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Sunday, May 11, 2014

Internal Check: Meaning, Objectives, Advantages and Disadvantages

Internal Check
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 labor, 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 others.

Objectives of Internal Check:
1.       Eliminates frauds and errors to prevent misappropriation of goods in cash.
2.       To encourage specialization of labor.
3.       To reduce the time spent on a particular work.
4.       To exercise moral pressure over staff members.
5.       To make accounting system more reliable.

The main advantages of internal check are listed below:-
1. MORAL INFLUENCE ON EMPLOYEES: System of internal check puts moral check on members of staff and enables them to learn honesty, hard work and straight forwardness.
2. DETERMINATION OF EMPLOYEES LIABILITY: System of internal check determines the responsibilities of employees. The member of the staff may be held responsible for any irregularity carried on by him.
3. LESS POSSIBILITY OF FRAUDS: There is a less possibility of frauds under the system of internal check because errors and frauds can be detected at an early stage.
4. INCREASE IN EFFICIENCY: The system of internal check ensures greater efficiency and speed because the arrangement of internal check is based on division of labour.
5. AUDITING MADE EASY: The system of internal check facilitates the work of auditor to a great extent by enabling him to relay on test checking.
6. FINAL ACCOUNTS CAN BE PREPARED: In internal check system the ‘Profit and Loss Account’ and Balance Sheet is prepared without any loss of time.
7. CORRECT AND COMPLETE RECORDS OF ALL THE TRANSACTIONS: The system of internal check may also result into correct and complete records of all the transactions on each balancing of the books of accounts.
8. DETECTION OF DISHONESTY OR IRREGULARITY: Any dishonesty or irregularity in the concern by the members of staff can be detected before they assume any complication.
9. TEST CHECKING POSSIBLE: If the auditor finds the system of internal cheek satisfactory. Then by taking into mind it defects or weak points he can take the help of test checking.

The defects or weak points of the system of internal check are listed below:
1. EXPENSIVE: The system of Internal Check is more expensive and time consuming.
2. SLACKNESS IN THE WORK: This is also a serious defect of the system of internal check. The auditor may show slackness in the work. He may rely on the system of internal check blindfold, which may affect the quality of audit work adversely.
3. NOT SUITABLE FOR SMALL CONCERN: The system of internal check is not suitable for small concern as it may be uneconomical in small concern.

4. GROUPING AMONG EMPLOYEES: If the employees of the concern join hand they may keep the employer in dark and may cause, many irregularities defying any-detection thereof. This groupism amongst the employees may not be healthy.

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