Internal control

1. Internal control System
Internal Control – Meaning – Definition – Objectives – Advantages and disadvantages- forms of Internal
Control – Evaluation of Internal Control – Method of review of internal control system – Internal Check – Evaluation
criteria for good internal check – Internal Audit – Statutory Audit – Difference between Internal and Statutory Audit –
Verification and Valuation of Assets and Liabilities – Auditors Position regarding the valuation and verification of
Assets and Liabilities.
By
Gayathiry D

2. Internal control
Meaning
Internal control is the process designed and affected by an entity's board of directors (trustees), management, and other
personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
 Effectiveness and efficiency of operations
 Reliability of financial reporting
 Compliance with applicable laws and regulations
They include a wide range of activities that occur throughout the organization, by supervisory and front-line personnel.
Definition
According to Committee of Sponsoring Organizations (COSO), “Internal control is the process, effected by an entity’s board
of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of
objectives in the following categories:
 Reliability of financial reporting.
 Corpulence with applicable laws and regulations.
 Effectiveness and efficiency of operations.

5. Internal Check is an integral function of the internal control
system. It is an arrangement of duties of the staff members in
such a way that the work performed by one person is
automatically and independently checked by the other.
Objectives Of Internal Check
Following are the main objectives of Internal Check −
 To protect business from carelessness, inefficiency and
fraud.
 To ensure and produce adequate and reliable accounting
information.
 To keep moral pressure over staff.
 To minimize the chances of errors and frauds and to detect
them easily on early stage if it is committed.
 To divide the work in such a way that no business
transaction should be left unrecorded.
 To fix the responsibility of every clerk according to the
division of work.

6. An internal audit is conducted by the permanent staff
of the office to detect weakness in system, procedures
and for the improvement. Auditor employed by
individual companies, partnership, Govt., agencies,
individual and other entities are called internal
auditors. These auditors may review employee
performance, compliance with company regulations
and financial and accounting systems. Internal audits
involve performing audits of both financial and non-
financial nature within a wide of areas of operation in
business, including those that are directed by the
annual audit plan.
Statutory audit is the act of checking books of
accounts as per the provision of company act. Both of
them check books of account; detect errors and
frauds even. The chief responsibility of statutory
auditors is to perform the process of the annual
statutory audit of the company’s financial accounts
and providing studied opinions on whether they are
an impartial and fair reflection of the company’s
financial position.

7. Verification is a process by which the Auditor or Auditors
examine the accuracy of the assets appearing in the balance
sheet.
Valuation means to conform that all assets are shown in the
balance sheet with their proper book value.

8. Fixed Assets
Fixed assets are utilized to create incomes.
Investments
Investments are expected to fetch income from external agencies.
Wasting assets
Wasting assets are of a fixed nature but depleted or consumed gradually.
Fictitious Assets
Assets, which have no market values, are known as fictitious assets. They are shown in the Balance Sheet on the asset side of it under the
head “Miscellaneous Expenditure”.
Current Assets.
Current assets are those which are utilized or converted into cash within one year period.
Intangible Assets
They are long-term resources of an entity, but have no physical existence. They derive their value from intellectual or legal rights,
and from the value they add to the other assets.