1. Internal Check
Internal Audit
Internal Control
BY
Kotla Purna Sriram (02914988817)

2. INTERNAL
CHECK
● Internal Check is a valuable part of Internal
Control.It is the built-in check in accounting process
itself.
● It is an arrangement of duties of staff members in
such a way that the work performed by one person
is automatically checked by the other.
● It is an essential feature that no one employee or a
group of employees has exclusive control over any
transactions or group of transactions.
● It helps in minimizing the possibility of fraud,error
or irregularity.

3. According to ICAI
“It is a system of allocation of
responsibility, division of work and
,method of recording transactions whereby
the work of an employee or group of
employees is continuously by correlating it
with the work of others.”

4. Characteristics
of Internal
Check
→ To eliminate the frauds and errors
which may be committed by the staffs.
→ To prevent misappropriation of cash
or stock.
→ To ensure the reliability of
information produced by the accounting
system.
→ To detect errors and frauds promptly
which helps to minimize their effects in
long term.
→ To exercise moral pressure over the
staffs.

5. Advantages &
Disadvantages of Internal
Check
ADVANTAGES
1. It helps in fixing the responsibility as
there will be proper segregation of
duties among the staff.
2. It helps in Increasing the efficiency of
clerks
3. It helps in preventing errors and
frauds.
4. There is a reliability of the information
due to efficient system of Internal
Check.
5. It reduces the workload of auditor.
DISADVANTAGES
1. It is a costly process for a small scale
business.
2. If Internal Check system not properly
organized it may lead to disorder in
the working of the business.
3. There may be situation of
compromise while giving importance
to faster results.
4. There are chances of conflicts in
business due to detection of error or
frauds.

6. Internal
Check and
Auditor
There are some duties which were to be followed
by auditor with regard to the Internal Check
system.
1. An auditor should satisfy himself about the
working of the proper internal control system.
2. If the auditor decides to rely on the internal
check system of the company then he can
reduce the extent of detail checking.
3. The auditor should assess the reliability of
Internal check system.

7. INTERNAL
AUDIT
● It is the review of operations and records
undertaken by a specially assigned staff on a
continuous basis.
● It is an important element of the internal control
system.
● It not only focussed purely on finance but also
reviews and undertakes a critical appraisal of
companies policies and procedures.
● It is focussed in maximizing organisational
effectiveness.
● It evaluates companies internal controls along with
its corporate governance and accounting
processes.

8. According to ICAI
Internal Audit is an independent
management function which
involves a continuous and critical
appraisal of the function of the
entity

9. Scope of
Internal
Audit
1. Internal audit can be used to safeguard the
assets of an organization.
2. It helps in monitoring the Internal control of
the organization by reviewing controls,
monitoring their operation and
recommending improvements.
3. It helps in review of Operating Activities
through reviewing the economy, efficiency
and effectiveness and operating activities.
4. It helps in the management of Risk by
identifying and evaluating significant
exposures to risk.
5. It helps in economical and efficient use of
resources.

10. 1 2 3 4 5
Objectives of Internal Audit
To verify the
correctness,
accuracy and
authenticity of
the financial
accounting and
statistical
records
presented to the
management.
To facilitate the
early detection
of frauds and to
prevent it.
To examine the
protection
afforded to
company's
assets and use
of them for
business
purpose.
To identify the
authorities
responsible for
purchasing
assets and other
items as well as
disposal of
assets.
To ensure that
the accounting
practices which
have to be
followed by the
organization are
strictly followed.

12. INTERNAL
CONTROL
1. Internal Control system is one of the basic and
essential factors for efficient and effective
management. It covers the whole management system
of an organization, both financial and non-financial.
2. Internal control system is helpful for the management
and also the Auditor in achieving goals and targets
effectively.
3. Internal Control comprises of the plan of the
organization and all the coordinate methods and
measures adopted within a business to safeguard its
assets.

13. Objectives of
Internal Control
From Auditor’s point of view
● It is important for the auditor to
evaluate the system of Internal Control.
To obtain an adequate understanding
of the internal control system. The
auditor has to determine whether audit
is possible or not.
From Client’s point of view
● It helps in decision making and to run
business effectively.
● Safeguard business assets.
● Minimize the wasteful activities and
focus on performing activities of a
business.

14. Scope Of Internal
Control
Cash - Internal control is applied over
payments and receipts of an
organization. This is to safeguard from
misappropriation of cash.
Control over Sale and Purchase − With
proper and efficient control system for
transactions regarding purchase and
sale of material, handling of material and
accounting for the same is must.
Financial Control − It deals with the
efficient system of accounting, recording
and supervision.
Employee’s Remuneration − Internal
control system is applied to preparation
and maintenance of records of
employees and the payment methods
also. It is also necessary to safeguard
against misappropriation of cash.
Capital Expenditure − Internal control
system ensures the proper sanction of
capital expenditure and also the use of it
for the purpose intended.

15. Characteristics Of
Internal Control
● Competent and trustworthy
personnel
● Records, Financial and other
Organization plan
● Organizational plans
● Segregation of duties
● Supervision
● Authorization
● Sound practice
● Internal Audit
● Arithmetic and accounting controls

16. Limitations of
Internal Control
● Management decision to choose cost
effective control system may reduce
the effectiveness of internal control
system.
● There are chances of misuse by a
person of authority who is operating
on internal control system.
● Objectives of internal control systems
may be defeated by manipulation of
management.
● Since internal control system is
involved in routine transactions,
irregular transactions may be
overlooked.
● Changes in conditions may affect the
effectiveness of internal control system

17. THANK YOU