With the end of the financial year 2022-23 fast approaching, companies must prioritize strengthening internal controls over financial reporting to ensure timely, accurate, and complete annual financial statements. These statements are essential for stakeholders to understand the company’s performance and state of affairs. CFOs and Finance Controllers must take critical non-routine actions to ensure risk-managed compliance with reporting requirements and matters highlighted by auditors.
Accounting and books clean up:
- Review aged trade receivables for provisioning/write-off and income tax allowances.
- Reconcile with key vendors/customers for accuracy.
- Plan physical verification of inventory and fixed assets for proper reconciliation.
- Capitalize internally generated intangible assets (mobile app, website, etc.).
- Review ESOP expenses and update in line with any changes to the ESOP scheme, and review overdue loan/interest and unbilled revenue.
Compliances
- Review payables to MSME vendors and pay interest for late payments beyond 45 days.
- Ensure proper documentation for related party transactions
- Deduct TDS on expenses accrued for the year
- Conduct actuarial valuation for employee benefits liability
- Finalize allocation of group expenses for timely GST discharge; reverse GST input credit for unpaid vendor invoices older than 6 months; conduct income tax planning.
Reporting:
- Evaluate the applicability of CARO (additional reporting matters by the auditor) to the Company.
- Evaluate the applicability of reporting on Internal Controls over Financial Reporting (additional reporting matters by the auditor) to the Company.
- Identify vendors as micro, small or medium enterprises for reporting purposes.
Mandatory requirement to maintain audit trail:
Starting April 1, 2023, it is mandatory for all companies to maintain an audit trail for their transactions to improve transparency, reliability, and accountability in financial reporting, as directed by the Ministry of Corporate Affairs (MCA). Companies using accounting software
must ensure it has a feature to record the audit trail of every transaction, maintain an edit log of changes made, and prevent the audit trail from being disabled, according to the Companies (Accounts) Rules, 2014.
To comply with the regulation, CFOs and Financial Controllers should upgrade their accounting software and processes, train the finance team, and update internal control framework documentation and Standard Operating Procedures (SOPs). This will ensure
timely and effective implementation of the new regulation, improve financial reporting accuracy, and minimize the risks of financial irregularities.
