Discover the essentials of Internal Financial Controls (IFC) under the Companies Act 2013 effective from 01/04/2023 onwards. Get insights on limits and thresholds for applicability.
Under the Companies Act 2013, every company is required to have an effective system of internal financial controls to ensure that its financial statements are accurate and reliable, and to prevent fraud and mismanagement.
Section 134(5)(e) of the Companies Act 2013 requires the Board of Directors of every company to state in its annual report that the company has an adequate system of internal financial controls in place and that such controls are operating effectively. Additionally, section 143(3)(i) requires the statutory auditor of the company to report on the adequacy and effectiveness of the internal financial controls in place at the company.
Therefore, it is applicable to all companies registered under the Companies Act 2013 to have an effective system of internal financial controls in place, and the Board of Directors and statutory auditor are required to provide assurance regarding the adequacy and effectiveness of these controls.
Limits for Applicability of Internal Finance Control
There are no specific limits for the applicability of internal financial controls under the Companies Act 2013. All companies, regardless of their size, nature of business or industry, are required to have an adequate system of internal financial controls in place to ensure the reliability of their financial statements, prevent fraud and mismanagement, and ensure compliance with applicable laws and regulations.
However, the Companies Act 2013 does provide certain exemptions to smaller companies from certain provisions of the Act. For example, one-person companies, small companies, and dormant companies are exempted from certain requirements of the Act, such as holding annual general meetings, appointment of independent directors, and preparing a cash flow statement. However, these companies are still required to comply with the provisions related to internal financial controls and provide assurance regarding their adequacy and effectiveness.
It is important to note that the applicability of internal financial controls is not limited to the Companies Act 2013. Companies may also be subject to internal control requirements under other laws and regulations, such as tax laws, securities laws, and banking regulations. Therefore, companies should ensure that they have an adequate system of internal financial controls in place to comply with all applicable laws and regulations.
Threshold Limits for Internal Finance Control of Company Act 2013
There are no specific threshold limits for internal financial controls under the Companies Act 2013. All companies, regardless of their size, nature of business or industry, are required to have an adequate system of internal financial controls in place to ensure the reliability of their financial statements, prevent fraud and mismanagement, and ensure compliance with applicable laws and regulations.
IFC is applicable solely to all listed entities. It may, however be noted Companies (Accounts) Rules, 2014 needs the Board of Directors’ report of all companies to state the details in respect of adequacy of internal financial controls with regard to the “financial statements”.
Although, MCA vide its notification dated 13th June 2017 (G.S.R. 583(E)) provided exemption from Applicability of Internal Controls over financial reporting (ICFR Applicability) to following private companies:
1. Which is one-person Company (OPC) or a Small Company; or
2. Which has turnover less than Rs. 50 Crores as per latest audited financial statement or which has aggregate borrowings from banks or financial institutions or anybody corporate at any point of time during the financial year less than Rs. 25 Crore.
Additionally, the above-mentioned Companies will be exempted from IFC Applicability only if it has not committed a default in filing its financial statements under section 137 of the Companies Act 2013 or annual return under section 92 of CA 2013 with the Registrar.
Author Bio
Revenue :
35 Cr in M23 & 65 Cr in M24
Year under audit – M24. Is IFC reporting applicable?
IFC is applicable from FY 24-25.
since the turnover has been exceeded 50cr in FY 23-24.
Threshold limit for applicability of IFC:
Wording should be AND between turnover and borrowing limit. You have wrote OR due to which meaning changed.
Correct me if i am wrong.
If a company makes a default under section 137 or 92 and later pays the penalty and make it good. Is it still exempted from IFC ?
Since the company has defaulted as per sec 137 and 92, the ICFR is applicable to company in upcoming FY.
Post to that FY if company has limits below the threshold as prescribed, then ICFR is not applicable.