The Efficacy Of Internal Controls And Audit Committees In Mitigating Financial Risk: Perspectives From Indian Corporate Governance

Abstract

This study investigates the efficacy of internal control systems and audit committees in mitigating financial risk within the framework of Indian corporate governance. Using a quantitative research design, data were collected from 150 publicly listed firms across diverse sectors on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The study examined three key constructs; Internal Control Effectiveness (ICE), Audit Committee Effectiveness (ACE), and Financial Risk Exposure (FRE) supported by firm-specific control variables such as size, age, and industry type. Statistical analyses including descriptive statistics, correlation, multiple regression, and structural equation modeling (SEM) were employed to test the hypothesized relationships. Results revealed that both internal controls and audit committee effectiveness significantly and negatively influence financial risk, confirming that stronger governance mechanisms enhance financial stability and reporting integrity. Moreover, SEM analysis established that audit committee effectiveness partially mediates the relationship between internal controls and financial risk, highlighting its central oversight role. The model achieved strong fit indices (CFI = 0.963, RMSEA = 0.046), indicating robustness and reliability. The findings validate the effectiveness of India’s corporate governance reforms under the Companies Act (2013) and SEBI regulations, affirming that integrated governance frameworks substantially contribute to financial resilience, stakeholder confidence, and sustainable corporate performance.