Define term Internal Control. Explain its objectives and main principles? | Auditing

Internal control:

The whole system of business control organized by the management to carry on the business is called internal control, internal check, internal audit and other such forms of control are also included in it.

Objectives:

1. The errors and frauds the following of check may be prevented.
2. To prevents the cash and goods misappropriation by keeping check   on the receipts and delivery.
3. To keep correct record of all business transaction.

Principles:

There are the following important principles of internal control.

1.                 Record and books:

This should be kept up to date and it regular interval these should be balanced. Different persons should make the Handing of cash transactions. For example the cashier should not be allowed to record the cash in the accounts book. He should have no concerns with the written ledgers.

2.                 Independent checking:

Work executed by one person should be independently and automatically checked by another person.

3.                 Principles relating to staff:

Duties of each staff number should be clear and there should be no confusion and doubt in this regard. In case of any staff number absence duties arrangement should be made in advance.

4.                 Proper supervision:

For the effective internal control system management should have up to date information about the trade and financial position the company. So it should exercise proper supervision for effective operation of internal control system.

5.                 Clear rules:

All those rules relating to cash, stock receipt and issuance of goods should be very clear and well defined. It should also be checked the rules should be followed by the employees properly.

6.                 Instructions in writing:

All the instructions about the internal control system should be go to the employees in writing. In this way the internal control system can properly be followed.

7.                 Double entry system of accounting:

For the effective internal control double entry system of accounting is also very useful. No uncertainty it is comparatively expensive but it must be used for effective control.

8.                 Incentives for honest worker:

Honest and hard working person must be encouraged. He should be given same regard in the shape of promotion and cash. This principle is also very efficient in improving the internal control.

9.                 Use of machines:

For tabulation and keeping the truth or accuracy of the record various mechanical instruments like calculators and computers must be introduced.

10.            Duties performance record:

Allocated functions to the employees were performed accounting to the procedure or not. There should be ensure or proof and proper record of their performance and also it indicated that it has been checked properly.

11.            Record of goods and assets:

All the company’s assets and property record should be sustain properly. There should be also the security/measures for the property.

12.            Surety bonds:

To protect the company from frauds or illegal activities and to make the internal control more effective surety bonds can be taken from the employees. 

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Author : commercealls

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