ADVANCE AUDIT

Assignment no 3

Section: A
Presented to: Prof IMRAN SHEHZAD

Presented by: ABEERA SAEED L1F18MCOM7024

 DIFFERENCE BETWEEN INTERNAL CONTROL SYSTEM AND
ACCOUNTING SYSTEM

INTERNAL CONTROL SYSTEM

Internal control, as defined in accounting and auditing, is a process for assuring achievement of an
organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and
compliance with laws, regulations and policies. A broad concept, internal control involves everything that
controls risks to an organization.

It is a means by which an organization’s resources are directed, monitored, and measured. It plays an
important role in detecting and preventing fraud and protecting the organization’s resources, both physical
(e.g., machinery and property) and intangible (e.g., reputation or intellectual property such as trademarks).

Three elements of the internal control system are:

1. Environment control: The attitude, alertness, and work-zeal of directors, managers and

shareholders are reflected through environmental control.

2. Accounting system: Accounting system means some procedures and recordings with which
identification of business transactions, classification, summarization, statement preparation and
analysis for timely presentation of correct information are performed.

3. Control procedure: The additional policies and procedures adopted by the business authority for
ensuring the achievement of the specific goal of a business organization are the controlling
procedures.

These control procedures are:

 Proper delegation of power,

 Segregation of responsibility,

 Preparation and use of documents,

 Adoption of adequate security measures to protect the properties, and

 Independent control over the execution of activities.

An internal control system, not only prevent fraud forgery but also fulfills other objects:

1. The business organization implements its policies complying with the prevailing laws of the
country.

2. Employees and officers discharge their assigned responsibilities to increase efficiency in the
execution of work.

3. Financial statements provide correct and reliable information maintaining proper accounts.

In light of the above discussion, it can be briefly stated that the overall policies and plans adopted by the
management for the proper execution of business activities are called the internal control system.
Internal Control Responsibility

Internal control is the general responsibility of all members in an organization. However, the following three
groups have specific responsibilities regarding the internal control structure.

 Management holds ultimate responsibility for establishing and maintaining an effective internal
control structure. Through leadership and example, management demonstrates ethical behavior and
integrity within the company.

 The board of directors provides guidance to management. Because board members have a working
knowledge of the functions of the company, they help shield the company from managers who try to
override some control procedures for dishonest purposes. Often, an efficient board that has access to
the company’s internal auditors can discover such fraud.

 Auditors within the organization evaluate the effectiveness of the internal control structure and
determine whether company policies and procedures are being followed. All employees are part of a
communications network that enables an internal control structure to work effectively.

Financial accounting system

Financial Accounting system software or Point of Sale (POS) system is designed with the purpose of making
life easier and business better. They allow the smooth functioning of various departments and helps a
business function smoothly. Ideal for small scale business to large organization. No matter what type of
wholesaler/ retailer/ manufacturer or supplier you are, our POS (point of sale) & Financial Accounting
Software can help you with all in one solution to a multitude of everyday issues. Inventories, stock keeping,
warehouse records to tracking of delivery and sales that sometimes become a hassle in business and fail to
tally, or some unrecorded sales, or any human errors, all the time can be saved whilst adopting a smart POS
System for the business.

MIS Reports

Our Accounting Financial Management System helps to avoid common problems and accurately collects all
data in real time and the reports allow the business to get complete insights and overview of each
department and help the company improve and function smoothly.

Financial Accounting Software Reports

Reporting is the key feature of every Financial Accounting Software or POS. It helps to give clear insights
and thereby leads to better business decisions and further improvements. Reports help to Track your sales,
stock warehouse inventories; also suppliers to clients transactions and more. It gives real-time data and
helps to track record and manages entire business enterprise transactions. Following are the reports which
are generated by our accounting financial management systems:

 Chart of Accounts Report

 Purchase Report
o Customer Wise
 o Product wise

o Purchase Return

 Sales Report
o Customer Wise

o Product wise

o Sales Return

 Sales Tax

 Stock / Inventory Report

 Stock / Inventory Transfer

 Vouchers Printing

 Trial Balance

 General Ledger (GL) Report

 Profit And Loss (P&L) Report

 Balance Sheet

 Journal Voucher – JV

It is one of the most important features of the accounting systems. It has fully equipped tools to record
the various important transactions and adjustments required to report true and fair picture of the
business.

 FI Supplier Invoice
Supplier invoice in which no product is involved is entered from this form of our point of sale.

 FI Customer Invoice
Customer invoice in which no product is involved is entered from this form of the financial accounting
system.

 Cash Payment & Cash Receipts

This form works same as bank payments and bank receipts except cash account is debited or credited in
this type of transactions.
 Bank Receipts
Record your bank receipts through this form. This form also incorporates income tax as well. System
will automatically deduct the income tax amount and records it in Ledger. This will give you clear
picture of your income tax amount you paid and the amount you received from customers.

 Bank Payments
This form is designed for the payments which are made from the bank. You can record multiple
payments on single voucher. This will track all your payments done by your bank.

 Delivery Challan
Get computerized Delivery Challans from the financial accounting software when you are delivering the
goods to your customer. An efficient way of record keeping and security check at line systems.

 Quotation
Make and send your quotations to your customers. This will allow you to generate your computerized
quotations through the accounting financial system. Less time more work.

 Inventory/Warehouse Management
It provides series of features to record maintain and evaluate the available inventory. This system gives
you an idea about how much you have in your stock and how much required purchasing or producing to
cover up the sales order. It also tracks the transfer of inventory from one warehouse to another.

 Sales Return
If your customer returns you the goods that you have sold then you do not need to worry. You can enter
this as your sales return and the system will manage your accounts.

 Sales
Record your sales on cash and on credit. You will be able to track your sales date wise, product wise
And Customer wise. This is not all; you can record your sales and also generate your sales tax invoices
and sales bill.
 Purchase Return
To Record your return of goods which you have purchased we give you purchase return form. This is
will also have the impact on both the inventory as well as in the ledger.

Responsibility of accounting system

The responsibility accounting system is based on the idea that proper management should take place as
closely to the departments as possible. The officer and executive level should not be in charge of the day-to-
day operations of the individual departments. This would be inefficient and not cost effective because the
executives don’t have firsthand experience dealing with the problems of each department. The individual
managers do, however.

The responsibility accounting system allows department heads to control and allocate expenses and costs
based on what they need at the time. There are less top-level executives telling them how to run their
operations. Instead, the executive management uses the RAS to track the performance of the managers to
make sure they are properly organizing and maintaining their departments. Periodically, the top-level
reviews the performance of the lower-level management

Conclusion

The difference between internal control system and accounting system is that the Internal control
deals with following objectives such as

 Detection and prevention of frauds

 Safeguarding of asset

 Application of accounting and other policies

 Timely preparation of financial statement

While accounting system deals with the accuracy of financial statements, recording of entries,
Journalizing, Posting, Trail balance