Page 99 - CA Final PARAM Digital Book.

▪ Meet with the company's Purchase officer and obtain responses to our inquiries regarding the
purchases made without purchase orders.

▪ Discuss the summary of such issues with the client.

Internal Check Old Course – (M08R, N13E, M14E, N15E, N16M, N16E, PM17, N17R, N17M,
QNO TITANIUM CNO—MRI.480 M18M, N18M, N19R, N19M, M20R, SM21, SM20,M22M)
171.000
New Course – (SM23)

New Life Hospital is a multi-speciality hospital which has been facing a lot of pilferage and troubles
regarding their inventory maintenance and control. On investigation into the matter it was found that the
person in charge of inventory inflow and outflow from the store house is also responsible for purchases
and maintaining inventory records.
According to you, which basis system of control has been violated? Also advise the other general
conditions pertaining to such system which needs to be maintained and checked by the management.
OR
State the considerations on which effectiveness of an efficient system of internal check depends.
OR
Write a short note on Objectives of Internal Check System

OR
BSF Limited is engaged in the business of trading leather goods. You are the internal auditor of the
company for the year 2018-19. In order to review internal controls of the sales department of the
company, you visited the department and noticed the work division as follows:
(1) An officer was handling the sales ledger and cash receipts.
(2) Another official was handling dispatch of goods and issuance of Delivery challans.
(3) One more officer was there to handle customer/ debtor accounts and issue of receipts.
a) As an internal auditor you are required to briefly discuss the general condition pertaining to the
internal check system.
b) Do you think that there was proper division of work? If not, why?

Answer ➢ Basic system of Control:
Internal Checks and Internal Audit are important constituents of Controls. Internal Check means

check on day to day transactions operating continuously as a part of routine system in which work
done by one person can be checked by others.

➢ Objectives of the Internal Check System:
To detect error and frauds with ease.
To avoid and minimize the possibility of commission of errors and fraud by any staff.
To increase the efficiency of the staff working within the organization
To locate the responsibility area or the stages where actual fraud and error occurs.
To protect the integrity of the business by ensuring that accounts are always subject to
proper scrutiny and check
To prevent and avoid the misappropriation or embezzlement of cash and falsification of
accounts.

➢ General Condition:
The general condition pertaining to the internal check system may be summarized as under-
(Start)
No Single Control- No single person should have complete control over any important
aspect of the business operation. Every employee’s action should come under the review
of another person
Distribution of Power- The financial and administrative powers should be distributed very
judiciously among different officers and the manner in which those are actually exercised
should be reviewed periodically.
Budgetary Control- Budgetary control should be exercised and wide deviations observed
should be reconciled.

(During)
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