Internal control is the overall control environment established by management of an enterprise for effective and efficient monitoring and control of its operations. It aims at adherence to management policies, safeguarding of assets of the enterprise, proper accounting and record of the business transactions. Internal check and internal control are vital components of the control system.
The auditor should properly understand and assess the internal control system to determine the degree of reliance to be placed on it and accordingly to plan the nature, timing and extent of audit procedures to be performed by him. If the internal control is found to be effective, the auditor may resort to selective verification. However, when internal control system is weak auditor has to verify the transactions in detail.