![Page 1: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/1.jpg)
New Auditing Responsibilities u/s 143 of Companies Act 2013Bharath Rao | 23rd June 2016
C:\Users\Bharath\Desktop\ICFR\TCS Annual
![Page 2: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/2.jpg)
IFCs - bharathraob.com 2
Outline Mistakes IFCs
Guidance
NoteExampl
es
![Page 3: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/3.jpg)
IFCs - bharathraob.com 3
Mistakes
Mistakes IFCs Guidance
Examples
![Page 4: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/4.jpg)
IFCs - bharathraob.com 4
Mistakes…
Carrian Group
1993
Accounting fraud. An auditor was murdered, an adviser committed suicide. The largest collapse in Hong Kong history
WorldCom
2001
Fraudulent Accounting Methods to increase. The Legend of all scams
Peregrine Systems
2002 Overstated sales
Satyam 2009
Falsification of Accounts. Legend of Indian Corporate Scams
![Page 5: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/5.jpg)
IFCs - bharathraob.com 5
Effects
Goodwill?
Public Trust?
Belief?Jobs
Penalties Money
![Page 6: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/6.jpg)
IFCs - bharathraob.com 6
Causes
Greed“Too Much” Determinati
on
Inefficient Internal Controls
Loopholes
Lack of Guidance
![Page 7: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/7.jpg)
IFCs - bharathraob.com 7
Regulations and Internal Financial Controls
Mistakes IFCs Guidance
Examples
![Page 8: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/8.jpg)
IFCs - bharathraob.com 8
Section 134 –
• Director’s Responsibility Statement –
• Listed Companies shall have IFCs
Section 143 –
• Auditor’s Report shall State –
• Adequate IFCs System and is operating effectively
Section 149 –
• Independent Directors –
• Integrity of Financial Information and IFCs are robust and Dependable
Section 177 –
• Audit Committee –
• Evaluate IFCs and Risk Management System
Clause 49(V)(c) –
• CEO/CFO Certification –
• Accept Responsibility for establishing and maintaining ICFR and have valuated their effectiveness.
Regulations
![Page 9: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/9.jpg)
IFCs - bharathraob.com 9
Internal Controls
The Process designed, implemented and maintained by TCWG and other personnel to provide reasonable assurance about the achievement of the entity’s objectives with regards to reliability of financial reporting, effectiveness and efficiency of operations, safeguarding of assets and compliance of applicable laws and regulations
![Page 10: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/10.jpg)
IFCs - bharathraob.com 10
Components of Internal Controls (COSO Framework)
Control Environmen
tRisk
Assessment
Control Activities
Information and
Communication
Monitoring
![Page 11: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/11.jpg)
IFCs - bharathraob.com 11
Internal Control Equation
General
Controls
IT Control
s
Internal
Controls
![Page 12: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/12.jpg)
IFCs - bharathraob.com 12
IT Controls
IT Controls
Application Controls –
(ITAC)
IT General Controls -
(ITGC)
![Page 13: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/13.jpg)
IFCs - bharathraob.com 13
Internal Financial Controls explained as per CA 2013
Explanation to section 134(5)(e) — For the purposes of this clause, the term “internal financial controls” means 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
![Page 14: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/14.jpg)
IFCs - bharathraob.com 14
One More Step Under
Business
Process
Financials
![Page 15: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/15.jpg)
IFCs - bharathraob.com 15
What Internal Financial Controls?
