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Internal control has been defined as being "no only internal check and internal audit but the whole system of controls, financial and otherwise, established by the management in order to carry on the business of the company in on orderly,manner, safeguard its assets and secure as far as possible the accuracy and reliability of its records."
Therefore internal control is a broad term with a wide coverage. Its scope extends beyond those matters which relate directly to the functions of accounting and financial records. In its modern sense, audit control includes two types of controls:
(a) Accounting Controls : These comprise primarily the plan of organization and the procedures and records that are concerned with and directly related to the safeguarding of assets and reliability of financial records. These include budgeting control, standard costing, control accounts, bank reconciliation, self balancing ledgers and internal auditing etc.
(b) Administrative Controls : These comprise the plan of organization that are concerned mainly with operational efficiency. They may include controls, such as time and motion studies, quality controls through inspection, performance reports and statistical analysis.
From the point of view of the auditor, the distinction between these two controls, is very significant. An auditor has to make a careful review of the accounting controls in order ensure the accuracy and adequacy of financial statements. He is not expected to review the administration controls because they have only a remote relationship with financial records. However he may evaluate only those administrative controls that have a bearing on the reliability of financial statements.
Internal check is a method of organising the accounts system of a business concern or a factory where the duties of different clerks are arranged in such a way that the work of one person is automatically checked by another and thus the possibility of fraud, or error or irregularity is minimised unless there is collusion between the clerks. For example, the receipt of cash is entered by the cashier on the debit side of the cash book; this entry is carried to the ledger by another clerk; the statement of account relating to this transaction is sent to the customer by a third clerk and so on. Thus the same transaction has passed through three different hands and the work of one is checked automatically by the other. It is a kind of division of labour. This minimises the possibilities of frauds and errors unless all the three join hands in defrauding their employer.
According to the special committee on Terminology, American Institute of Accountants, 1949 "Internal check-a system under which the accounting methods and details of an establishment are so laid out that the accounts procedures are not under the absolute and independent control of any person - that, on the contrary, the work of one employee is complementary of that of another, and that a continuous audit of the business is made by the employees."
The essential elements of an internal check are :
(a) Instituting of checks on day-to-day transactions.
(b) These checks operate continuously as a part of routine system.
(c) Work of each person is made complementary to the work of another.
The objective of such allocation of the duties is that no one has an exclusive control over any transaction.
In a very simple answer, the internal check is one of the many methods being used in internal controls.
Other methods in internal controls may be also include double-check,matching, using serial numbers...etc
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