INTERNAL CONTROL – Advantages of Internal Control – Disadvantages of Internal Control


Advantages of Internal Control

An audit control system can give the following advantages:

1. Detection of Errors and Frauds:

Internal control systems are structured in such a way that work done by one employee in a process is checked by another without knowledge of the former. In such an environment, any fraud committed is brought to light unless there is collusion among fraudsters.

2. Time Saving:

Auditor can test check or sample check the transactions to ensure reliability, and accuracy of entries in the books. Hence, he can complete his audit work and prepare financial statements within the prescribed time.

3. Minimum Scope for Errors and Frauds:

Each employee does only a limited work assigned to him, moreover, consciousness of his work being independently checked by another keeps him to be always alert at work. In such a context, chances for commission of error or fraud are lesser.

4. Operational Efficiency:

It facilitates fixation of accountability, error – free work performance, accuracy reliability and authenticity of entries and eradicate inefficiency, fraud, theft, etc. Moreover, this system enables the management to assess the performance of employees. All these collectively contribute to enhance the operational efficiency of organization as a whole.

Disadvantages of Internal Control

An audit control system can give the following limitations or disadvantages:

1. Organizational Structure:

Deficiencies in organizational structure make internal control ineffective.

2. Size of the Organization:

Small organizations have very low levels of internal control, which are almost negligible due to more interference by owners and management.

3. Unusual Transactions:

The internal control procedures normally fail to keep a check on unusual transactions.

4. Costly:

The implementation of internal control procedures and processes involves incurring costs in terms of time, effort and resources.

5. Abuse of Power:

Members at the toplevel management may override or interfere with control.

6. Collusion of two or more People:

It may lead to internal controls being over- ridden.

7. Obsolescence:

Control system may become redundant with passage of time if not updated with change in the size and nature of business.

8. Human Error:

Internal control fails as there are posibility of human errors.

9. Frequent follow-up measures:

Followup procedures need to be frequent to ensure its effectiveness, which is extremely time-consuming

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