Internal Control & Internal Audit

Front 1

Define Internal control

Back 1

•A.A.S 6 issued by the I.C.A.I deals with the study & evaluation of internal control.
•It defines the term as, "all the policies & procedures adopted by the management of a concern, to ensure the orderly & efficient conduct of its business".
•W.W.Biggs defines the term as,"the whole system of controls, financial or otherwise, established by the management, in the conduct of a business, including internal check, internal audit & other forms of control".

Front 2

Objectives of internal control

Back 2

(1)Accounting control:
(a)All transactions are duly authorized & properly & promptly recorded as soon as they occur
(b)The accounting policies adopted by the management are implemented
(c)Assets of he concern are properly safeguarded & are not used or sold without proper authorization & are verified regularly
(d)Errors & frauds r prevented & detected
(e)Books of accounts are complete & accurate
(f)The final accounts r reliable & ready in time
(2)Operational or administrative control:
It ensures that the management policies, in respect of the operations & administration of the concern, r implemented. This in turn ensures that, the business is conducted in an orderly & efficient manner.

Front 3

Internal Audit

Back 3

•Prof Meigs defines the term as, "a continuous, critical review of financial & other operating activities, by a staff of auditors, functioning as full time salaried employees".
•It is a thorough examination of the accounting records & systems, undertaken within a business, by specially assigned staff or independent professional, to ensure that they r properly maintained & followed.

Front 4

Inherent limitations of internal control

Back 4

(1)COST of implementing may b much more than its benefits
(2)Contol procedure may not prove effective due to HUMAN ERROR
(3)Even if duties r divided among different employees, they may COLLUDE(work together fraudulently)
(4)An employee responsible for a particular function may MISUSE his authority
(5)MANIPULATION & misappropriation BY top MANAGEMENT will defeat the very purpose of internal control

Hint 4

C°HM°

Front 5

Objectives of internal audit

Back 5

(1)Accuracy of internal audit
(2)Adherence to policies
(3)Procedures
(4)Legitimate activities
(5)Appraisal of procedure
(6)Prevention of frauds
(7)Areas for investigation
(8)Review

Front 6

Principles to be followed while establishing internal audit

Back 6

(1)It should have an independent status in the organization
(2)It should be free from executive functions
(3)Objectives of internal audit should b laid down clearly
(4)Right staff should b selected in the internal audit department

Front 7

Internal control for sales & debtors

Back 7

(1)Control of forms
(2)Credit control
(3)Allocation of work
(4)Delivery challans
(5)Acknowledgement from customers
(6)Invoicing
(7)Cut off transactions
(8)Transfer
(9)Pricing
(10)Receipts
(11)Sales returns
(12)Credit notes
(13)Sales ledger
(14)Follow up
(15)Overdue accounts

Front 8

Internal Control for credit purchases

Back 8

(1)Purchase order
(2)Approved suppliers
(3)Verification of goods
(4)Quality control
(5)Defaulted suppliers
(6)Tenders
(7)Inspection of goods
(8)Arrival of goods
(9)Procedures of return
(10)confirmations
(11)Cut off procedures
(12)Submission of purchase bill
(13)Signature of authorized signatory
(14)Forwarding the cheque

Front 9

Internal control for salaries & wages

Back 9

(1)Calculations
(2)One person to prepare wage sheet
(3)Authority for payment
(4)Test check payments
(5)Unpaid wages
(6)Separate persons to make payments
(7)Payment to absentees
(8)Deductions
(9)Casual workers
(10)Proper precautions
(11)Individual pay packets
(12)Ghost workers
(13)Non payment of waged

Front 10

Distinguish between Internal audit & Statutory audit

Back 10

(1)Scope
(2)Appointment
(3)Status
(4)Qualifications
(5)Approach
(6)Responsibility
(7)Procedure
(8)Object
(9)Suggestions
(10)Report
(11)Audit test
(12)Remuneration
(13)Removal
(14)Attendance at meeting
(15)Watch dog
(16)Conduct of audit
(17)Application of C.A. Act
(18)Activities
(19)Scope of work