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Applicability of Internal Financial Controls (IFC)

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Meaning of internal financial controls

Section 134(5) of the Companies Act explains the meaning of internal financial controls as, "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."

Internal financial controls (IFC) applicability


Relevant provisions


Statutory requirement

Section 134 of Companies Act

All listed entities

The Directors Responsibility Statement shall state the directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and operating effectively.

Section 143 of Companies Act

All entities (listed/ unlisted)

The auditor's report shall state whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such IFC.

Section 177 of Companies Act

All entities having an audit committee

The audit committee shall evaluate internal financial controls and risk management systems.

The audit committee may call for comments of auditors about internal control systems before their submission to the Board.

Schedule IV

All entities having independent directors

The independent directors should satisfy themselves on the integrity of financial information and ensure that financial controls and systems of risk management are robust and defensible.

Rule 8 (5) of Companies Accounts Rules

All entities (listed /unlisted)

The board report shall state the details in respect of adequacy of internal financial controls with reference to the financial statements.


Exemption to specified Private Limited Companies from IFC applicability

Ministry of Corporate Affairs (MCA) vide notification has exempted the following companies from reporting over internal financial controls-

(i) One-person company (OPC).

(ii) A private limited company having a turnover of less than Rs 50 crores as per latest audited financial statement or having aggregate borrowings from banks or financial institutions or body corporate at any point of time during the financial year less than Rs 25 crore.

In simple words, IFC applicable to private companies wherein turnover is > 50 crore or outstanding loans & borrowings from banks > 25 crore.

Further, the private companies will be exempted from IFC Applicability only if it has not committed a default in filing their financial statements under section 137 of the Companies Act 2013 or annual return under section 92 of Act with the Registrar.

How TaxGyata helps strengthen internal financial controls:

  • Documentation & revision of controls
  • Testing of controls
  • Remedial planning & recommendations
  • Remediation of control weaknesses
  • Implementation of control framework
  • Project management/Outsourcing


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CA Anand Singh

CA Anand Singh

I am a practising Chartered Accountant with 6 years of experience in Direct and Indirect Taxation, FEMA, Corporate Law and Audit etc.