Internal Check
Internal Check: Internal check is a system under which the accounting methods and details of an establishment are so laid out that the accounts and procedures that on, the contrary, the work of one employee Is complementary to that of another and that a continuous audit of the business is made by the employees.
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| OBJECTIVES AND DISADVANTAGES OF INTERNAL CHECK |
OBJECTIVES OF INTERNAL CHECK
1. Proper Division of Work: The organizational operations or
different functions are divided and subdivided among employees according to the
qualification raining, experience, competency, creative thinking, and challenging
ability of employees. The division of work aims to attain highest order of
organizational efficiency, economy, promote human resource development and at
the same time thrust responsibility for any errors or frauds
2. Minimization of Errors and Frauds: "Zero Tolerance
Level." This is an era of working with ZTL "Zero Tolerance
Level" No one is expected to tolerate errors and frauds. This is an era of
precision than ever before. Thus internal check aims to attain zero errors and
frauds. This may be made possible by division of work in such a way that is not
under the absolute and Independent control of any one person
a)
No single person is in charge of recording transactions
from beginning to end.
b)
The work done by one employee is independently
and automatically checked by another employee in the routine procedure of
working.
c)
Thrusting responsibility on each of the
employees for any errors or frauds in respect of work assigned to them.
d)
Creating a moral check on employees.
3. Early Detection of Errors and Frauds: The routine work
designed in such way that any error committed by one person is immediately
detected by the very next person. This is being made by division and sub
division of work in such way the work of one person is complimentary to
another.
4. Ensuring the Reliability of Accounts: Greater degree of
accuracy in accounting of business transactions makes the accounting data more
reliable acceptable.
5. Early Preparation of Final Accounts: As the internal
check is nothing but a continuous audit. This helps in quick preparation of
final accounts.
6. Simplification of External Auditor's work: Existence or
elective internal check substantially reduces the work of external auditors.
External auditors can safely rely on the internal check system, apply test checking
on very important transactions and complete his audit work It should be
remembered that internal check system no doubt reduces the work burden and not
the responsibility for any sort of errors and frauds remaining unidentified.
Describe the disadvantages of Internal Check
Ans: Existence of
efficient and effective internal check relieves the auditor from heavy burden
of audit work. Auditor can safely employ the technique of test checking and
complete audit work without sampling risk, audit risk.
Limitations of Internal Check:
1. Suitable Only for Big Concerns: Internal check is the tool of big business concerns.
It needs more number of employees. The small firms cannot offer heavy expenses
of administration with internal check.
2. Sacrifice of quality for quickness: All employees are
hurried in finishing their work because the next employee was for his work to
be done. Thus quality of work is lost in the name of quickness.
3. Complacency among High Officials: High officials remain
free from keen supervision believing that everything goes on smoothly and
correctly.
4. Chaos and Disorder in the Working of the Concern: If
there is no coordination among the employees there will be disorder and
discontentment in whole of the organization. No work can be expected from any
corners.
5. Useful Only When There is No Collusion between the Employees:
There is every possibility of collusion between employees. The system functions
smoothly provided there is no collusion, otherwise errors and frauds continue
in their own way.
All the above limitations can be removed with little care
and caution on the part of management and internal check proves to be an
important tool in the hands of management for effective functioning of the
organization
Auditor can rely on the efficiency of internal check,
provided he is fully satisfied with the system of internal check. If he finds
any weakness, he may suggest for improvement and apply detailed checking on the
transactions for which the internal check is not satisfactory. However auditor
can obtain a certificate from the management for effective working of the
system.
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