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CA Intermediate · Auditing and Ethics · Risk Assessment and Internal Control

Under the Companies Act, 2013, the auditor's report on a company must state whether the company has an adequate internal financial controls system with respect to financial reporting and the operating effectiveness of such controls. For which of the following companies is this reporting generally NOT applicable by exemption?

The exemption from reporting on internal financial controls applies to the small private company in the last option. It has turnover of Rs 30 crore and borrowings of Rs 20 crore, both below the prescribed limits. The other companies are public, listed or exceed the borrowing threshold, so reporting applies.

  1. AA public company with paid-up capital of Rs 10 crore
  2. BA listed company with turnover of Rs 400 crore
  3. CA private company with borrowings of Rs 60 crore
  4. DA private company that is not a subsidiary or holding company, with borrowings from banks of Rs 20 crore and turnover of Rs 30 croreCorrect

Explanation

The exemption under the Government notification covers a private limited company that is not a holding or subsidiary of a public company, with turnover below Rs 50 crore and borrowings below Rs 25 crore. Option D satisfies both thresholds, so the IFC reporting requirement is exempt. The others are public, listed or have borrowings above Rs 25 crore, so reporting applies.

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