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ICFR (Internal Controls over Financial Reporting) in India is paradigm shift over reporting requirement of CARO by virtue of Indian Companies Act, 2013. It is mandatory for auditors to comment over design and operative effectiveness of the controls in case of listed and unlisted companies. Requirement is broadly similar to what is mandated by US Sarbanes Oxley Act, 2002. Article explains Regulatory Requirement of Internal Control over Financial Reporting under Companies Act, 2013, Companies (Accounts) Rules, 2014 and under Listing Agreement. It also mentions Penalty under Companies Act, 2013-
| Regulatory | Description | Applicability |
| Companies Act, 2013 | ||
| Section 134 (5) (e) | Directors’ Responsibility statement shall state that: The directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. | Listed Companies |
| Section 143 (3) (i) | Auditor’s report for all companies (listed or not) to state the adequacy and operating effectiveness of the Company’s internal financial controls. | All Companies |
| Section 177 (4) (vii) | 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. | Listed Companies and Companies Borrowed Public Money |
| Section 177 (5) | The Audit Committee may call for the comments of the auditors about internal control systems, the scope of audit, including observations of the auditors and review of financial statement before their submission to the Board and may also discuss any related issues with the internal and statutory auditors and the management of the company. | Listed Companies and Companies Borrowed Public Money |
| Schedule IV – II (4) (Code for Independent Director) | The independent directors shall satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible. | Listed Companies and Companies Borrowed Public Money |
| Companies (Accounts) Rules, 2014 | ||
| Rule 8 (5) (viii) | Board of Directors to report on adequacy of internal financial controls with reference to financial statement. | All Companies |
| Listing Agreement | ||
| Clause 49 | Responsibility of the CEO/CFO to maintain internal controls for financial reporting | Listed Companies |
| Evaluate the effectiveness of internal control systems pertaining to financial reporting | ||
| Indicate to the auditors and the audit committee significant changes to accounting policies and internal controls for financial reporting. | ||
| Effective from October 1, 2014 Board and Audit Committee responsibility brought in line with Companies Act, 2013 | ||
| Penalty under Companies Act, 2013 |
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| Section 134 (8) | Responsibility of the CEO/CFO to maintain internal controls for financial reporting | As Applicable |
| Rs. 25 lacs | ||
| Qualification in Auditor’s Report | ||
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Author Bio
Incorrect, please check and update applicability of Section 143 (3) (i) and also Rule 8 (5) (viii) to small Pvt companies refer MCA circular in June 2017