Fundamental aspects that must be considered for the implementation of strong internal financial control in a business

As business owners, we must ensure that the?Internal Financial Control in India?is followed in our organization, basically to prevent or detect errors or fraud.

By applying?Internal Financial Control in India, we also ensure that the financial reports of our organization, those that transcend third parties and that is an element of decision and investment for many of them, do not contain material false assertions.

For this, it is necessary to establish or define what we understand by internal control? Internal control is a process carried out by the board of directors, management, and the rest of the staff of an entity, designed to provide a reasonable degree of assurance as to the achievement of objectives in the following categories.

• Effectiveness and efficiency of operations
• Reliability of financial information
• Compliance with applicable laws and regulations

The internal control framework and therefore the control activities associated with?Internal Financial Control in India?is a fundamental aspect. Within this process of evaluation of control activities, we have two well-differentiated moments:

– Assess the effective strategy of the controls,

– Evaluation of operational efficiency,

For the appropriate implementation of?Internal Financial Control in India, we can establish a procedure in our company that will allow us to evaluate the design of the control activities, the steps to follow are:

1. Understand the business process and the design of controls

It is extremely important to understand the business process, to subsequently be able to analyse the controls that are immersed in it.

This exercise will first allow us to determine which are the most relevant or key controls of the process as well as later to be able to determine if how the controls were designed manages to mitigate the existing risks.?

Planning, realization, and evaluation of the Walkthroughs

A walkthrough is a journey that we carry out throughout a transaction. An example could be to carry out the journey of the purchase process in which we will start from when the order request is generated by part of a user area, supplier evaluation, supplier selection, order issuance, etc.

Throughout this journey, we should request the documents that are generated. It is undeniable that this methodology is extremely useful when it comes to understanding a process and the controls that are immersed in it. In short, we can summarize the purpose of the walkthrough as:

– Confirm the process flow of transactions

– Confirm understanding of control design

– Confirm if the understanding is complete

– Evaluate the effectiveness of the design

– Confirm if controls are related to operations

Some of the questions we can ask ourselves to evaluate the effectiveness of the design could be:

• Who is doing the control?
• What is being done and what could go wrong?
• When and where do controls occur or are they performed?
• Why are the controls being carried out?

As you can see there are several levels of implementing?Internal Financial Control in India?and experts suggest to business owners that this important feature should not be ignored as only the presence of good internal control in a business can guarantee the accomplishment of organizational objectives.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.

Posted by:

CA Aman Aggarwal

AKGVG & Associates