Name: Md Shihab Uddin

ID: 1703071

Department of Accounting

Term Paper

on

SL No Topics

4.7 Advantage of internal control.

4.8 Disadvantages of internal control.

4.9 Internal check.
4.7 :Advantage of internal control?

Internal controls are the policies and procedures that an organization

puts in place to protect its assets, ensure the accuracy of its financial
reporting, and comply with applicable laws and regulations. Here are
some key advantages of internal control:

1.Protection of assets : Internal controls help safeguard the

organization's assets from theft, fraud, and misuse.

2. A rise in the accuracy of financial data : Internal controls aid in

ensuring the accuracy and dependability of financial data.

3.Adherence to regulations : Internal controls aid in ensuring that the

business complies with applicable laws, rules, and standards.

4. Increased effectiveness : Internal controls can help processes run

more efficiently while minimizing waste and inefficiencies.

5.Better decision-making : Internal controls provide management with

the information they need to make informed decisions.

6.Reduced risk of fraud : Internal controls help to deter and detect fraud,
which can save the organization money and reputational damage.

7.Increased employee productivity : When employees know that there

are effective internal controls in place, they are more likely to be
productive and efficient.
8.Improved customer service : When internal controls are effective,
customers can be confident that their transactions are being processed
accurately and efficiently.

9.Reduced legal liability: Internal controls can help to reduce the

organization's legal liability by helping to prevent fraud and errors.

10.Improved morale :When employees know that the organization is

committed to sound internal controls, they are more likely to be satisfied
with their jobs and have a positive attitude towards the organization.

11.Increased shareholder value : Effective internal controls can help to

increase shareholder value by reducing risk and improving efficiency.

12.Improved corporate governance : Internal controls can help to

improve corporate governance by ensuring that the organization is
managed in a responsible and ethical manner.

13.Enhanced reputation : A reputation for sound internal controls can

help to attract customers, investors, and employees.

14.Reduced regulatory scrutiny : Organizations with effective internal

controls are less likely to be subject to regulatory scrutiny.

15.Increased transparency :Internal controls can help to increase

transparency by making it easier for stakeholders to understand how the
organization is managed.
16.Improved risk management : Internal controls can help to identify
and manage risks, which can help to protect the organization from
financial losses.

17.Increased compliance with laws and regulations : Internal controls

can help to ensure that the organization complies with laws and
regulations, which can help to protect the organization from legal liability.

18.Improved operational efficiency : Internal controls can help to

streamline operations and reduce waste, which can lead to cost savings.

19.Improved decision-making : Internal controls can help to provide

management with accurate and reliable information, which can help
them to make better decisions.

20.Increased employee morale : Employees who work in an

organization with effective internal controls are more likely to be satisfied
with their jobs and have a positive attitude towards the organization.

Overall, having effective internal controls enhances an organization's

overall stability, protects its resources, and improves its ability to achieve
its objectives while complying with applicable laws and regulations.
4.8 : Disadvantages of internal control?

Internal controls are important for organizations of all sizes, but they do
have some disadvantages. These include:

1. Costly implementation: Establishing a comprehensive internal control

system can be expensive, especially for smaller organizations with limited
resources.

2. Complexity: Large organizations may find it challenging to implement

and maintain complex internal control structures across various
departments and subsidiaries.

3. Time-consuming: Internal control procedures may require significant

time and effort, which could divert employees' attention from core
business activities.

4. Resistance to change: Employees may resist new internal control

measures, perceiving them as an extra burden or increased monitoring.
5. Ineffectiveness: Poorly designed or implemented controls may not
effectively address the risks they are intended to mitigate.

6. False sense of security: A strong internal control system might lead

management to believe they are fully protected from risks, potentially
overlooking emerging threats.

7. Complacency: Over time, employees may become complacent about

adhering to control procedures, leading to lapses in their effectiveness.

8. Overemphasis on controls: Rigid control environments can stifle

creativity and innovation, hampering a company's ability to adapt to
changing market conditions.

9. Human error: Despite controls, errors can still occur due to

unintentional mistakes made by employees.

10. Circumvention: Unscrupulous employees may find ways to bypass or

override internal controls, enabling fraudulent activities.
11. Employee collusion: Internal control systems might be vulnerable to
collusion among employees to circumvent the checks and balances.

12. Limitation in preventing external fraud: Internal controls are

primarily focused on internal risks and may not fully address external
fraud threats.

13. Over-reliance on technology: Automated controls can fail or be

manipulated if not properly monitored, leading to potential
vulnerabilities.

14. Training and awareness: Inadequate training and awareness

programs may lead to employees not fully understanding their roles in
the control environment.

15. High turnover impact: Frequent changes in personnel can disrupt the
effectiveness of internal controls if new employees are not adequately
trained.
16. Inconsistent application: Different departments may interpret and
implement controls inconsistently, leading to uneven risk management.

17. Cost-benefit imbalance: In some cases, the cost of implementing

controls may outweigh the benefits they provide.

18. Increased bureaucracy: An excessive focus on controls can lead to

excessive bureaucracy, slowing down decision-making processes.

19. Management override: In certain cases, management may

intentionally override internal controls for personal gain or to manipulate
financial results.

20. Lack of flexibility: A rigid internal control system may struggle to

accommodate dynamic business environments and unique situations.
Overall, internal controls are an important tool for organizations of all
sizes. However, it is important to be aware of the disadvantages of
internal control so that they can be minimized.
4.9 : Internal check?

Internal check is an arrangement of duties of members of staff in such a

manner than the work performed by one person is automatically and
independently checked by the others.

According to ‘F.R.M.De PAULA’, “Internal check means practically a

continuous internal audit carried on by the staff it self, by means of which
the work of each individual is independently checked by other members
of the staff.”

According to ‘D.R. DAVAR,’ “Internal check is a system or method

introduced with defined instructions given to staff as to their sphere of
work with a view to control and verification of their work and also
maintenance of accurate records as the ultimate aim.”

L.R. Disksee defined Internal Check as, "Internal Check is an

arrangement of accounting routine that errors and frauds are
automatically prevented or discovered by the very operation of book-
keeping itself."
According to Speicer and Pegler, “A system of internal check is an
arrangement of staff duties whereby no one person is allowed to carry
through and to record every aspect of the transaction, so that, without
collusion between two or more persons, fraud is prevented and at the
same time the possibilities of errors are reduced to the minimum".

Here are some examples of internal checks:

★Segregation of duties: This is the most important internal check. It

involves dividing the responsibilities for different tasks within an
organization so that no one person has complete control over a particular
process. For example, the person who authorizes payments should not
be the same person who makes the payments.

★Independent verification: This involves having a second person review

the work of another person. For example, a supervisor may review the
work of an employee to ensure that it is accurate and complete.

★Audit trails: These are records of transactions that can be used to track
down errors or fraud. For example, a bank may keep a record of all check
transactions.
★Physical controls: These controls involve the physical security of assets,
such as cash, inventory, and equipment. For example, cash may be kept
in a safe, and inventory may be stored in a locked warehouse.