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An overview of Internal Controls Structure & Mechanism

An overview of the structure and mechanism of internal controls, highlighting the importance of accountability and responsibility in ensuring effective financial reporting and corporate governance. This article examines the requirements of the Companies Act, listing agreements, and audit committees in evaluating and maintaining internal control systems. It also emphasizes the benefits of strong internal controls, including improved compliance, accountability, and investor confidence.

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An overview of Internal Controls Structure & Mechanism

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  1. An overview of Internal Controls Structure & Mechanism Dr. S.K.Gupta M.Com, FCS, FCMA, Ph.D

  2. Board Audit Committee Management Auditors CARO CARO required statutory auditors to report on internal control matters relating to inventory, fixed assets and sale of goods and services Directors - Section 217 (2AA) Directors of a company to specifically state in the Directors Responsibility statement that they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provision of the Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities Clause 49 of listing agreement CEO / CFO certification - Responsibility of control system and significant changes in internal control

  3. Sec 134 (5) (e) Directors’  to Responsibility states that they have laid down IFC to be followed By the company And such controls are adequate and operating effectively (Listed company) Sec 177(4) (vii)& Clause 49 (III)(D) Audit committee to Evaluate internal financial control and Risk management systems CFO & CEO – Clause 49 of listing agreement Accept responsibility for establishing and maintaining IC for FR and that they have evaluated the effectiveness of ICS of the company Sec 143 (3) (i) & Sec 143 (12)  The auditor’s report shall also state whether the company has adequate internal financial control system in place and the operating effectiveness of such control

  4. To Sum up….Placing more accountability and responsibility on the Board and AC with respect to IFC, the 2013 act has attempted to align the corporate governance and financial reporting standards with global best practices Senior Management Accountability Enhanced control Improved compliance to laws Improved Control over FR processes Accountability of operational Management Improved investors confidence Benefits of IFC Support to CEO / CFO Certification More accurate and reliable FS Audits more comprehensive Promotes culture of transparency

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