What is IFC and Why It Matters?
Internal Financial Controls (IFC) play a critical role in ensuring the financial integrity and operational efficiency of a business. Under Section 134(5)(e) of the Companies Act, 2013, IFC is defined as the set of procedures and policies adopted by companies to ensure proper conduct of business, adherence to policies, fraud prevention, and timely, accurate financial reporting.
In simpler terms, IFC refers to the internal checks a company puts in place to safeguard its assets and ensure financial accuracy. As businesses grow, especially in the private sector, the relevance of IFC applicability has increased to avoid compliance risks and maintain transparency.
Who Needs to Comply with IFC Requirements?
According to the Companies Act, all companies—especially listed ones—must implement IFC and report its adequacy in their Board’s Report. Directors are responsible for stating whether appropriate IFC systems are in place, while statutory auditors must express an opinion on the effectiveness of those systems.
For private companies, the IFC applicability depends on specific financial thresholds. The Ministry of Corporate Affairs (MCA) provides clear exemptions for smaller private entities. As per the latest guidelines, a private limited company is exempt from IFC over financial reporting if:
- It is a One Person Company (OPC) or Small Company; or
- It has a turnover of less than ₹50 crore; or
- It has aggregate borrowings of less than ₹25 crore at any point during the financial year.
However, these exemptions apply only if the company has not defaulted in filing its annual return or financial statements with the Registrar of Companies (ROC).
Key Considerations for Private Companies
Even if your company qualifies for an exemption, that doesn’t mean IFC should be ignored. Robust financial controls help improve investor confidence, reduce fraud risk, and streamline operations. In today’s environment of increasing regulatory scrutiny, having an internal control framework, even if not mandatory, is a proactive best practice.
Companies that cross the threshold limits or plan to scale in the near future should initiate their IFC readiness early on. This includes drafting policies, preparing a Risk and Control Matrix, and documenting processes through flowcharts.
How AKM Global Supports IFC Compliance
For businesses seeking reliable guidance on IFC implementation, AKM Global, a leading consultancy based in India, offers comprehensive support. Their advisory services include:
- Evaluating IFC applicability based on your company’s structure and financials
- Assisting in developing the Risk and Control Matrix
- Helping with documentation, policy drafting, and flowcharting for process transparency
- Conducting gap analysis and periodic reviews to ensure operational effectiveness
Their expertise ensures companies are not only compliant but also aligned with best corporate governance practices.
Final Thoughts
With evolving regulations and increasing focus on corporate accountability, understanding and implementing IFC is more than a legal formality—it’s a strategic necessity. Whether or not your business falls under mandatory compliance, adopting internal controls strengthens financial reliability and prepares your organization for future growth.
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