Internal control “According to The American Institute of Certified” Public Accountants Internal control comprises of the plan of the organisation and all the co-ordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data to promote operational efficiency and to encourage adherence to prescribed managerial policies” It includes both financial and non financial control.

Purpose of internal control To client Providing reliable data. Safeguarding assets and records To promote operational efficiency To encourage adherence to prescribed policies

Characteristics/elements or principles of internal control Competent and trustworthy personnel Records, financial and other organisational plans Segregation of duties Supervision Authorisation Sound practices Internal Audit Arithmetic and Accounting Control

Limitations of internal Control Involves expenditure of time and money Irregular transactions may be overlooked Human error may weaken internal control Person exercising control can abuse his authority Manipulation by management Changes in conditions may render the procedure ineffective

Areas/Scope of internal control General financial control Cash control Control over trading transactions Control over employees remuneration Capital expenditure control others

Internal control and Auditor

Internal control questionniare

Internal check Ronald A Irish “Internal check refers to the organisation of office duties in such a way as to prevent or disclose both errors and frauds.” Spicer and Peglar “Internal check is an arrangement of staff duties whereby no one person is allowed to carry through and record every aspect of transactions so that without collusion between two or more persons, fraud is prevented and at the same time the possibilities of error are reduced to the minimum.”

Principles or characteristics of a good system of internal check Responsibility Completion Rotation of employees Automatic check Reliance Safeguards Supervision Formal sanction Periodical review

Advantages of internal control Proper division of work Detection of errors and frauds Increased efficiency coupled with economy Moral check Convenience to auditor Increase in profit Quick preparation of final accounts

Disadvantages of internal check Costly for small business Quality is sacrificed for promptness Carelessness among high officials Disorder in the working of a business Risky for an auditor

Internal check and auditor Internal check with regard to cash receipts Internal check with regards to cash sales Sales at counter Sales by travelling salesmen Postal sales Cash receipts Petty cash payments

Internal check with regard to Wages Purchases Sales Stock

Internal Audit Watter B. Meigs “Internal auditing consists of continuous critical review of financial and operating activities by a staff of auditors functioning as full time salaried employees. The Institute of internal Auditors, USA, “internal auditing is an independent appraisal function established within an organisation to examine and evaluate its activities as a service to the organisation. It is a type of control which functions by measuring and evaluating the effectiveness of other types of control, it deals primarily with accounting and financial matters, but it may also properly deal with matters of an operating nature. “

Internal check vs. Internal audit