This document discusses internal controls, internal checks, internal audits, and the differences between them. It provides advantages and limitations of each. Internal controls help ensure organizational objectives are achieved. Internal checks involve separating duties so employees check each other's work. Internal audits continuously review financial and operational matters to detect errors and fraud. Key differences include internal checks focusing on transaction processing while internal controls ensure policy compliance, and internal audits are appointed by management for early error detection versus statutory audits appointed by shareholders.

1. INTERNAL
CHECK , CONTROL& AUDIT

2. Internal control
Internal Controls assist management and staff
of the organization to achieve the organization
objectives.

3. Advantages
 Accurate and reliable data.
 It ensures that the policies and procedures prescribed
by the management are followed by the employees.
 It promotes operational efficiency.
 It helps the organization to attain its goal effectively.
It safeguards the assets and the records of the
business.

4. limitations
As long as people perform control procedures,
an internal control system will be vulnerable to
human error.
Errors can arise from misunderstandings,
mistakes in judgment, carelessness, distraction, or
fatigue.
Separation of duties can be defeated through
collusion by employees who secretly agree to deceive a
company.

6. INTERNALCHECK
Internal check is an accounting procedure whereby
routine entries for transactions are handled by more
than one employee in such a manner that the work of
one employee is automatically checked against the work
of another.

7. ObjectivesOf Internal Check
Division of work – It is based on individual’s ability.
Use of devices – An organization should use various
devices which helps to make work of internal check
easier.
Minimization of errors and frauds – The work
performed by each individual is checked by another
individual.
Reliability – If the internal check is very good then
the auditor will rely upon the books of accounts.
Preparation of final accounts – With an effective
internal check system the final accounts can be
prepared safely.

8. ADVANTAGES
Fixation of responsibility – A Proper internal check
system will ensure accountability and responsibility
of the employees.
Prevention of Errors and Frauds – Under this system
no one employee is allowed to record more than 1 aspect
of the transaction.
Increase the efficiency of clerks – The work is
divided among the employees according to their
Qualification and experience.

9. Reliability of information – The aim of this system is
to have an accurate record of all the transactions.
Reduces the workload of auditor – In relation to the
extent of audit procedures followed or adopted.
Increases the overall efficiency of the business –
By preventing occurrence of the frauds, proper
segregation of duties which will increase the efficiency.

10. limitations
Expensive – It is applicable only for large business
concerns.
Does not reduce the liability – It will help the
auditor in reducing his work but it will never reduce
the liability.
Carelessness – Sometimes employees may become
less serious towards the work.

11. Duties of an Auditor as Regards
Internal Check System
 Examination -
First of all an auditor should satisfy himself about the
working of proper internal control system.
 In Case Of Satisfactory System -
If the auditor is satisfied about the effectiveness of internal
control then he should check the efficiency and its existence
by checking various items from different place.
 Unsatisfactory Case -
If the auditor feels that internal control system is not
satisfactory then he should check those accounts where
errors are likely to exist.

12. Some Sections Are Inadequate -
If auditor feels that over all system is satisfactory but
certain sections of the system appears to be
inadequate then he should inform the client about the
dangers.
Suggestions -
Auditor should also give suggestions that how
weaknesses can be removed if he is asked by the client.

13. INTERNAL CHECK AS REGARDS
RECEIPTS PAYMENTS SALES

14. RELATION TO RECEIPTS OF
CASH
Receipts of a cash must be handled by a separate clerk
known as cashier.
Bank reconciliation statement should be prepared by
the cashier to reconcile bank and cash balance.
All debtors or customers requested to make payments
by crossed cheques.
Automatic bills or cash registers are useful for checking
receipts.
The counter-foils of all the receipts issued should be
properly maintained.

15. RELATION TO PAYMENTS OF
CASH
All payments should be made by cheques.
Petty cash payment should be handled by the petty
cashier.
Names, numbers and the status of persons authorized
to sign cheques must be decided.
Confirmation of accounts with creditors should be
made to maintain up-to-date records.
A proper system must be adopted for controlling the
supply and issue of cheques.

16. RELATION TO CASH SALES
Separate salesman should be appointed to carry out
sales at different counters.
The salesman should prepare sales invoice into four
copies.
The accountant must make the entries in cash book.
Salesman should prepare a summary showing cash
sales.
Copies of the sales summary sheet should be sent to
the officer-in-charge of the trading house.

19. INTERNAL AUDIT
Internal audit means a continuous critical review
of financial and operating matters of a business.

20. Advantages
 Accounting remains correct - Staffs remain alert
because their work shall be checked by the internal
auditor.
 Helps to detect errors and frauds - Provides
suggestions to improve them which helps the
management to take corrective action.
 Detects the misuse of resources - Which helps to
reduce unnecessary expenses.

21.  Checks the efficiency of staffs - Which helps to
increase the efficiency of them.
 Makes work easier - Checks the books of accounts,
detects errors and frauds and helps in its correction
which makes the act of final auditor easier.
 Increases the morale of honest staff – It is
because evaluation of performance of any staffs will be
made at any time.

22. limitations
 Occurrence of frauds - Internal audits are not fool
proof in the sense that it cannot eliminate or catch all
the frauds.
Dishonesty of Auditors - As auditors are outsiders
they do the work for money rather than for betterment
of company.
 Only for internal use - Internal audit reports are not
accepted by shareholders and therefore it is for only
management use and company has to conduct external
audit.

23. Difference between internal check
and internal control
BASIS INTERNAL CHECK INTERNAL CONTROL
Scope It has narrow scope It comprises of overall
system of control
Objectives Prevent occurrence of
errors and frauds
Ensure compliance of the
various policies and
procedures
Flexibility It is less flexible It is reviewed occasionally

24. Difference between internal check
and internal audit
BASIS INTERNAL CHECK INTERNAL AUDIT
Meaning Arrangement of the
accounting work
It is a review of the
operations
Objective To minimize the
occurrences of errors
and frauds
It is easy detection of
errors and frauds
Nature Work is conducted on
continuous basis
It is post mortem on
work already done
Scope of work It is very limited It is comparatively wide
Involvement A large number of
employees are needed
A small number of
persons are needed
Need for separate staff There is no such
requirement
Separate set off staff is
required

25. Distinction between Statutory
audit and Internal audit
Basis Statutory Audit Internal audit
Appointment Appointed by
shareholders
Appointed by
management
Qualifications He must possess formal
qualifications
Need not possess formal
qualifications
Objective To detect errors and
frauds
It is for early detection of
errors and frauds
Scope of work It is determined by the
statute
It is determined by the
management
Conduct of audit The nature of audit is
final or periodic
Continuous in nature

26. Status Independent,
competent person who
is an outsider
He is an employee of
the concern
Remuneration Fixed by the statute Fixed by the management
Reporting Report submission is
compulsory
It is not compulsory
Suggestions He may or may not give
suggestions
He can give suggestions
Application of Test
checks
Test checks can be
applied
He cannot apply test
checks
Attendance at meetings He has a right to attend He has no right to attend
Applications of
regulation act
Several regulations are
applicable for him
There are no such
regulations applicable
Satisfaction For the satisfaction of the
shareholders
For the satisfaction of the
management