
Company: PVM & associates
Location: Bangalore, Karnataka, India
Member Since: 30 Jul 2019 | Total Posts: 7
I am working in industry since 3 years. I keep on doing some certifications mostly in the feild of investments or stock markets, but keeping it intact with oneself is of no use, unless we share knowledge, so I started writing ............ Your feedback will bring immense value to me, hence keep sha View Full Profile

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