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Internal Control Internal Check And Internal Audit Pdf

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Internal Controls and Internal Audit

In this article we will discuss about:- 1. Systems Audit as a Tool of Internal Control 4. Management Audit 5. In cast of big organisation, on the other hand, full-fledged internal checking machinery is considered essential in view of the big volume of transactions of a wide variety handled and recorded by a large number of staff.

This course is ultimately likely to be a part of CA curriculum. This is a new concept in the sphere of internal control. It may also be called operational or efficiency audit.

One vital aspect of management audit is to assess the degree of efficiency and efficacy with which scarce and valuable resources of an enterprise, i.

This has necessitated the global recognition of the essential need for sound management audit systems. In small business houses, where the accountant has got the entire control over the books and records and where introduction of a proper system of internal check is considered too costly, it should be the duty of an auditor to verify the whole of the records and entries. In other words, an auditor can adopt test checks relying on internal checks entirely at his own risk.

On that basis an auditor should fix the exact scope and extent of his detailed checking. Besides, an auditor is often asked to suggest suitable systems of internal control and checking. Unused receipt books should be kept under lock and key in the custody of a responsible officer and spoilt or cancelled receipts should be attached to the counterfoils instead of being destroyed.

It is a good system to have all cheques signed by more than one responsible official who should carefully scrutinise all documentary evidences substantiating the payments in question. Duplicate receipts, if any obtained, should be carefully examined with documentary evidence to guard against entry of a single payment more than once in the cash book on the basis of both the original and the duplicate receipts.

This group of transactions requires very careful handling, particularly when large sums are daily realised as in the case of big retail shops, departmental stores etc. The following may be taken as outlines of a good system of internal check and control about cash sales:. Particularly in big manufacturing and other concerns employing large number of workers there may be regular and large scale defalcations through inclusion of dummy or fictitious names in the wage sheets or incorporation of larger period of time than actually spent or larger quantities than actually produced by workers.

The following may be taken as a fairly good system of internal check and control in regard to wages payment:. The foreman or supervisor of each department should, in addition, enter details of work done and time actually taken in job cards issued to each workman.

The wage sheet should be checked by some responsible officer and finally signed by a superior official like the manager or a director. Workers may also be required to produce identity cards with their photographs issued to them by the employers. Every worker receiving payment of wages should sign or put his left thumb impression against his name and the sheets should be initialed by both the paying cashier and the identifying officer.

The methods of preparation and checking of salary bills, withdrawal of money, identification and payment should generally be the same as in the case of wages.

The invoices should be checked by the invoice clerk with copies of orders, challans etc. MAOCARO requires an auditor to report on the adequacy of internal control procedures for purchases commensurate with the size of a company and the nature of its business. On receipt of its copy of the sale note the sales department will proceed on the same lines as in the case of a direct sale as detailed above. Two alternative methods of keeping accounting records in respect of goods sent on approval may be used.

They are briefly enumerated below:. Under this method a complete set of double entry books may be maintained to record transactions on sale or return as under:.

If goods are received on sale or return, they should not be entered in the regular accounting records. A memorandum book is generally maintained to keep records of goods received, returned and retained, and also the stock in hand on the closing date held on behalf of the sender.

The main features of internal checking and internal control from the points of view of both sellers and buyers are enumerated below:.

If any damage is detected the buyer should be made responsible there-for. Entry is to be made in the goods inward book. On receipt of each instalment the buyer is credited. Alternatively, the sale account may be credited with each instalment as and when realised so that profit on the deal is spread over the entire period of the agreement.

At closing time, however, the outstanding dues from the buyer should be included in the trading account and in the balance sheet as stock-on-hire, subject to deduction therefrom of proportionate estimated profit thereon.

The charge for the containers is included in the selling price. A packages account is kept being debited with opening stock and purchases and credited with closing stock. The charges are entered in a separate column in the sales day book. Periodical totals of this special column are posted to the credit of the package account. Double entry records will be same as under i above but the closing stock will be classified under two distinct heads, viz. In order to have a more effective check on the movement of packages, each container is allotted a code or identification number and as soon as goods are despatched this number is entered in a separate column on the debit side of the personal account of the customer in the sales ledger.

Periodical cancellation of numbers on both debit and credit sides will indicate packages lying with the customer. Generally, a time limit is prescribed for return of containers after which rent is charged. Containers may be charged out at cost or more to cover depreciation, repairs etc.

When they are returned, the customers may be credited at a price less than that charged out. After the expiry of the agreed time limit, return of packages is accepted. It is a good system to arrange occasional surprise checks by some responsible official of physical stocks with balances as indicated by store records [see Art.

Stock taking—i. In big concerns with a very large number of items, sheets with the description and code numbers printed thereon may be used. Sometimes stock taking is carried on through a continuous stock taking process instead of at the end of a period. In such a case proper adjustment of shortages or excesses detected upto the closing date should be duly adjusted.

Modern business houses are obliged to offer credit to their customers, which often involve considerable amounts and have great influence on the working capital as a whole.

What is internal audit?

In this article we will discuss about:- 1. Systems Audit as a Tool of Internal Control 4. Management Audit 5. In cast of big organisation, on the other hand, full-fledged internal checking machinery is considered essential in view of the big volume of transactions of a wide variety handled and recorded by a large number of staff. This course is ultimately likely to be a part of CA curriculum. This is a new concept in the sphere of internal control.

Internal auditing is an independent, objective assurance and consulting activity designed to add value to and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management , control and governance processes. Professionals called internal auditors are employed by organizations to perform the internal auditing activity. Internal auditing may also involve conducting proactive fraud audits to identify potentially fraudulent acts; participating in fraud investigations under the direction of fraud investigation professionals, and conducting post investigation fraud audits to identify control breakdowns and establish financial loss. Internal auditors are not responsible for the execution of company activities; they advise management and the board of directors or similar oversight body regarding how to better execute their responsibilities. As a result of their broad scope of involvement, internal auditors may have a variety of higher educational and professional backgrounds. The Institute of Internal Auditors IIA is the recognized international standard setting body for the internal audit profession and awards the Certified Internal Auditor designation internationally through rigorous written examination.

Internal Control and Internal Checking System | Auditing

The role of internal audit is to provide independent assurance that an organisation's risk management, governance and internal control processes are operating effectively. What is its value to the organisation? The difference between internal and external audit Our members. What do internal auditors do? We have a professional duty to provide an unbiased and objective view.

Relationship between Internal Control and Internal Audit

Orderly and efficient conduct of its business. Adherence to management policies Safeguard of assets Prevention and detection of frauds and errors Accuracy and completeness of accounting records. Objectives of Internal Control To ensure that transactions are executed in accordance with managements general or specific authorization. To ensure that all transactions are promptly recorded in the correct amount in the appropriate accounts. To ensure that assets are safeguarded from unauthorized access, use, disposition.

Internal controls

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