Q.What is meant by an Internal Control System? State any two of its features. (2 marks)

An internal control system is the total set of organisational and accounting safeguards management puts in place to protect the business before any external audit even begins.

Two genuine features to state: (i) it rests on segregation of duties — no single person controls a transaction unchecked from start to finish; (ii) it covers both accounting controls and administrative controls together, not accounting alone.

An Internal Control System is the whole plan of organisation, and all the methods and procedures adopted by a business's own management, to (i) safeguard its assets, (ii) ensure the accuracy and reliability of its accounting data, (iii) promote operational efficiency, and (iv) encourage adherence to management's own policies. It is a deliberately broad umbrella term, covering administrative controls (organisation charts, delegation of authority, staff training) as well as accounting controls (authorisation limits, record-keeping, reconciliation) together.

Any two of the following features would be acceptable for full marks:

1. It is a total system, made up of every safeguard the business has in place — not any single isolated procedure.
2. It rests fundamentally on the principle of segregation/division of duties — no one person should have unchecked, complete control over a transaction from start to finish.
3. It is management's own responsibility to design and operate, not the auditor's; the auditor only evaluates it.
4. It is both preventive (structurally discourages errors/fraud) and detective (catches those that still occur) in nature.
5. It is dynamic — it needs periodic review as the business grows or changes.