Internal Financial Control


For establishing or implementing Corporate Governance in India, Ministry of Corporate Affairs (MCA) and SEBI Authorities have introduced various new Norms or Rules/ Regulations to be followed by Certain Class of Companies. The introduction of IFC regulations in the Companies Act, 2013 is one of the steps for implementing Corporate Governance.


  • IFC is applicable to listed / unlisted entities.
  • There is exemption to following Private Companies from Internal Financial Control vide MCA Notification No. G.S.R. 583(E) dated 13th June 2017 (attached):
    • (i) OPC or Small Company; or
    • (ii) Private Companies 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 any Body corporate at any point of time during the financial year less than Rs. 25 Crores.

However, the above exemption shall be available to a Private Company only;

  • If it has not committed a default in filing its Financial Statements under Section 137 of Companies Act, 2013 i.e. FORM AOC-4;
  • Or, Annual Return under Section 92 of Companies Act, 2013 i.e., FORM MGT-7.

  • IFC Regulations mandated under Companies Act, 2013:

    Section/Rules Matter Applicability
    Section 134 (5) (e) Under Director’s Responsibility Statement the directors have to confirm that the IFC are being followed adequately and operating effectively Listed Companies
    Rule 8 (5) of Companies (Accounts) Rules Under Board of Directors Report the details in respect of adequacy of IFC with reference to the Financial Statements All Companies (Listed / Unlisted)
    Section 177 (4) (vii) Section 177 (5) Audit committee of a company shall evaluate IFC and Risk Management Systems Audit Committee may call for the comments of the auditors about IFC All Companies constituting Audit committee
    Section 149 (7) Read with Schedule IV The Independents Directors should satisfy themselves on the integrity of financial information and that IFC and systems of risk management are robust and defensible. All Companies having IDs
    Section 143 (3) (i) Under Auditors Report the auditors have to report whether the company has adequate IFC in place and the operating effectiveness of such controls All Companies (Listed / Unlisted)


    By proper implementation of IFC Regulations, the loopholes that exist into the Internal Control Environment can be traced out now. The framework of IFC is given by Standard on Auditing (SA) 315 issued by the Institute of Chartered Accountants of India. The Introduction of IFC Regulations is an addition to the existing Audit opinion on Financial Statement. Indian Companies in the upcoming years should focus on adopting the right approach to reap the potential benefits for their shareholders as well as for themselves.

    Companies Auditor’s Report Order (CARO), 2016


    The reason of introducing CARO was that there are certain particular issues which are important to be reported with the financial statements for certain entities as part of their Audit Reports. CARO 2015 supersedes CARO 2016.


    CARO 2016 is applicable to all the Companies including Foreign Companies except the following which are specifically excluded from its preview:

        a. Banking Companies;
        b. Insurance Companies;
        c. Companies registered for Charitable purpose;
        d. OPC;
        e. Small Companies as defined under Section 2(85) of the Companies Act, 2013.

      The following Private Companies are also exempt from the requirements of CARO 2016,

        I. Not a holding or subsidiary of a Public company;
        II. Paid up Capital plus Reserves less than or equal to Rs. 1 Crore as at the reporting date;
        III. Borrowings less than or equal to Rs. 1 Crore at any time during the year;
        IV. Revenue less than or equal to Rs. 10 Crores in the financial year.

    Applicability of Cash Flow Statement

    As per Section 2 (40) (v) of Companies Act 2013, Cash Flow Statements are to be prepared by all Companies but the Act also specifies a certain category of Companies which are exempted from preparing the same. The following companies are exempted from preparing the Cash flow Statement:

    • a. One Person Company;
    • b. Small Company;
    • c. Dormant Company.
    • d. Private Company (if such private company is a start-up)