Internal Control
Fahmida Akhter
A. Internal Control Definition
Internal Control comprises those management
policies, procedures and practices which collectively
ensure that the level of internal risk of an
organization is contained so that its objectives are
achieved in an orderly and efficient manner.
A. Internal Control Definition
- Cont’d
Spicier and Peglar defines internal control as the
whole system of controls – financial or otherwise-
established by the management to conduct a business
including internal check, internal audit and other
form of control
Objectives of Internal Control
think C.A.R.E.S.
Compliance with applicable laws and policies..
Accomplishment of the entity’s mission (objectives and
goals).
Relevant and reliable financial reporting.
Effective and efficient use of resources.
Safeguarding Assets
Components of Internal Control
Risk
Assessment
Monitor
ing
Control
Environment Control
Activitie
s
Information &
Communicati
on
Control environment
Control environment sets the tone of an
organization. Control environment is the
foundation for all other components of
internal control . Control environment
factors include the integrity, ethical
values and competence of employees
and management’s philosophy &
operating style, organization structure,
Human resource policies and practices
and assignment of authority and
responsibility
Risk Assessment
Risk assessment is an entity’s
identification, analysis and
management of risk relevant to
preparation of financial statements
that are fairly presented in
conformity with GAAP.
control Activities
Control activities are policies,
procedures, processes designed and
implemented to help ensure that
management directives are carried
out. It helps prevent or reduce the
risks that can impede the
accomplishment of objectives.
Control activities occur throughout
the organization, at all levels, and in
all functions
control Activities – cont’d
Control activities include
training, approvals,
authorizations, verifications,
reconciliations, security of
assets, reviews of operating
performance and segregation of
duties.
Communication & Information Processing
Pertinent information must be
captured, identified and
communicated on a timely basis.
Effective information and
communication systems enable the
organization’s people to exchange
the information needed to conduct,
manage and control its operations.
Monitoring
Internal control system must be monitored
Ongoing monitoring is necessary to react
dynamically.
Monitoring must be occurred in the course
of everyday operations. It includes regular
management & supervisory activities and
other actions personnel take in performing
their duties.
Periodic testing can be done by the process
owner, internal audit and external audit
Principles Of Internal Control Design
Separation between accounting and financial
operations.
Clear description of responsibilities
Non-concentration of Power and confidence
Job Rotation
Mechanization of work
Auto checking system
Prescribed Format
Procedure of setting Internal Control
System in an Entity
Supervision
Organization
Arithmetic & Accounting
Physical
Management & Monitoring
Authorization
Personnel
Segregation of duties
Internal Check
Internal Check is a method of organizing the accounts
system of a business/ enterprises where the
duties/works of staff are arranged in such a way that
works of one is automatically checked by another.
Objectives of Internal Check
Main Objective : To ensure accuracy of recorded
transactions by allocating the total work among
different people.
Sub Objectives :
To Prevent embezzlement of fund and inventories.
To prevent errors and frauds before their commitment.
To ensure timely recording of transactions
To ascertain the responsibility of error and fraud
To facilitate improvement of trust of external parties.
Internal Audit
Internal Audit is an independent appraisal of activities
within an organization for the review of accounting,
financial and other business practices as a proactive
and constructive arm of management.
The objective is to assist management and the Board
of Directors in the effective discharge of their
responsibilities.
Responsibilities of Internal Auditor
Independence
Objectivity
Due diligence and care
Difference among Internal Check, Internal Audit
& Internal Control
Point of Internal Check Internal Audit Internal Control
Difference
1. Meaning A system of allocating the It is the A system of
jobs among the staffs in examination of the control employed
such a way that the work of accounts of a by management in
one person is automatically business by the order to carry out
checked by another employees of the the business in an
independent audit effective and
department of the efficient manner.
organization.
2. To prevent fraud in the To detect fraud and To establish
Objectives accounts forgery in the financial and
accounts managerial control.
3. Scope Employees of accounts An independent Management of the
department only department within company
the organization.
Internal check Internal Audit Internal Control
Employment Work of one person A separate No new
is checked by department is employment is
another created to do required for
the job such control
