INTERNAL
CONTROLS OVER
FINANCIAL
REPORTING
(ICFR)
D S CONSULTING
Knowledge To Absolute Value
www.dsconsulting.co.in
Pune – Maharashtra - INDIA
1
CONTENT
Broad Control Framework
Applicability of ICFR
Proposed scope under ICFR
Business processes mapped under ICFR
Execution approach
Deliverables
Project team and timelines
Professional fees
D S CONSULTING 2
BROAD CONTROL FRAMEWORK
Risks managed by establishing controls at entity and process levels
Entity Level Controls:
Fraud Prevention • Business Risk Management
Controls • Business Ethics Framework
• Internal Audit & Financial
Applicable to Listed Company and
Integrity
Companies Borrowed Public Money
• Legal Compliance
+ Framework
• Fraud Risk Management
• Business & Operations
Continuity
Internal Financial Operational • Succession Planning
Controls (IFC)
= Controls
• Management Operational
Overview
Applicable to Other Companies
+ Process Level Controls:
• Undertaking test of design
(ToD)
Internal Controls Over • Undertaking test of
Financial Reporting effectiveness (ToE)
(ICFR)
D S CONSULTING 3
APPLICABILITY OF ICFR
Auditor Responsibility Reporting On Management Responsibility
Establishing & Documenting
Audit Report to express an
opinion restricted to ICFR in
pursuant to Guidance Note issued
by ICAI
Listed & Public
Section 143 (3) (i) of Other Company
Company
Companies Act, 2013 requires
Auditor to report on adequacy Rule 8 (5) (viii) of the Companies Section 135 (5) (e) of the Companies Act,
2013 requires Directors in their Director
(Accounts) Rules, 2014 requires Board
and effectiveness of the internal Responsibility Statement specify IFC is
of Directors in their Board Report to
established and is adequate and effective
financial controls system (IFC) specify adequacy of ICFR which
which means Management to prepare and
which means auditor to means Management to prepare and maintain documentation with regards to its
maintain documentation with regards existence and operating effectiveness
undertake actual sample
to its existence and adequacy Section 177 (4) (vii) of the Companies Act,
testing for measuring and Does not include Private Limited Company:
2013 in addition to listed includes public
companies Audit Committee to evaluate IFC
(i) One Person Company (ii) Small Company
reporting on IFC and Risk Management Systems, which also
(iii) Turnover < INR 500MN as per latest Audit Report
(iv) Borrowings < INR 250 MN at any time during the means same as above
D S CONSULTING current financial year
4
ICFR SCOPE
Maintenance of Authorization of Safeguarding Of
ICFR = + +
Financial Records Transactions Assets
Reasonable assurance Reasonable assurance
Process designed and Accurately and fairly
that transactions are regarding prevention
effected to provide reflect the
recorded as necessary or timely detection of
reasonable assurance transactions and
to permit preparation unauthorized
regarding the dispositions of the
of financial acquisition, use, or
reliability of assets of the
statements, and that disposition of the
financial reporting company in
receipts and company's assets that
and the preparation reasonable detail
expenditures are could have a material
of financial
being made only in effect on the financial
statements for
accordance with statements
external purposes
authorizations
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BUSINESS PROCESSES UNDER ICFR
ORDER TO CASH
OPERATING
CASH & EXPENSE TO
TREASURY PAYABLES
Business
PERIOD END Processes INVENTORY
REPORTING
PROPERTY,
PAYROLL PLANT &
EQUIPMENT
D S CONSULTING 6
EXECUTION APPROACH
A Control testing activity is
List out all prevailing Breaking process to
processes activities performed management prerogative
B # Segregating Recommending Walk through of
activities to operating refined control recommended
and financial measure measure
* Identify key C
process/es Identifying critical
financial activities
A
Walk through of
D prevailing controls
Envisaging
associated risks
B Identifying risks not
** Mapping the existing or not
process/es E
addressed adequately
Evaluating existence &
adequacy of prevailing C
control measures Preparing of gap
* In consultation with the Management statement
** Discussions with the process owners
# IFCR applicable only for financial controls
D S CONSULTING 7
DELIVERABLES
** Mapping the Process Narratives (PN) – in word document either as narrative description or a
process/es flow chart
Envisaging Risk Control Matrix (RCM) – in excel spreadsheet
associated risks
Walk through of
prevailing controls
Documented File – Containing print screen shots with control reference number in
the walk through document and index with document number
Preparing of gap
statement
Gap Statement – in excel spread sheet (as part of or separate of RCM)
Recommending Control Recommendation Statement (CRS) – in excel spread sheet (as part of
refined control
measure or separate of gap statement)
Walk through of
Documented File – Containing print screen shots with control reference number in
recommended
measure the walk through document and index with document number
D S CONSULTING 8
CONTD….
On specific requirement by the Management deliverables include (Additional Deliverables):
• Presentation of final outcome to the Board of Directors (BoD)
• Deliberation and incorporation of suggestions by the BoD
• Examination of GAP statement control design in pursuant to implementation schedule and reporting to
Audit Committee/BoD
• Implementation of GAP statement including documentation of appropriate walk through
• Deliberation and closure of implemented GAP statement and walk through with statutory/external
auditors as part of Management TEAM
• Planning, sampling and undertaking control testing with documenting control testing results as part of
Management activity
D S CONSULTING 9
TEAM & TIMELINES
On signing of LoE with
commencement date
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6
Discussion with process owners and subsequent preparation and confirmation
Team of PN’s and preparation of RCM’s for each identified process = 3 ½ to 4
Member 1 weeks
Preparation of process walk
through documentation file
= 1 week
Preparation and
discussion with
Team Management of
GAP Statement = ½
Member 2
to 1 week
The timeline is drawn considering –
• Two team members being qualified Chartered Accountants with reasonable experience in ICFR
• Timeline is estimated given that information flow from the clientele is on timely basis
• Timeline is estimated for a company operating a single operational division
• Date of commencement is mutually agreed between the Management and service provider
• Timelines exclude control testing and other additional deliverables which are management’s prerogative
D S CONSULTING 10
PROFESSIONAL FEES
• Professional fees for the assignment is INR _________
• Terms of payment as under –
- Advance equal to 30% of the professional fees
- Amount equal to 50% of the professional fees on delivery of all PN + RCM
- Balance equal to 20% of the professional fees on delivery of GAP Statement +
Walk Through documentation file
Note:
• Professional fees is exclusive of service tax/GST which shall be charged at the rates as may be applicable under the prevailing law
• Professional fees is exclusive of out of pocket expenses (OPE) exclusively incurred for delivery of services and which shall be
charged at actual’s with statement supported by invoices wherever necessary
• Professional fees is based on the given scope of assignment ,team size & experience and timelines, therefore any additional
requirement or delay , if any, by the client results in an additional fees payable which shall be determined and communicated to the
client
• Professional fees excludes control testing activity and other additional deliverables which shall be charged additionally where
appointed by the Management
D S CONSULTING 11
ICFR shall not be just perceived as a mere compliance activity but
in the larger picture of its implication on enterprise valuation
LET’S GET STARTED
Reach at :
dilip@dsconsulting.co.in
+91 98225 42154
Pune – Maharashtra - INDIA
www.dsconsulting.co.in
D S CONSULTING 12
