Internal Check Meaning, Objectives, Advantages, Disadvantages and Essentials | Auditing Important Topics

Internal Check
Meaning, Objectives, Advantages, Disadvantages and Essentials
Auditing & Assurance

Internal Check

In This article, we are going to discuss about Internal Check Meaning, Objectives, Advantages, Disadvantages and Essentials. This topic is frequently asked in B.Com Semester Exams.

Internal Check Meaning  2015

The term internal check implies that the work of various members of the staff is allocated in such a way that the work done by one person is automatically checked by another. It is defined as “such an arrangement of book keeping routine where in errors and frauds are likely to be prevented or discovered by the very occupation of book keeping itself’.

Internal check is a system under which accounting methods and details of an establishment are laid out that the accounts and procedures are not under the absolute and independent control of any one person or the contrary the work of one employee is complementary to that of another. The system of IC is based upon the principle of division of labour; where in performance of each individual is automatically checked by another. This is possible by properly allocation the work and integration of function of the employees in such a manner their work complements each other.

Internal Check Objectives/Purposes      2014

1. To have accurate record of business by preventing errors and frauds.

2. To fix responsibility for particular default or omission on a definite person

3. To have confirmation of facts and entries of transactions

4. To facilitate division of labour for the smooth flow of work

Internal Check Advantages

1. Adequate subdivision and allocation of work: An ideal system of internal check enables to subdivide the whole of work into small units which are allocated to different employees on the basis of each one’s ability, training, qualifications, experience and field of specialization.

2. Early detection of errors and thus prevention of frauds: In an efficient system of internal check, none is allowed to complete any job independently but the whole of job is divided among many workers.  The work of each such employee is cross checked during the ordinary course of business, knowledge of such cross checking acts as a moral check to commit errors and frauds.

3. Efficient and economic functioning:  Proper allocation of work based on qualification, ability and specialization of each employee helps to promote efficiency in each department of the business concern.  With such efficiency among the staff, there is overall economy in the operations of the business leading to higher profits.

4. Quick preparation of final statements:  Having efficient system of internal check, one can rely on the accounting records of the business concern.  Thus the books of accounts can be used directly and quickly to prepare the final statements as there is no need to check he business transactions so thoroughly.

5. External Auditing not required: Unless required under some rules and regulations, books and accounts of such business concerns need not be audited.  Even when there is need to go for auditing, the efficient system of internal check enables auditor to avoid thorough checking of all the transactions.  At the most, the auditor selects certain facts randomly to test the reliability of the internal check system.

6. Determination of Responsibility: Since in the system of internal check the total work is divided and allocated among different employees, staff can be held responsible for any lapse or irregularity committed.

Internal Check Disadvantages

1. Costly and time consuming: Since the job of any type is divided into small unit, the process of completing the job is more costly and time consuming.

2. Not suitable for small business: Being costly and time consuming the system of internal check cannot be introduced in small businesses.

3. Quality of work declines: As single job is attended by many employees, quality of the work declines.  Each employee does his part of job without taking care of the quality of the work as a whole.

3. High officials become lazy: Being under the impression that an effective and efficient system of internal check has been introduced, the high officials do not supervise seriously.  They presume that nothing can go wrong.

4. Causes groupism: Since employees are not working independently and job of one is linked with another, they may join hands to commit fraud.  This way they can cause to fail the system of internal check altogether.

5. Auditor excessive reliability: Since one of the purposes of system of Internal Check is to create reliability of books of accounts of the business concern, external auditor’s reliance without proper tests may create his liability for negligence.

Essentials of effective Internal Check                    2014

1. Sufficient Staff: The primary essential of internal check is sufficient staff. The employees can be appointed according to the workload. The overloading can creates trouble for management.

2. Division of Work:  Division of work is a principle of internal check. The management can determine the total amount of work. The whole work is divided among departments. The heads of such department are responsible for completion of work according to timetable.

3. Co-Ordination: Coordination is an essential of internal check. All departmental managers are bound to coordinates with other in order to achieve organization objectives. When there is fault in one department, the work of other department suffers.

4. Rotation of Duties: Rotation of duties is an essential of internal check. The workers feel bore by doing the same work from year to year. There is a need of rotation of duties. It is in the interest of concern as well as employees.

5. Responsibility: The responsibility is an essential of internal check. The employee can enjoy recreation leave. It is necessary for mental health. He cannot commit fraud as the new employee in his place can disclose the matter. There internal check system can work in the interest of business. The weakness in of one person is disclosed due to leave.

6. Checking: The principle of internal check is to check the work of other employees. Many persons perform the work. The officers can put his signatures to verify the work done by his subordinate. In this way one work passes many hands. The chances of error and fraud are minimized due to checking and counter checking.

7. Simple: The principle of internal check is simples in working the employees can understand the working of internal check system. A person can work under the supervision of other employees. The line of authority moves from top to bottom level. All workers can understand their duties in the organization.

8. Documents Classification: The classification of documents is an essential of internal check. The business documents are prepared, collected, recorded and placed in proper files. The index is prepared to compile the data.

9. Dependent Work: Dependent work is a principle of internal check. The work of one employee is dependent upon others. One work passes in the hand of two or three persons till it is complete. Another person checks the passes done by one person. No person is all in all to start and complete the transactions.

10. Harmony: The principles of internal check are harmony among the employees and departments. The understanding is essential for business goals. The harmony is basis for successful internal check.