The 7-Step ICFR Lifecycle – Building a Sustainable Control Environment

Overview

Effective ICFR implementation and monitoring follow a structured 7-phase lifecycle. Each step builds on the previous one, ensuring that controls are not just designed, but also working in real-time, and ready for regulatory review or audit certification.

Step 1: Scoping & Planning

Objective: Identify what parts of the business are “in-scope” for ICFR
Activities Include:

• Mapping significant Financial Statement Line Items (FSLIs)
• Linking FSLIs to key business processes (e.g., revenue → order-to-cash)
• Selecting relevant entities, locations, and IT systems
• Defining governance roles and timelines

UAE Tip: PJSCs must document their ICFR scope clearly for SCA audit reporting purposes.

Step 2: Process Documentation

Objective: Understand how transactions are initiated, approved, recorded, and reported
Outputs:

• Detailed process narratives
• Visual flowcharts
• System maps showing ERP/data flow

Best Practice: Validate documentation via walkthroughs with process owners, not just existing SOPs.

Step 3: Risk Identification & Control Mapping

Objective: Identify what could go wrong, and link those risks to controls
Tool: Risk Control Matrix (RCM)

• Defines financial assertion risks (e.g., occurrence, accuracy, cutoff)
• Lists controls (manual/automated, preventive/detective)
• Flags key controls for testing

Example: “Sales recorded without delivery” → Control: “Invoice only posted upon delivery scan confirmation”

Step 4: Control Design Evaluation

Objective: Determine if controls are appropriately designed to mitigate the risks

• Is the control clearly defined, well-documented, and effective on paper?
• Is the owner identified, and can the control be performed consistently?

Outputs:

• Design effectiveness review sheet
• List of design gaps for remediation

Step 5: Control Testing (Design & Operating Effectiveness)

Objective: Prove that controls actually exist and are working as intended

• Design Effectiveness Test: Can the control, as designed, prevent error?
• Operating Effectiveness Test: Was the control performed throughout the year?

Step 6: Deficiency Evaluation & Remediation

Objective: Categorize control failures and implement fixes

• Control Deficiency: No major impact
• Significant Deficiency: Important to report to audit committee
• Material Weakness: Must be disclosed in financial statements

UAE Note: Starting 2025, UAE PJSCs must publicly disclose material weaknesses in ICFR.

Step 7: Management Certification & Reporting

Objective: Formally assert ICFR effectiveness and communicate findings
Deliverables:

• ICFR effectiveness certificate (signed by CEO/CFO)
• Summary of control test results
• Final reports to board, audit committee, external auditors

Relevance to UAE:

• 2024: Private ICFR audit opinion
• 2025 onwards: Public ICFR audit opinion under SCA mandate
• Insurance firms: Must submit ICFR-backed reports to CBUAE

How Crowe Can Support Your ICFR Journey

• End-to-end lifecycle implementation support
• Documentation, risk mapping, and control design
• Testing and remediation planning
• Preparation for SCA/CBUAE ICFR attestation
• Management training and governance alignment

Coming Next Week:

Next week, we’ll dive deep into Risk Identification and Control Mapping, with real-world examples and tips for building effective Risk Control Matrices (RCMs).