Internal control is a process designed to provide reasonable assurance that an organization achieves its objectives relating to operational effectiveness and efficiency, reliable financial reporting, and compliance with laws and regulations. It involves establishing policies and procedures to direct operations and monitor activities. Internal control aims to protect resources, detect and prevent fraud, and ensure accurate financial reporting. It includes internal checks, internal auditing, and other controls implemented by management. The objectives of internal control are reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations.

1. Unit 3 : Internal Control
By RADHIKA

2. Internal Control
Introduction:
Internal control, as defined in accounting and auditing, is a
process for assuring achievement of an organization's objectives
in operational effectiveness and efficiency, reliable financial
reporting, and compliance with laws, regulations and policies. A
broad concept, internal control involves everything that controls
risks to an organization.

3. Meaning
It is a means by which an organization's resources are
directed, monitored, and measured. It plays an important role
in detecting and preventing fraud and protecting the
organization's resources, both physical (e.g., machinery and
property) and intangible (e.g., reputation or intellectual
property such as trademarks).

4. Definition
“Internal Control is best regarded as indicating the whole
system of controls, financial and otherwise, established by the
management in the conduct of a business, including internal
check, internal audit and other forms of control.”

5. Internal Control
Internal control are the whole system of controls established
by the management in order to carry out the business of
organization in an orderly and an efficient manner, ensure
adherence to management policies, safeguard the assets and
secure as for as possible, the completeness and accuracy of
records.

6. Internal check
Internal check is a part of internal control system. It ensures
that all financial transactions are properly recorded. It also
ensures efficiency of the accounting system followed by the
organization and enables easy preparation of financial
statements. It achieves its main object of minimizing errors
and frauds. A sound system of internal check increases the
reliability of financial statements. Internal check discourages
fraud and collusion among employees by instilling
a fear of detection in their minds. Internal
check assigns responsibilities to persons
and enables maintenance of records and documents
properly and thereby ensures smooth flow of work.

7. Internal Audit
An essential part of internal control is the Internal Audit,
which operates as a separate unit under the CEO and reports
its observations to the Board of Directors. The Internal Audit
supports the Group's management in directing operations by
inspecting and evaluating the efficiency of business
operations, risk management and internal control, and by
producing information and recommendations to enhance
efficiency. The Internal Audit also inspects
the processes of business operations and
financial reporting.

8. Nature Of Internal Control
 On behalf of the management performance of Audit staff…
 Internal control is exercise..
 If the Internal Control is effective, it helps to the internal
auditor to select the sample size for conducting audit.
 If the Internal control is weak, auditor may decide to conduct
more extensive scrutiny of transactions.
 He may decide to place greater reliance on direct
confirmation by concern persons.
 Internal control is essential prerequisite for
efficient and effective management.

9. Cont.
 Every management should establish a system of internal
control appropriate to the size in nature of business of the
entity.
 The system of internal control extends beyond those matters,
which relate directly to the function of the accounting system.

10. Scope Of Internal Control
Internal controls encompass a set of rules, policies, and
procedures an organization implements to provide reasonable
assurance that :
(a) its financial reports are reliable,
(b) its operations are effective and efficient, and
(c) its activities comply with applicable laws and regulations.
These represent the three main objectives of the
internal control system. The organization's board
of directors, management, and other personnel are
responsible for the internal control system.

11. Cont.
 Risk assessment
 Control activities
 Performance Reviews
 The information and communication system
 Monitoring

12. Cont.
 Internal Control classified in to two broad categories.
(i) Accounting control
(ii) Administrative control

13. Internal Auditing
"Internal auditing is an independent, objective assurance and
consulting activity designed to add value and improve an
organisation's operations. It helps an organisation accomplish
its objectives by bringing a systematic, disciplined approach to
evaluate and improve the effectiveness of risk management,
control, and governance processes."

14. Cont.
Internal audit is an objective activity of security and
consultation aimed to add value and improve the control
system of the organization. In a world of increasing demand
for transparency, personal responsibility and operational
efficiency, the internal audit is a main pillar of advanced
management as it assists to evaluate and improve the
organization performance and management.

15. Characteristics
1.Division Of Work
2. Provision Of Check
3. Use Of Devices
4. Self-balancing System
5. Change In Work
6. Specialization
7. Control

16. Objectives Of Internal Check
i. To minimize the possibility of error, fraud and irregularity
ii. To prevent the misappropriation….
iii. To allocate duties and responsibility...
iv. To ensure an accurate recording of all business transaction.
v. To enhance the efficiency of the clerk in the organization.
vi. To exercise moral influence over the staff member.
vii. To prepare final account with an ease and efficiency.
viii.To detect errors and frauds promptly which
helps to minimize their effects in long term.
ix. To ensure the reliability of information produced
by the accounting system.

17. Essential Charteristics/Priciples Of
A Good System Of Internal Check
1. Responsibility
2. Completion
3. Rotation of employees
4. Automatic check
5. Reliance
6. Safeguards
7. Supervision
8. Formal sanction
9. Periodical review