Internal controls are fundamental to any business and help organisations identify risks, prevent leakages and strengthen decision-making.
“Internal control mechanism is not a matter of compliance. It is a matter of self-interest. Any entrepreneur should have an internal financial control mechanism,” Prasanna Kumar D, president of ICAI, said in an interview with PTI.
The comments come against the backdrop of recent governance lapses in the financial sector.
Also read: Financial regulators scramble to counter AI rise with own tools
“Governance is there. So, there is always a scope. If the governance fails, the internal financial control mechanism will (also) fail. And they land up in trouble somewhere,” he said.
On the role of auditors in detecting financial irregularities, he said auditors provide an opinion on whether financial statements present a true and fair view based on available information and the defined scope of audit.”Whatever financial reporting issues were there and some frauds, whatever the name you call it, it has been there. This is all company-specific, enterprise-specific. There may be some system failure somewhere,” he said.
The ICAI President also highlighted the distinction between statutory and internal audits, saying statutory audits follow a uniform framework, while internal audits depend on the scope agreed between companies and auditors.
Internal audits, he said, are aimed at identifying areas of improvement, possible leakages and risks during the year so that management can take corrective action.
Separately, ICAI has started work on preparing a new accounting framework and manual for Tirumala Tirupati Devasthanams (TTD), following a request from the temple administration.
The project, approved through ICAI’s research foundation, will be undertaken on a pro bono basis, he said.
“TTD has an excellent technology-driven ecosystem and runs its administration through ERP. However, the accounting framework has been there for more than 30 years, and they wanted a new accounting manual,” he said.
The institute has started studying the existing accounting system, requirements and expectations of the Devasthanam and aims to prepare a preliminary report within 100 days after completion of the initial consultation process.