Nature, Scope And Elements of Internal Control - Auditing & Secretarial Practice | Auditing and Secretarial Practice - B Com PDF Download

Internal Control

Internal control is the whole system of control established by the management for the proper conduct of various activities of the organization. It is not only internal check and internal audit but also the whole system of control financially and otherwise established by the organization in order to carry out the business in orderly and efficient manner.

It is useful for the organization to safeguard the assets and serve the reliability of accounting records. In other words, it is the overall control adopted by the organization.

Features: -

1. It is the overall control adopted by the management.
2. It comprises of plans, methods and procedures for the effective control of the operations of the business.
3. It comprises of internal check, internal audit, accounting system and administrative control.
4. It is established by the management.
5. It intended to help the management to run the business efficiently

Objectives: - 

1. To ensure that transactions are recorded proper books of account.
2. See that all transactions are carried out only on account of a sanction of authority.
3. See that management policies and decisions are properly implemented.
4. To ensure efficient conduct of business.
5. To evaluate the efficiency of performance of the various personnel.
6. To safeguard the assets of the organization.
7. To safeguard the interest of the organization.
8. To ensure reliability of accounting records.
9. To ensure the periodical verification of assets.

Scope or Area of internal control 

1. Accounting Control. It ensures the reliability of accounting transactions. Accounting transactions are recorded by using accounting principles.
2. Administrative Control. It is concerned with distribution of authority and decision making process of management. Overall operation efficiency of the organization is ensured.

Essentials of Good internal Control: - 

1. It should be clear and well developed plan of organization.
2. There should be competent and trust worthy personnel for the success of the business.
3. There should be segregation of duties: - Operational duties are separated from recording duties. Physical handling of asset must be separated from accounting records.
4. There should be administrative traditions and practices for the performance of the duties.
5. There should be well developed and adequate accounting system.
6. There should be a sound system of maintenance and recording of accounts.
7. There should be effective internal check system.
8. There should be good audit system. 9) Periodical review of internal control.

Advantages. 

A. Advantages to the business.

1. Provide accurate and reliable data to the management for taking correct decisions.
2. Ensure that policies and procedures are complied with.
3. Promotes operational efficiency.
4. Help to attain organizational goal.
5. To safeguard the assets of the organization.
6. To ensure the reliability of accounting records.

B. Advantages to the auditors 

1. Helps the auditor in framing the audit program.
2. To ascertain extent of test check can apply.

Limitations of Internal control 

1. Expensive.
2. Transactions of unusual nature may not be subject to internal control.
3. Human errors remain in any system of control.
4. Limitation of preventing frauds committed through collusion between persons.
5. It may not be keep pace with the change in the condition.