Business Risk
IT and Operational Risks
Financial Risk
Internal Financial Controls
![Page 16: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/16.jpg)
IFCs - bharathraob.com 16
Audit Risk and Sampling Strategy
Audit RiskDetection Risk
Controllable Risk
Inherent Risk
Higher Sampling Lowers Detection Risk
Define Level of Confidence (90%) Forms basis of Sampling (10% of
Population)
![Page 17: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/17.jpg)
IFCs - bharathraob.com 17
Guidance Note of ICAI
Mistakes IFCs Guidance
Examples
![Page 18: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/18.jpg)
IFCs - bharathraob.com 18
Financial Areas
Cash/Bank Balances
Prepaid Expenses
Trade Receivable Inventory
Goodwill and
Intangible Assets
Trade Payables
Provision for
ExpensesLoans/
Borrowings
Employee Benefits Taxes
Share Capital,
Reserves
Revenue from
Operations
Cost of Production,
SalesDepreciatio
nFinance Costs
![Page 19: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/19.jpg)
IFCs - bharathraob.com 19
Suggested Areas
Identification and
Inspection of
Documentation of
Policies, Processes
Identifying and
Understanding the
business applications and their
roles
Perform Design Effectiveness to
check if Policies and Documented
Procedures are sufficient and
adequate to the size of the business
Perform Testing for Operationa
l Effectivene
ss, Audit Evidence
and Documentati
on
The Process to be followed
![Page 20: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/20.jpg)
IFCs - bharathraob.com 20
The Process to be followed in Detail
![Page 21: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/21.jpg)
IFCs - bharathraob.com 21
IG 4 – Understanding the IT Environment
Significant Accounts and Disclosures
It’s Relevant Applications
Relevant IT Infrastructure (OS, Database, Hardware)
Relevant IT risks
Relevant IT Controls
![Page 22: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/22.jpg)
IFCs - bharathraob.com 22
IG 6 – Segregation of Duties
Microsoft Word 97 - 2003 Document
![Page 23: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/23.jpg)
IFCs - bharathraob.com 23
IG 6 – Segregation of Duties
![Page 24: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/24.jpg)
IFCs - bharathraob.com 24
IG 10 – Techniques for Control Testing
Inquiry Observation
Examination of
Documentation
Re-Performance
Walkthroughs (IG 12)
![Page 25: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/25.jpg)
IFCs - bharathraob.com 25
IG 11 – IFC – Testing of Design
Objectives: Conclude on effectiveness of the
design to assess risk Plan the nature, timing and extent of
the tests for operating effectiveness Understand the Nature and
significance of the risks of material misstatement addressed by the control
Characteristics or details of the control Factors to determine whether the control
is appropriately designed to address the identified risk.
Competence and authority of the person(s) performing the control
Frequency and consistency with which the control is performed
![Page 26: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/26.jpg)
IFCs - bharathraob.com 26
IG 13 – IFC – Test of Operating Effectiveness
Assess Findings and Conclude
Perform tests of Operating Effectiveness
Plan the NTE of Operating Effectiveness based on results of
Design Effectiveness
Assess the risk associated with the control
![Page 27: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/27.jpg)
IFCs - bharathraob.com 27
IG 15 – Roll Forward Testing
Objective: To identify any changes to the business
occurred that could give rise to new, or affect existing risks of material misstatement,
That would necessitate implementing new controls or modifying the design of existing controls
Existing controls continue to operate effectively in the roll forward period
Identification of “Roll Forward Period” Auditor rolls-forward the conclusions of
the effectiveness of those relevant controls which were tested and concluded to be effective as at an interim date
Initial/Major Testing Period Roll Forward Period
Interim
Date
![Page 28: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/28.jpg)
IFCs - bharathraob.com 28
Some more Newer Concepts
IG 16 – Rotation Plan for testing IFCs
IG 17 – Remediation Testing
IG 18 – Using Work of Internal Auditors (SA 610) and Expert
(SA 620)
![Page 29: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/29.jpg)
IFCs - bharathraob.com 29
Reporting
Obtain Management’s Assertion regarding Internal Financial Controls
Details of Areas, Processes and the Internal Controls deployed and their status
Define Auditor’s Responsibility (SA 210) and limitations
Report (As an Annexure or Separate Report) – SA 700, SA 705
Opinion regarding the design and operating effectiveness of the IFCs
![Page 30: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/30.jpg)
IFCs - bharathraob.com 30
ExamplesControl Activities and Testing Templates
Mistakes IFCs Guidance
Examples
Microsoft Word 97 - 2003 Document
Microsoft Excel Worksheet
![Page 31: Internal Controls over Financial Reporting in the Indian Context](https://reader030.vdocument.in/reader030/viewer/2022021417/58889b731a28ab264b8b4dd9/html5/thumbnails/31.jpg)
IFCs - bharathraob.com 31
Thank You Bharath Rao | +91 88922 29220 | [email protected] |Bharathraob.com |/bharathraob