1. Internal Control

2. Concept Business – Complex Process
Survival in competition – Controlling the business by putting different factors in limits
Need to establish controls
Controls – a) Operations
b) Human Behaviour

3. Definition
Systematic measures (such as reviews, checks and balances, methods and procedures) instituted by an organization to- (1) conduct its business in an orderly and efficient manner, (2) safeguard its assets and resources, (3) deter and detect errors, fraud, and theft, (4) ensure accuracy and completeness of its accounting data, (5) produce reliable and timely financial and management information, and (6) ensure adherence to its policies and plan

4. Administrative Controls
Types of Internal Controls
Authority in recording transactions
Prompt Recording , correct amount
Assets – Access, use, disposition
Accounting Controls
Controlling human resources
Administrative Controls

5. Duties of Auditor Study the system Routines Collection of Information
Mechanical devices
Measures for Improvement

6. Study and Evaluation Reasons Test Checking
Acquaintance with client’s business
Determining the extent of test check
Determining the effectiveness of system & giving suggestions.

7. Stages in study & Evaluation
Study the system
Testing Compliance
Evaluating the system
Communication of Weakness

8. SAMPLE TRANSACTIONS Sales / Purchases / Salaries & Wages–
Division of Work (Sales/Stores/Accounts)
Procedures(Dispatch Order> Bill)(Receipt, Q & Q)
Cross Checking
Change in duties
Annual Leave
No access to books of Accounts
Proper Recording
Prompt Recording
Accounting Policies
Safeguarding
Errors & Frauds

9. S.T. 2 Debtors / Creditors- Credit Limits (only Drs) Prompt Recording
Prompt Adjustment
Age-wise Division
Statements of Accounts(Stt>Debtors>Balance confirmation>Differences>Reconciliation)
Discounts & Write offs/ Rebates
Reconciliation

10. S.T. 3
Salaries & Wages
Keeping track of new employees, Attendance, Pay slips
Signatures on pay sheet, Absent employees, Cheque (A/c Payee), Direct deposit(A/c No. , Amt)
Prompt Recording – Pay sheets preparation on time, up to date CB &PB
Safeguarding – Safe custody of cheques

11. Internal Checks
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 for detection of errors and irregularities

12. Features - Part of internal Control Allocation & Division of Work
Cross checking
No exclusive control
Detect errors & frauds

13. Auditors’ Duty Establishment Reliability
Evaluation (understand, test check, judgement)

14. General Considerations
Division of Work
Automatic Control
No access to books of accounts
Change in duties
Mandatory Leaves
Proper record keeping
Prompt Recording
Physical Stock Taking
Review of Accounting Policies
Mechanical devices
Clear definition of duties
Authority Levels