Internal Check has been defined by the Institute of Chartered Accountants of England and Wales, as the “Checks on day to day transaction which operate continuously as part of the routine system where by the work of one person is proved independently or complementary to the work of another, the object being the prevention or earlier detection of error or fraud”. The system of internal check in accounting implies organization of the system of book keeping and arrangement of staff duties in such a manner that no one person can completely carry through a transaction and record every aspect thereof.
Internal audit has been defined by the Institute of Internal Auditors, USA as an “Independent appraisal activity within an organization for the review of operations as a service to the organization. It is managerial control which functions by measuring and evaluating the effectiveness of other controls”. Traditionally internal auditing was considered to be limited to the examination of the books of accounts of the organization with a view to ascertaining whether they correctly record the transaction. Infact, a good internal control system should have internal audit as an integral feature. The modern concept of internal auditing as enunciated in the aforesaid definition shows that internal auditing has moved significantly ahead by shouldering greater responsibilities to become one of the important management control activities.
It can be seen from the foregoing definitions that both internal check and internal audit are parts of overall control system. Internal check operates as a built-in device as far as staff organization and job allocation aspect of the control system are concerned. On the other hand, the adequacy and operations of internal control on a regular basis is to be reviewed by the management through internal audit system to ensure that all significant control are operating effectively. Thus internal check is merely an arrangement of book keeping and clerical duties but internal audit involves evaluating the quality and operation of the various other controls. For example: whether the systems and procedures are well formulated and adhered to or whether the internal check operating in the organization has any room for leakage of revenue are matters of internal audit. Internal auditing, therefore, is a control function which directly contributes to the improvement of the overall control system.