## Internal Financial Controls: Regulatory Responsibilities
The Companies Act, 2013 places explicit responsibilities on three bodies regarding internal financial controls (IFC):
### 1. Directors – Section 134(5)(e)
Applicable to: Listed companies only
Responsibility: The Directors' Responsibility Statement (included in the Board's Report) must state that:
- The directors have laid down internal financial controls to be followed by the company.
- Such IFCs are adequate and were operating effectively.
> This is a positive assertion by the Board — they must affirmatively confirm IFCs work.
### 2. Independent Directors – Section 149(8) read with Schedule IV
Applicable to: All companies having independent directors
Responsibility: Independent directors must:
- Satisfy themselves on the integrity of financial information.
- Ensure that financial controls and risk management systems are robust and defensible.
> Independent directors play a watchdog role — they must be satisfied, not just informed.
### 3. Audit Committee – Section 177(4)(vii)
Applicable to: All companies required to have an audit committee
Responsibility: Every Audit Committee must, per its terms of reference, include:
- Evaluation of internal financial controls and risk management systems.
> The Audit Committee actively evaluates — it is not merely a passive recipient of reports.
### Summary Table
| Section | Who | Responsibility |
|---|---|---|
| 134(5)(e) | Directors (listed companies) | State IFCs are laid down, adequate, and operating effectively |
| 149(8) + Schedule IV | Independent Directors | Satisfy themselves on integrity of financial info and robustness of controls |
| 177(4)(vii) | Audit Committee | Evaluate IFCs and risk management systems |