The Effect of Internal Audit on the Performance of Private Firms (a Study of Anambra Motor Manufacturing Company)
Chapter One
Statement of Objectives
The broad objective of the study is:
- To determine if internal audit ascertain the correctness of financial records.
- To determine the extent to which internal audit helps in enforcing compliance to rules and regulations regulating private sector accounting and auditing.
- To find out if internal audit inspect and verifies organizational assets and liabilities.
- To know the factors hammering pa ring audit procedures in the private sector
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Concept of Internal Audit
Internal audit is an independent, objective assurance and consulting activity designed to add value improve an organization‟s operations. It helps an organization to accomplish its objectives by brining a systematic, disciplined approach to evaluate and improve the effectiveness of risks management, control, and governance processes.
Internal auditing is a catalyst for improving an organization‟s governance, risk management and management controls providing insight and recommendations based on analyses and assessments of data and business processes. With commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called international auditors are employed by organizations to perform the internal auditing activity.
The world private firm or sector and audit had undergone frequent usage in the country that for this research by deserve special mention and explanation.
However private firm includes the part of the economy that is fully controlled, managed financed by individuals. Therefore fairness and truth of that account will have to be confirmed by a third party after an impartial examination, this act of examining and confirming is known as audit.
Therefore, this chapter is expected to make an extensive and critical review of related literatures. Thus the promotion of expected standards from adequate reviews, critical analysis and evaluation of several tests in areas that will be helped and instrumental to achieving the objectives of this research work will be ensured.
Meaning of Audit
According to Eze (2005) one of the simplest ways of economizing efforts in an inquiring is to review one build upon the work already done by other.
Santoki (1974) stated that an audit may be define or describe as an examination and evaluation of the authenticity, and therefore the reliability of the firm‟s business documents and records, and it also involves in making inquires to
ascertain that the financial statements on which the auditor is reporting and which have been prepared from their records display a true and fair view of the financial results for the year under review and true and fair view of the affairs at the end. Taylor (1982) stated that an audit is an investigation by an auditor into the evidence from which the final revenue accounts and balance sheet, or other statements of an organizations have been prepared, in order to ascertain that they present a little and fair view of the summarized transactions for the period under review and of the financial statement of the organizations at the end date so to enable the auditor to report thereon.
Okolo (1987), expressed that an auditor could be a conscientious and objective examination of an inquiry into, any statement of account relatively to money or money worth, the underlying documents and the physical assets where possible, as will enable the auditor to form an opinion as to know whether or not the statement of account present shows a true and fair view of whatever it purport to presents, and to report accordingly.
Nwabueze (1997) stated that audit is an exercise which is carried out in order to lend credence to statements prepared by directors of the company (who are not the owners) for the use by the owners of business shareholders, creditors, the employees, the government etc) whereby the auditors express his opinion as to the true and fair nature of the transactions he examined while carrying out the audit.
CHAPTER THREE
RESEARCH METHOLODOLGY
Introduction
In this chapter, the researcher stated the methods which he adopted in carrying out the research work. The methodology encapsulates such as research design, population of the sample size and sampling techniques ,instrumental for data collection, testing techniques, inferences and conclusion .The content of this chapter will not be only make it simpler for the reader to understand the analysis done in this study, but will clarify the procedure adopted.
Research Design
The research design for this study provides for the collection, measurement and analysis of data related to the projected questions. The research design used for the collection of data was the survey design which entails the construction, distribution and collection of questionnaires data forms as well as the examination and analysis of related literature.
Sources of Data
For the purpose of this study, the researcher used two basic sources of data, primary data and secondary sources of data
PRIMARY DATA
Questionnaires and personal interviews were adopted in the collection of data .The questionnaires were administered personally to the concerned staff that falls within the survey range .some key personnel such as internal auditor .Head of Accounts Department etc where interviewed and further information was gathered .Observation was made on the actual principles, practice of auditing. Audited books and procedures were personally scrutinized for the information purposes of the research. Telephone call were made whenever it was expedient
SECONDARY DATA
Secondary data are data obtained from magazines, nation‟s dailies, Journal, Published and unpublished work and statistical records. These sources for the written materials include University of Nigeria Enugu campus Libraries, the Enugu State University National Library and Caritas University Library Enugu State.
Area of Study
The area of study for this research work is the M. B ANAMCO manufacturing company Plc located at Emene Enugu.
Population of the Study
The population of this study includes 40 staff of the internal audit department of the MB ANAMCO LTD Emene Enugu. Staff belongs to various cadres, management, middle and other cadres. But the sample will only comprise of 3 ACA holder,8 B. Sc holder,7 HND holders 9 OND holers,13 GCE holder. Which brings them to total the number of forty (40)
CHAPTER FOUR
DATA PRESENTATIONS AND ANALYSIS
The purpose of analysis of data is to dig out information useful in decision making. Data appear in a variety of forms and the measured. (Enns 2005:166).
