Home
Internal
Trust is the essence of Corporate Governance. Corporate Governance is not just a box-ticking exercise and not just about compliances. It is a continued commitment that helps the organisations to gain trust of their key stakeholders, Real meaning of good governance perhaps can be better understood, especially in view of the financial scams and crisis that keep occurring intermittently. The recent corporate scams have highlighted the importance of the presence or rather the absence of a good Corporate Governance! Needless to mention the investors and stakeholders trust is dependent on the way the Corporate Governance is exercised because good corporate governance is the hallmark of any organisational success and sustainability over a long period of time.
The Financial scam and crisis point out that trust alone is not enough. Trust alone is not an internal control. Along with trust there must be verification. Research reveals that, given a change in personal circumstances, such as need or opportunity, or a change in beliefs and perceptions, there are increased instances of pilferage, fraud, etc. Therefore, studies indicate that there is no end to greed and there is a gradual erosion in ethical values. In general, in these cases, sincerity has become more of a virtue rather than an inherent quality trait. Therefore, one cannot judge intentions but can have the actions reviewed with proper oversight. Therefore, its essential to have trust and verify.
Oversight is one of the most important internal controls. But as you grow your business, the focus shift towards growth and expansion, not on internal financial processes. Establishing internal processes and procedures to establish a good corporate governance is of paramount importance. Therefore, an effective internal control is a process effected by and through employees that supports the organisation goals, enabling them by
In recent years, increased regulatory requirements have forced organisations to contribute significant resources to address risk. Stakeholders in turn have begun to scrutinize whether businesses have the right risk-mitigation controls in place.
Risk is that which impedes the achievement of the organisation’s goals and objective. Risk if not mitigated, should be minimized with proper controls. The above listed control activities enables management to deal with controllable risks by reducing their likelihood or down-sizing the impact of the risk. Illustrative risks that corporates are exposed to while navigating the business environment.
The above illustrative risk areas are to be mapped with that of the controls. Thus, this risk control matrix is to ensure risk is mitigated by the established controls through a framework.
Current, Regulatory requirements in India insist on obtaining an audit opinion from the Statutory Auditors with respect to the adequacy of the internal financial controls over financial reporting of the company and the operating effectiveness of such controls vide notification dated June 13, 2017. It is applicable for company’s having turnover as per last audited financial statements is more than INR 50 Crores and its borrowings from banks and financial institutions at any time during the year is more than INR 25 Crores.
To conclude, in this VUCA world, where Volatility, Uncertainty, Complexity and Ambiguity dominates, solutions from the twin domains of Internal Controls and Risk Management can become the pivot for Corporate Governance. It provides organisations some helpful relief and the warning signals before the disaster strikes!
Martin Wörlein
Partner, Head of India practice
Send inquiry
