Module III:

Internal Control
and
Internal Check
Dr. Hemal Vora
Asst. Professor
Gurukul College of Commerce,
Ghatkopar, Mumbai.
Internal
Control
  Internal Control
An internal control is a procedure or policy put in place by
management to safeguard assets, promote accountability,
increase efficiency, and stop fraudulent behavior. In other
words, an internal control is a process put in place to prevent
employees from stealing assets or committing fraud. and ensure
orderly and efficient conduct of its business.
 Internal Control for Credit Sales /
Credit Purchases:
1. Division of work
2. Procedures
3. Cross Checking
4. Change in Duties
5. Proper and prompt recording
6. Safeguarding
7. Reconciliation and Confirmation
8. Accounting policies
 Internal Control for Salaries and Wages:
1. Procedure for Payment
2. Annual leaves
(All Points of Sales)
 Internal Control for Debtors / Creditors
1. Credit Limits
2. Proper Recording
3. Prompt adjustments
4. Age wise Schedule
5. Discounts and Write offs
6. Reconciliation of control accounts
 Test Check Method
The basic objective of auditors is to check the
quality of final accounts for this sufficient evidence
has to be obtain through various Audit techniques.
However 100% checking is neither possible
nor necessary.

As per Prof.Meigs, “Test checking means to

select and examine a representative sample from a
large Number of similar Items.”
 Need: 1. Full Checking Impossible
2. Full Checking not necessary

 How 1. 100% Checking over 3-5 years

To 2. Surprised checking
Select
Samples ? 3. Extend of checking
 Advantages Disadvantages

1. Speed 1. Arbitrary Selection

2. Reliability 2. Ignores Statistical analysis
3. Labor Saving Techniques 3. Ignores Quality
4. True & Fair view 4. Risks

1. Classified Transaction
2. Systems and procedure
Precautions 3. Test check plan
4. No Bias in Selection
5. No of transaction
6. Significance of errors.
 Audit Sampling
Audit sampling means application of audit procedures to less then
100% of the items within the Accounts balance or class of
transaction

 Factor for designing Audit samples

1. Objectives

2. Population

3. Evidence
 Methods of Selecting Audit samples
1. Random Selection

2. Systematic selection
3. Haphazard selection