This chapter focuses on the analysis of general characteristics of respondents, analysis of responses and empirical test of the two hypotheses using the chi- square techniques. It is conducted by stating the decision rule.
Analysis General Characteristics of Respondent
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
This is the conclusion chapter of this study. The finding and the result of the findings will be presented in this chapter and a general conclusion in respect of the outcomes of the study and recommendation for further research will be outlined.
Summary of Findings
Internal audit is very important in every company. The internal audit is explained above; thought effective, still have problems which have constituted to unsatisfactory performance as expected of a standard internal audit.
The problem range form: Inadequate staff, Lack of independence of internal auditors, Lack of properly qualified staff with cognate experience, Management neglect of the internal auditors, Lack of mobility.
We have got an idea of who an auditor is, it becomes necessary for us then to know who are the non-auditing officers and their hindrances to internal audit efficiency. The way i understood „an officer” is anybody who has been entrusted with the authority to command, direct or to posses certain vital information. The non-auditing officer was those within the establishment other than the auditor (internal and external who possess the authority to command, direct influenced the auditor‟s opinion through the information they posses.
In other words, the non auditing officers are those persons within the system under who are not involved directly in the audit but hold or posses certain information whose provision influence the audit opinion or that person whose performance are under auditors examination.
THE ROLE OF NON- AUDITING THAT AFFECT AUDIT WORK
The responsibility to examine the financial records falls on the auditors and so they are accountable for the assignment. Their work cannot be efficiently done. (I .e they cannot express a reliable opinion of the non auditing officers refuse to discharge their moral and legal obligations as required. The roles of non-auditing officers with respect to audit work may not be their primary roles but the same they are vital to audit work.
Some of roles are:
- Making available books, accounts and other records as may be required. section 36 (3) of companies and allied matters degree
- (CAMA) 1990 gave them auditors the right to have access at all ties to the company‟s books accounts and vouchers. It is from these books that auditors may obtain reasonable evidence that financial statement were prepared as reflections of what transpired during the period under reporting. It is therefore the duties of non-auditing officers to ensure the existence of these books of account and vouchers, ensure that they are well kept and made available to the auditors without procrastinations.
- Provision of any other information as ay be required
- To assist auditors in obtaining information as explanation from third parties where necessary .At times the auditor may need certain and vital information within the establishment. It becomes necessary to make contacts with third parties outside the establishment to obtain or confirm such information. It becomes necessary that non auditing officers concerned be ready and co-operating in enabling the auditors to obtain the information.
- Deliberate refusal to supply vital information on the pretence of unavailability or confidentially
These non auditing officers are often found of withholding information that know would be useful for the audit and even where the auditors made requests they would still deny having such information. By this, the auditor or may be forced to device further methods or techniques to obtain the required information which may be more expensive and time consuming.
(2) Non Recognition of internal audit department: A way to frustrate a unit is to give little or no recognition to the importance of that unit; this will definitely lead to poor funding and staffing of that unit. This has been the case for many internal audit departments that are given due recognition and so they are poorly funded and staffed by the non-auditing officer who are in position of authority. (3) Creating opportunities to influence auditors opinion through threats and gifts:
Many non auditing officers and usually those whose performances are under examination often resort to threats and the giving gifts as the case maybe in order to dissuade the auditors from giving opinion expected of persons independent in mind and attitude .Threat come in the area of employments and promotion and mostly associated to internal audits while gifts often used to dissuade the external auditors ,though the external auditors can be threaded with non auditors fees and remuneration and that of non reappointment ,their interest are legacy secured.
WHY BEHAVE IN SUCH WAYS AS THEY DO?
There is a common saying “there is no fire without smoke‟ so I do believe that every behavior must have at least a cause. The following are some of the cause of the attitude of these non auditing officers in their attempt to hinder the auditors work.
- Ignorance of objects of audit: Most of the non auditing officers have not appreciated the necessities of the auditors and most importantly, the internal auditor. Some believe that the private sector created internal department in its industries and establishments to provide jobs for people. It is even seen by some that is a way to promote and maintain the continuity of red tapism usually associated with government functionaries. Many have called for its abolitions; many have seen it as an enemy a watch dog for the owners and therefore, need to be treated as enemy. So it is not too surprising to see these non auditing officers putting up various kinds of behavior to fight the unit.
- Ignorance of the responsibility to auditor: The refusal of some non auditing officers to co-operate has been claims to be due to the fact that they hold certain confidential information on trust, but are ignorant of the fact that the law empowers the auditor to get whatever information he requires.
- An attempt to cover up fraud and internal errors: Some non auditing officers are aware of thee objects of audit and their responsibilities to auditors but they still put up their un co-operation attitude just to cover up the fraud and intentional errors they have committed or they collaborated to commit.
