1. INTERNAL CONTROL SYSTEM
SIVANANDHAM S
Assistant professor
Department Of B.Com CMA
Sri Ramakrishna College of Arts & Science(A),
Coimbatore - 641006
2. MEANING
• Internal controls system includes a set of rules, policies, and
procedures an organization implements to provide direction,
increase efficiency and strengthen adherence to policies.
• It is a structure of a company consists of the policies and
procedures established to provide reasonable assurance that
specific entity objectives will be achieved.
3. OBJECTIVES
• To ensure that the business transactions take place as per the general and specific
authorization of the management.
• To make sure that there is a sequential and systematic recording of all transactions.
• To provide security to the company’s assets from unauthorized use.(Security
Guards, CCTV, etc.,.)
• To evaluate the system of accounting for complete authorization.
• To review the working of the organization and the loopholes in operations.
• To ensure the optimum utilization of the firm’s resources such as men, material,
machine.
• To find out whether the financial statements are in alignment with the accounting
concepts and principles of the company
4. FEATURES OF INTERNAL CONTROL
SYSTEM
• Division of Work: An item may need to be displayed by staff, and an invoice
may need to be prepared by another; cash may need to be received against the
invoice by a third clerk, an item may need to be delivered against a receipted
invoice, an item may need to have its outward movement checked against a
delivery order, and so on.
• Giving a Check: The company should establish such rules so that other
employees may review the job. By switching to the staff, an officer can check
the work of one staff member.
• Use of Equipment: Devices may carry out various tasks in this modern
environment, such as time clocks and salary calculators. An organization
ought to make use of tools that facilitate internal audits.
5. • Autonomous System: An organization can use self-balancing ledger accounts
to facilitate internal audits. Its management determines how effective it is.
• Rotation of Jobs: No employee should be permitted to stay in one area of
work for an extended period. People have more freedom to manipulate the
system when they are familiar with it and have exclusive access to it.
• Specialization: Not every employee may have a particular expertise needed
to keep accounts correctly. Therefore, a firm should provide training to
improve employees' abilities so that internal controls may be enhanced.
• Authority Level: Precise authority levels that correspond to the various
transactions' punishments are required. Responsibility must be extracted in
proportion to the power granted. The existence of authority levels causes an
evaluation of subordinates' operations.
6. ADVANTAGES OF INTERNAL CONTROL
SYSTEM
• Moral sway over workers: The system of internal controls keeps staff
members' morale in check and teaches them the value of honesty, diligence,
and straightforwardness.
• Assessment of Employee Responsibility: The internal check system
determines employee duties. The employee may be held accountable for any
irregularity that he engages in.
• Frauds are less likely to occur: The internal check method reduces the
likelihood of fraud since mistakes and frauds may be caught early.
• Enhanced Effectiveness: Because the internal check system is based on a
division of labour, it ensures higher efficiency and speed.
7. • Making Auditing Simple: Due to the internal checks system's ability to rely
on test checking, auditors' job is greatly facilitated.
• It is possible to create final accounts: The "Profit and Loss Account" and
Balance Sheet are quickly created in an internal check system.
• Complete and accurate records of every transaction: The internal check
system may also provide accurate and comprehensive records of all
transactions on each bookkeeping balance.
• Identification of Fraud or Irregularity: Before they assume any
complications, staff workers might have any dishonesty or irregularity in
the concern caught.
• Testing Possibility: Let's say the internal cheek system is deemed adequate
by the auditor. Then he may use test checking to aid him by thinking about
flaws or weak places.
8. TYPES OF INTERNAL CONTROL SYSTEM
• Preventive controls are proactive in that they attempt to deter or
prevent undesirable events from occurring.
• Corrective controls are put in place when errors or irregularities have
been detected.
• Detective controls provide evidence that an error or irregularity has
occurred. These controls may also be referred to as mitigating controls.
They help to reduce risk associated with a failure to implement
preventive controls.
