Internal check audit (ppt)

auditing

1. I NTERNAL C HECK , C ONTROL & A UDIT

2. Internal control Internal Controls assist management and staff of the organization to achieve the organization objectives.

3. Advantages Accurate and reliable data. It ensures that the policies and procedures prescribed by the management are followed by the employees. It promotes operational efficiency. It helps the organization to attain its goal effectively. It safeguards the assets and the records of the business.

4. limitations As long as people perform control procedures, an internal control system will be vulnerable to human error. Errors can arise from misunderstandings, mistakes in judgment, carelessness, distraction, or fatigue. Separation of duties can be defeated through collusion by employees who secretly agree to deceive a company.

5. INTERNAL CHECK

6. INTERNAL CHECK Internal check is an accounting procedure whereby routine entries for transactions are handled by more than one employee in such a manner that the work of one employee is automatically checked against the work of another.

7. Objectives Of Internal Check Division of work – It is based on individual’s ability. Use of devices – An organization should use various devices which helps to make work of internal check easier. Minimization of errors and frauds – The work performed by each individual is checked by another individual. Reliability – If the internal check is very good then the auditor will rely upon the books of accounts. Preparation of final accounts – With an effective internal check system the final accounts can be prepared safely.

8. ADVANTAGES Fixation of responsibility – A Proper internal check system will ensure accountability and responsibility of the employees. Prevention of Errors and Frauds – Under this system no one employee is allowed to record more than 1 aspect of the transaction. Increase the efficiency of clerks – The work is divided among the employees according to their Qualification and experience .

9. Reliability of information – The aim of this system is to have an accurate record of all the transactions. Reduces the workload of auditor – In relation to the extent of audit procedures followed or adopted . Increases the overall efficiency of the business – By preventing occurrence of the frauds , proper segregation of duties which will increase the efficiency.

10. limitations Expensive – It is applicable only for large business concerns. Does not reduce the liability – It will help the auditor in reducing his work but it will never reduce the liability. Carelessness – Sometimes employees may become less serious towards the work.

11. Duties of an Auditor as Regards Internal Check System Examination - First of all an auditor should satisfy himself about the working of proper internal control system. In Case Of Satisfactory System - If the auditor is satisfied about the effectiveness of internal control then he should check the efficiency and its existence by checking various items from different place. Unsatisfactory Case - If the auditor feels that internal control system is not satisfactory then he should check those accounts where errors are likely to exist.

12. Some Sections Are Inadequate - If auditor feels that over all system is satisfactory but certain sections of the system appears to be inadequate then he should inform the client about the dangers. Suggestions - Auditor should also give suggestions that how weaknesses can be removed if he is asked by the client.

13. INTERNAL CHECK AS REGARDS RECEIPTS PAYMENTS SALES

14. RELATION TO RECEIPTS OF CASH Receipts of a cash must be handled by a separate clerk known as cashier. Bank reconciliation statement should be prepared by the cashier to reconcile bank and cash balance. All debtors or customers requested to make payments by crossed cheques. Automatic bills or cash registers are useful for checking receipts. The counter-foils of all the receipts issued should be properly maintained.

15. RELATION TO PAYMENTS OF CASH All payments should be made by cheques. Petty cash payment should be handled by the petty cashier. Names, numbers and the status of persons authorized to sign cheques must be decided. Confirmation of accounts with creditors should be made to maintain up-to-date records. A proper system must be adopted for controlling the supply and issue of cheques.

16. RELATION TO CASH SALES Separate salesman should be appointed to carry out sales at different counters. The salesman should prepare sales invoice into four copies. The accountant must make the entries in cash book. Salesman should prepare a summary showing cash sales. Copies of the sales summary sheet should be sent to the officer-in-charge of the trading house.

17. INTERNAL CONTROL

18. INTERNAL AUDIT

19. INTERNAL AUDIT Internal audit means a continuous critical review of financial and operating matters of a business.

20. Advantages Accounting remains correct - Staffs remain alert because their work shall be checked  by the internal auditor. Helps to detect errors and frauds - Provides suggestions to improve them which helps the management to take corrective  action. Detects the misuse of resources - Which helps to reduce unnecessary expenses .

21. Checks the efficiency of staffs - Which helps to increase the efficiency of them. Makes work easier - Checks the books of accounts, detects errors and frauds and helps in its correction which makes the act of final auditor easier . Increases the morale of honest staff – It is because evaluation of performance of any staffs will be made at any time.

22. limitations Occurrence of frauds - Internal audits are not fool proof in the sense that it cannot eliminate or catch all the frauds. Dishonesty of Auditors - As auditors are outsiders they do the work for money rather than for betterment of company . Only for internal use - Internal audit reports are not accepted by shareholders and therefore it is for only management use and company has to conduct external audit.

23. Difference between internal check and internal control BASIS INTERNAL CHECK INTERNAL CONTROL Scope It has narrow scope It comprises of overall system of control Objectives Prevent occurrence of errors and frauds Ensure compliance of the various policies and procedures Flexibility It is less flexible It is reviewed occasionally

24. Difference between internal check and internal audit BASIS INTERNAL CHECK INTERNAL AUDIT Meaning Arrangement of the accounting work It is a review of the operations Objective To minimize the occurrences of errors and frauds It is easy detection of errors and frauds Nature Work is conducted on continuous basis It is post mortem on work already done Scope of work It is very limited It is comparatively wide Involvement A large number of employees are needed A small number of persons are needed Need for separate staff There is no such requirement Separate set off staff is required

25. Distinction between Statutory audit and Internal audit Basis Statutory Audit Internal audit Appointment Appointed by shareholders Appointed by management Qualifications He must possess formal qualifications Need not possess formal qualifications Objective To detect errors and frauds It is for early detection of errors and frauds Scope of work It is determined by the statute It is determined by the management Conduct of audit The nature of audit is final or periodic Continuous in nature

26. Status Independent, competent person who is an outsider He is an employee of the concern Remuneration Fixed by the statute Fixed by the management Reporting Report submission is compulsory It is not compulsory Suggestions He may or may not give suggestions He can give suggestions Application of Test checks Test checks can be applied He cannot apply test checks Attendance at meetings He has a right to attend He has no right to attend Applications of regulation act Several regulations are applicable for him There are no such regulations applicable Satisfaction For the satisfaction of the shareholders For the satisfaction of the management