Internal control system in auditing
- 1. CITY UNIVERSITY Of Science & Information Technology Dalazak Road, Peshawar. Phone: 091-2609501-8 Fax: 091-2609500 E-mail: info@cusit.edu.pk Website: http//www.cusit.edu.pk ASSIGNMENT FORM Name: ZAHOOR KHAN Admission No: 11485 Program: M.COM Semester: SEMESTER 1ST FIRST Assignment Title: Internal Control System To Be Filled By Student Subject: Adv. Auditing Assignt.No: 02 Title: Major Assignment 2020 Date of Assig: 20- 05- 2020 Date of Submit: 28 -05- 2020 Signature: ZK To Be Filled By Instructor Marks Obtained:____________ Total Marks:_______________ Remarks:__________________ Signature:________________ Name:___________________ The following portion of acknowledgment may be retained by the student till the end of semester i.e Declaration of result.
- 2. DR. SAID WAIL SUBJECT: ADVANCE AUDITING ASSGMENT TITLE: INTERNAL CONTROL SYSTEM DEADLINE: 28 – MAY- 2020 Q. Write a comprehensive note on internal control system? Ans: Internal Control System: The whole system of the business control organized by the management to carry on the business is called internal control system. Internal Audit, Internal check, and other such forms of control are also included in it. OBJECTIVE OF INTERNAL CONTROL: To achieve the following objects internal control system is employed. 1) The error and frauds of clerk may be prevented. 2) To prevent the goods and cash misappropriation by keeping check on the receipts and delivery. 3) To keep an accurate record of all the business transactions PRINCIPAL OF INTERNAL CONTROL SYSTEM: Following are the important principal of internal control system. 1. RECORD AND BOOKS: Books should be kept up to date and at regular intervals these should be balanced. Handling of each transaction should be made by the different persons. For instance, the cashier should not be allowed to record the cash received accounts books. He should have no concern with written ledgers.
- 3. 2. INDEPENDENT CHECKING: Work performed by one person should be independently and automatically checked by another person. 3. PRINCIPAL RELATING TO STAFF: Duties of each staff member should be clear and there should be no confusion and doubt in this regard. In case of any staff member absence duties arrangements should be made in advance. 4. CHANGING: It is also important principal that no one should handle the transaction from beginning to end. Because in this situation there is a chance of fraud. Generally, most of the frauds are committed due no this reason. 5. PROPER SUPERVISION: For the effective internal control system management should have up to date information about the trade and financial position of the company. So it should exercise proper supervision for effective operation of internal control system. 6. CLEAR RULES: All those rules relating to cash stock, receipts and issuance of goods should be by clear and well defined. If should be also checked that their rules should be followed by the employees properly. 7. INSTRUCTION IN WORKING: For the effective internal control it is necessary that all the instructions should be in writing in the form of accounting manuals. 8. QUALFIDED AND COMPETENT STAFF: For the effective control system there is also a need of qualified and competent staff. Every staff member should be properly placed according to his sill and qualification. 9. DOUBLE SYSTEM OF ACCOUNTING:
- 4. For internal control system double accounting system is also very useful. No doubt it is comparatively expensive but it must be used for effective control. 10. INCENTIVE FOR HONEST WORKER: Honest and hard working person must be encouraged. He should be given some reward in the shape of promotion and cash. This principal is also very effective in improving the internal control. 11. USE OF MACHINES: For the tabulation and keeping the accuracy of the record various mechanical instruments like calculators and computers must be introduced. 12. PERFORMANCE AND DUTIES AND RECORDS: Allocated functions to the employees were performed according the procedure or not. There should be a proof and proper record of their performance and also it indicate that it has been checked properly. 13. RECORDS OF GOODS AND ASSETS: All the companies assets and properly record should be maintained properly. There should be also the security measures for the properly. 14. SURETY BONDS: To protect the company from fraud and to make the internal control more effective surety bonds can be taken from the employees. ADVANTAGES: Following are the advantages of internal Audit: 1. EFFECTIVE CONTROL: The internal audit is very useful for effective control over the business activities. Internal audit keeps the management always alert.
- 5. The manager concerned can remove the problem for smooth working easily. He can supervise the business properly. 2. REDUCES THE POSSIBILITY OF FRAUD: Internal audit is very useful for detecting the frauds is the books of accounts and records. The work of accounting staff is examined on daily basis. The accounting staff has no time to plan any type of fraud. 3. PROPER USE OF RESOURCES: The internal audit is useful for the proper use of resources. It reduces the cost of output and increases the profit. 4. FIXATION OF RESPONSIBILTY: It is very helpful in fixing the fixing the responsibility of poor performance of workers at each level. It evaluates the performance of people and people can be held responsible for poor performance. So action can be taken against the people who are responsible. 5. PROTECTION OF ASSETS: The assets of the business can not be used for private purposes. Though internal audit assets can be protected. The stock and building cannot be misused by the workers. 6. INTERODUICTION OF PROPER ACCOUNTING SYSTEM: To maintain the financial record proper accounting system is introduced due to internal audit. It is very useful to achieve the desirable results. 7. COMPARATIVE STUDY: Through internal audit management can review its plan of progress. The figures of previous years can be compared with the current year and growth rate can be determined keeping in view the position of competitors.
- 6. 8. USEFULFOR EXTERNAL AUDITOR: It is very useful for external auditor because the audit procedure is almost same. While starting the external audit work, internal audit report is kept in view by the auditor. ********************************************************* THE END THANK YOU SIR ID NO: 11485 M.COM 2ND STR ********************************************************