A comparison of Internal control over Financial reporting (ICFR) with The Goods and Services Tax (GST)
The objective of Internal Financial Control (section 134(5)(e) of the Companies Act, 2013) is that policies and procedures are in place ensuring orderly conduct of business, safeguarding Assets, prevention and detection fraud, accuracy and completion of accounting Records, timely preparation of reliable financial information about the company while the GST aims the same from the entire trading community apart from the designated company under ICFR.
While the relevant provisions under the companies Act and the guidance note (September 2015) issued by ICAI guiding to achieve the objective, GST Acts and rules ensure the same.
Auditor has to report under section 143(3)(i) whether the company has adequate IFC system. The stakeholders may be the Directors, Board, Independent directors, Audit committee based on the applicability of relevant clauses. GST has the same stakeholders.
The financial statement forming part of the Auditor’s report has to be reconciled in Form 9 under GST.
Companies Act 2013, Clause 49 of listing agreement and Sabanes Oxley Act may be the comparative regulatory requirements under ICFR. Indirect laws of Central excise, Sales tax, VAT, Service tax and many other state local laws may be comparatives for GST.
Internal control principle based on control environment, risk assessment, control activities, information & communication and monitoring while GST principles, through monitoring of returns and rating based on compliance.
ICFR is a value addition such as redesigning business process, automated controls and work culture across organization, enhanced assurance of better performance to CEO/CFO is a blue print to optimal procedure. GST Act and rule is the blue print for a business.
Planning, design and implementation, operating effectiveness and the reporting would be the flow of audit in internal controls of ICFR. The same is counted as controls by the government from GST perspective in safeguarding the revenue.
Legal compliance framework is one of the entity level controls in ICFR. The same is being considered for compliance rating in GST
While ITGC ensures proper development, implementation of application, integrity of programme, data file and computer operations in ICFR, it forms an important part in the IT driven GST.