Conclusions
From this study it could be observed that the internal auditor occupies such a paramount position that his importance cannot be emphasized. He ensures people good and effective internal control system.
Specifically as a watch dog for the management, the internal auditor forms a connecting link between the various segments of management. He ensures that accounting and the management controls are implemented. However, in this part of the world the importance and functions of internal auditor are to a great extent over looked. Apparently, most of our limited liability companies and some government establishment never care to set up an internal auditor or department. And this is why in daily news lithe huge sums of money have been misappropriate or mismanaged in one way or the other. Moreover, at times when some of these companies create internal audit department in their offices, they fail to take the advice of internal auditor‟s .The implication of refusal to take advice of internal audit department in their offices, they fail to take the advice of the internal auditors. The implication of refusal to take advice will not be for better management and up keep of financial records while probing the management when required thus they do these by not implementing the reports of the internal auditors.
It is common knowledge that most company‟s chief executive does not have time to go through the internal auditors report. And as such they do not know when the correctives measures applied by the internal auditor could be introduced in order t o check or control excesses. These are the reason why in some areas, the internal auditors are being describe as toothless-bull-day.
Also from the foregoing, it can be seen that the purpose of internal auditing is not to detect fraud as some people think. A properly conducted internal audit may reveal discrepancies, mistakes loopholes in the system and sometimes fraudulent ,manipulations as a by-product of the work.
Finally, looking through this research generally and thoroughly, it is observed that internal audit department should not be overlooked in any establishment .for instance, most understandable managers and top personnel offices avert fraud (taking something of value from someone also through direct) of some sort for fear of being detected, harassed and penalized by the auditors .And as such other crimes such as theft of cash, theft of materials and suppliers. This paper has therefore established how internal audit could be a tool from management control.
Recommendations
Based on the problems identified above, and having examined the effect of non auditing officers, the ways they had been performing these roles and why they are behaving the way they do, the task would be incomplete if we do not suggest ways of ensuring that the best is to obtained by the auditors from the non auditing officers. The researcher therefore wishes to put forward the suggestions and recommendations which if implemented will augur well for the establishment and improve the internal auditing process generally. The internal audit department is ill staff to be compared with the magnitude of work they carry out before the department to function effectively; more staff should be engaged. This will facilitate the audit work of the establishment. Assuming that there are enough staff in the unit the staff could be distributed to various departments or stations to check the activities of the workers and report their finding to the management.
- Evaluate the non auditing officers on the advantages to the management: it is a tool for ensuring effective implementation of the internal control system and in fact it allows such internal system to be reviewed. With internal management policies are seen to be complied with and adequate information is made available to management for review and decision making. If non auditing officers are given proper education they would see reasons to co-operate with the auditors since the exercise will benefit them and this would enable them to give more attention to the internal and external audit reports.
The internal auditor should be given a higher status in the establishments. In most establishments I visited, there were strong feelings and expressions about the low status of internal auditor‟s hierarchy of organization. Head of internal audit departments appeared to be in executive cadre (H.E.O) nearing retirement. I observed that they are pushed away from the main building and are provided accommodations in some of the leaking wooden structures around the industry with poorly furnish offices. it is strongly recommended that internal should be considered for consider for higher status comparable to those of their counter parts who perform management duties. This will make it possible for them to attend important meetings and contribute to the growth of the establishments.
- Mobility: There is an urgent need for transportation to be readily available to staff of this office .It is very important that internal audit staff should provided with vehicles. The nature of their work warrants that allocation be made to the department to enable them carry out audit work at the branches or zones or perform other field assignments such as market survey. Sometimes, management required internal auditor to conduct investigation on certain issues and the information needed may be obtained at Port Harcourt, Aba, Onitsha, etc .In such circumstances use of vehicle is inevitable. In most of the places which I visited during research work, there was a general compliant that internal audit requires vehicle to enhances their productivity.
- Establishment of audit committee: Section 359 (3) of companies and allied matters decree 1990, (CAMA) made it mandatory for all public companies to have audit committees. Much good would be done to internal audit. If every organization has an audit committee and if the internal auditors can be appointed by this audit committee and made to report to them so as to prevent the unnecessary and direct or indirect intervention of the management in the internal audit.
- Appointment and qualification of internal of internal auditors: The caliber of people to occupy the position of internal auditor should be such as to make them comparable in status and responsibility with that of other management staff. This would enable the management to accord much to the internal audit.
- Management should react promptly to audit reports quinces: Whenever anomalies should be corrected immediately and adherence to lay down polices by the staff concerned should be monitored where possible reassignment of incorrigible staff should be strongly recommend. It is advisable that internal auditor should report direct to the chief executive of the establishment, so that his report will be properly and promptly treated.
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