Q1. What is internal check?

Explain its objectives (2018)

Introduction

Internal check refers to the process of verifying the accounting records and
transactions of an organization by its own employees, in order to ensure that errors,
fraud, or irregularities are detected and prevented. It is a preventive measure that
helps to maintain the accuracy and reliability of accounting records and to ensure
compliance with organizational policies and procedures.

The objective of internal check is to provide reasonable assurance that the financial
transactions of the organization are recorded accurately, completely, and in
accordance with the established policies and procedures. The following are the main
objectives of internal check:

1. Detecting errors and irregularities: The primary objective of internal check is to

detect errors and irregularities in accounting records, such as mistakes in
calculations, misposting, or unauthorized transactions.
2. Preventing fraud: Internal check helps to prevent fraud by ensuring that
transactions are properly authorized, and that appropriate controls are in
place to prevent and detect fraudulent activities.
3. Ensuring compliance with policies and procedures: Internal check helps to
ensure that the organization's policies and procedures are being followed, and
that there are no deviations from the established practices.
4. Safeguarding assets: Internal check helps to safeguard the organization's
assets by ensuring that there are adequate controls in place to prevent loss,
theft, or misuse of assets.
5. Facilitating decision-making: Internal check provides management with
reliable and accurate information that can be used for decision-making,
planning, and control purposes.

In order to ensure that the internal check is effective, the following precautions
should be taken:

1. Segregation of duties: Duties should be segregated so that no single

employee has complete control over a transaction from beginning to end.
2. Authorization: All transactions should be authorized by an appropriate
authority, and there should be a clear delegation of authority.
3. Documentation: All transactions should be properly documented, and the
documentation should be maintained in a secure and organized manner.
4. Physical safeguards: Physical safeguards should be in place to protect the
organization's assets, such as locks on doors and cabinets, security cameras,
and alarms.
5. Independent review: There should be an independent review of the internal
check procedures, to ensure that they are working effectively.
Conclusion

In conclusion, internal check is a vital component of any organization's accounting

system, as it helps to maintain the accuracy and reliability of accounting records and
to ensure compliance with organizational policies and procedures. By detecting
errors and irregularities, preventing fraud, ensuring compliance with policies and
procedures, safeguarding assets, and facilitating decision-making, internal check
provides management with the necessary information to make informed decisions
and to achieve the organization's objectives.
Q2. What is difference between 'verification' and 'valuation of assets'? is an auditor a
valuer?

Verification and valuation of assets are two different concepts that an auditor needs
to understand while conducting an audit. Verification of assets is the process of
verifying the existence, ownership, and rights of assets owned by a company. On the
other hand, valuation of assets is the process of determining the value of assets as
per the accounting standards and principles.

In simple terms, verification of assets ensures that the assets recorded in the books
of accounts are actually owned by the company, and their existence can be verified.
For example, if a company records a piece of land in its books of accounts, the
auditor needs to verify if the land exists and if it is owned by the company. The
auditor may visit the site and physically inspect the land to verify its existence and
ownership.

Valuation of assets, on the other hand, is the process of determining the value of the
assets as per the accounting principles. This involves determining the fair value, net
realizable value, or historical cost of the assets. The auditor may use various methods
like market value, cost, and income to determine the value of assets.

It is important to note that while an auditor verifies the existence and ownership of
assets, they are not responsible for valuing the assets. The valuation of assets is the
responsibility of the management or a professional valuer. However, an auditor may
review the valuation method used by the management and ensure that it is in line
with the accounting standards and principles.

Now, coming to the second part of the question, an auditor is not a valuer. While an
auditor may have knowledge of valuation concepts, their primary responsibility is to
verify the existence, ownership, and rights of assets. The valuation of assets is a
specialized field that requires expertise and knowledge of the market, accounting
principles, and valuation methods. Therefore, companies usually engage the services
of professional valuers to value their assets.

In conclusion, verification and valuation of assets are two different concepts that an
auditor needs to understand while conducting an audit. Verification ensures that the
assets recorded in the books of accounts are actually owned by the company and
their existence can be verified. Valuation, on the other hand, determines the value of
assets as per the accounting standards and principles. While an auditor verifies the
existence and ownership of assets, they are not responsible for valuing the assets.
The valuation of assets is the responsibility of the management or a professional
valuer.