Internal check basically refers to the duties of staff arranged in a manner that work performed by one person is evaluated and independently checked by someone else.
Unless an organization has internal check system, accuracy of records and documents can not be evaluated. It is utmost important to have internal check system in an organization.
Objectives of Internal Check
- It creates an impact on the staff as the staff is under continuous moral pressure to perform his task efficiently.
- It protects the organization from errors and frauds, as work of one person is automatically check by the other.
- Every employee is assigned some or other duties, which has to be revaluated by the other person.
- It ensures that business has or is not likely to conduct any fraud.
- By having an internal check, reliable information about the company can be easily extracted.
Principles of Internal Check
The main principles to be followed while internal check are as follows:
- Division of responsibilities– Work should be allocated in such a way that no transactions are left undone and it should be judiciously divided among the staffs.
- Automatic Check– Internal checks is managed in such a way that work of one is automatically reviewed by other, there is no extra cost involved.
- Rotation– It should be carefully taken care of the work of employees should not be fixed, rather should be changed with time, it must be followed under good system of internal control.
- Supervision – Internal check should be consistently supervised and checked upon. It should be an iterative process.
- Reliability- In internal check, much reliability on employee is not present. It is overall reliability and check system.
- Review– Internal check should be reviewed and re-monitored from time to time. It helps to maintain a good Internal check.
Advantages of Internal Check
From Business Owner’s Point of View
- An efficient internal check system will always provide correct and reliable accounting record for the generation of financial statement of company and to affect the genuineness of the objectives of the company.
- when operational economy is considered, due to accurate internal check company operations may result in profit, if properly analysed.
From Auditor’s Point of View
- If efficient Internal check is maintained in an organization, it will help auditor to easily understand the company’s procedures, transactions, nature of business, records and thus more reliable internal check will result in more reliable and accurate financial statement and audit report.
- Since balance sheet requires proper accounting to be followed in the first place, it will take less time if proper internal check is maintained.
- Increasing efficiency among the employees
- Moral check on employees will be maintained throughout the procedure.
- Any frauds, errors and omission if any, will be easily detected.
Disadvantages of Internal Check
- For small business units it may be costly, mostly effective for larger units.
- Work pressure of employees is more as no errors is the main agenda of internal check.
- Due to faster result, quality of work may be compromised by the employees.
- An auditor cannot entirely rely on internal check and thus has to check on his own also.