The requirement
Section 143(3)(i) of the Companies Act, 2013 requires the auditor's report to state whether the company has adequate internal financial controls with reference to financial statements, and whether those controls operated effectively.
Who is exempt
Under the Ministry of Corporate Affairs notification of 13 June 2017, as corrected on 13 July 2017, the requirement does not apply to a private company that is:
- a one person company, or
- a small company, or
- a company with turnover below ₹50 crore as per its latest audited financial statements and aggregate borrowings from banks, financial institutions or any body corporate below ₹25 crore at every point during the financial year.
The exemption is available only if the company has not defaulted in filing its financial statements under section 137 or its annual return under section 92.
How the test works in practice
| Company | Latest audited turnover | Peak borrowings in the year | IFC reporting? |
|---|---|---|---|
| A | ₹38 crore | ₹10 crore | No — both tests met |
| B | ₹62 crore | ₹5 crore | Yes — turnover test failed |
| C | ₹30 crore | ₹27 crore for one month | Yes — borrowings crossed ₹25 crore |
| D | ₹20 crore | Nil, but annual return filed late | Yes — filing default |
Borrowings are tested at any point in the year, so a short-term loan or inter-corporate deposit taken for a few weeks can bring the requirement in.
What the auditor will ask for
- Documented processes for significant areas: revenue, purchases, payroll, fixed assets, treasury and financial close
- A risk and control matrix linking risks of misstatement to the controls that address them
- Evidence that key controls operated through the year — approvals, reconciliations, reviews
- IT general controls over the accounting system: user access, changes and backups
Timing
Controls have to operate during the year, not just at year end. A company that will cross the thresholds should document and start operating controls early in the financial year, so there is evidence for the auditor to test.
References
- Companies Act, 2013, section 143(3)(i)
- MCA notification G.S.R. 583(E), 13 June 2017, and corrigendum of 13 July 2017
- ICAI Guidance Note on Audit of Internal Financial Controls over Financial Reporting
This note is general information on the law as at October 2026. It is not advice for any specific situation.