Question

‘What are the basic principles of internal control? Why are accountants concerned with internal control?.

Answer 1

The internal controls establish safeguard to an organization's assets and minimize the oppurtunities of committing fraud and allowing  errors to go undetected in an organization daily operations. The basic Principles of internal control are as follows:

1. Principle of seperation:

Financial and Accounting operations must be seperated, i.e, handling of cash and the recording of the movement thereof should be done by different persons.

2. Principle of responsibility:

Responsibility for the performance of the job must be clearly stated so that there may be no room for doubt or confusion subsequently.

3. Principle of skepticism:

Too much confidence should not be pinned on one individual. Nearly all frauds have committed by trusted officials or employees.

4. Principle of rotation:

This reates to the transfer of employee from one job to another should be the inflexible guiding rule.

5. Principle of review:

The work should be so arranged that work done by one employee should be promtly checked by another indipendant employee.

6. Principle of clarification:

Clear and well-defined rules should be laid down and practically followed, relating to cash, ordering, receiving and issuing goods, etc.

7. Principle of documentation:

The arrangement of work should be in such a manner that a written record of part played by each employee should be maintained, and work should pass through several hands in a well-defined manner.

An accountant is mainly concerned with good control of the internal control system. If it exist in the accounting system, an accountant can put greater reliance on the financial data generated in the system witha a test checking of selected items.If the internal control is not strong , the accountant may have to resort to a detailed checking of transactions, events and practices in accounting system.Concerning administrative controls, the accountant may evaluate those part of administrative control as may have a bearing on the financial information of the entity.

Thus an efficient system of internal check can indeed make an Accountant work easy and convenient.