Reporting under Rule 11(g) vis-à-vis Reporting under Section 143(3)(i) ​

33. Section 143(3)(i) of the Act, where applicable under the provisions of the Act, requires the auditor to state in his audit report whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls. Guidance in this regard has been prescribed vide “Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the Guidance Note) issued by ICAI. Paragraph 52 of the Guidance Note uses expression ‘audit trail’ to describe the control activities in relation to policies and procedures related to information processing system that may be relevant to an audit. However, the Guidance Note does not entail any detailed audit procedures in respect of reporting against Rule 11(g). Accordingly, where the feature of audit trail has not operated throughout the year, the auditor may need to appropriately modify his comment while reporting under Rule 11(g) depending upon the further testing/examination as may be required to conclude the wider impact on the reporting implication. Given below is an example of a scenario wherein management is unable to rely on the automated controls in an accounting software: [This scenario presupposes a modified IFCoFR report due to inability of management to rely on the automated controls, where reporting under Section 143(3)(i) is applicable for the company] “The company has used an accounting software for maintaining its books of account however for the reasons stated in [refer the reporting of IFCoFR] management is unable to rely on automated controls related to financial reporting in the accounting software and consequently we are unable to comment on audit trail requirements of the said software as envisaged under Rule 11(g).” However, it should be noted that mere non-availability of audit trail does not necessarily imply failure or material weakness in the operating effectiveness of internal financial controls over financial reporting.