INTERNAL AUDIT AS AN INSTRUMENT OF MANAGEMENT CONTROL IN NIGERIA BUSINESS ORGANIZATION(A CASE STUDY OF CAPL PLC, UNION BANK AND JOHN HOLT)
The focus of this research paper was to conduct a careful and diligent search on internal audit as an instrument of management control in Nigeria business organization.
The significance of the study is to determine whether internal audit functions have any significant effect on the overall performance of an organization in the selected organizations which are CAPL PLC, Union Bank Plc and JOHN HOLT all in Lagos state.
This project is divided into five chapters. The first chapter concerns the introduction and brief history of internal audit as practiced by all Nigerian business organization. In the light of this study a brief discussion in information protection and control as vital aids to management was enumerated.
The second chapter looked at literature review of the past work of earlier scholars in the field of internal control and internal auditing.
In chapter three, details of course and method of data collection was discussed.
Chapter four on the other hand looked critically and analyzed data with the use of chi square and chapter five entails the summary of findings, recommendations and conclusion of the project study.
TABLE OF CONTENT
Title page i
Table of content vi
1.1 background of the study
1.2 Reasons for research
1.3 Aims and objective
1.4 Significant of the study
1.5 Research questions
1.6 Hypothesis statement
1.7 Limitation of the study
1.8 Scope of the study
1.9 Definition of terms
- Literature Review
2.1 Internal Control and Internal Audit
2.2 Types of Auditing
2.3 Difference between internal and External Audit
2.4 Objective of Auditing
2.5 Who is an Auditor
2.6 Roles of Auditor
2.7 Causes of error and fraud
2.8 Audit of error and fraud
2.9 Nature and types of frauds
2.10 Scope and function of internal Audit
2.11 Rights, Duties, and responsibilities of internal Auditor
3.2 Research designs
3.3 Sample procedure
3.4 Research instrument/Data techniques
3.5 Re – statement of hypotheses
3.6 Data Analysis technique
Presentation and analysis of data
4.2 Test of hypothesis
- Summary of findings, Recommendations and conclusions
5.1 Summary of findings
LIST OF TABLES
4.1: PRESENTATION OF DATA
4.1:1: Qualification of Respondents
4.1.2: Experience of respondents
4.1.3: Business organization
4.1.4: Importance of operating internal Audit department.
4.1.5: The need to make internal Audit department stand on its own.
4.1.6: Merging internal Audit with Accounting Department
4.1.7: Competency of internal Audit department.
4.1.8 Independence of internal Audit Department
4.1.9: Relationship of internal Audit with other departments
4.1.10: Convenience between internal Audit and Accounting department
4.1.11: Absence of internal Audit Department
4.1.12: Adherence of Accounting Department
4.1.13: Internal Audit is the watchdog of Accounting department
4.2 Test of hypothesis
4.2.1: Summary of the tables / questionnaire.
1.1 BACKGROUND OF THE STUDY
Internal audit is an element of internal control system set up by the management of an organization to examine, evaluate and report an account and other controls in operation. It exists to fulfill statutory requirement.
When an entity has an internal audit department, management can delegate some of its supervisory functions especially with regards to the review of internal Audit, constitute a separate competent internal control undertaken by specially assigned staff within the organization with the aim of ascertaining how well controls are designed and whether or not it confirms with rules.
This research study intends to find out the effectiveness and problems of internal audit departments in Nigerian manufacturing and non – manufacturing business organizations.
In view of the above, a brief discussion on information protection and control as a vital tool to management would be explained. Since most information needed by management about finance and progress of operation come from the accounting records, information then must be reliable, complete and timely for optimal value.
Internal audit is necessary to ensure that the organization policies and directive are properly adhere to. Internal audit is a key factor in the effective and efficient management of business organization.
The definition of internal audit is broader than the meaning attributed to the terms. It is worth noting that internal audit goes beyond matters which relate directly to function of accounting department. In brief internal audit is the means by which management obtains information protection against errors and frauds that are vital to the successful operation of business organization. It is therefore a form of auditing i.e (internal audit).
A good internal audit department has a direct bearing on the reliability of a concern accounting records permitting the independent audit (external audit) to place a great confidence and reliance on the accounting and audited records thereby justifying reduction in the scope of the auditors examination and a redirection of business organization efforts.
Management of many business organizations large and small have found the need for internal auditors as employees of business organization to work exclusively for the management. External auditors on the other hand are independent body, the functions of both parties seems overlap but are determined by management and varies from one organization to another but are guided by the rules of CAMA 1990.
Internal audit is being carried out by independent personnel called internal auditors who are employees of the organizations and should have some degree of independence which include:-
- Reporting to the management without being bias
- Freedom from undue restriction by management
- Being able to arrange priorities as it pleases
- Freedom of access to records of assets and personnel among others.
Internal audit as an instrument of management involves a periodic review of operations in order to report on the efficiency and effectiveness of the internal controls and accounting system as well as suggesting improvement where necessary e.g. continuous update of existing controls to block loopholes, report on result of operations from plans and reasons there of to safeguard the interest of the organization and studying the environment and recommend improvement e.t.c.
- REASONS FOR RESEARCH
There is no gain saying the fact that internal audit is faced with some problems in Nigerian business organizations. These problems are what this research study intends solving, hence reasons for the study.
- The study tries to solve problem of overriding of internal audit function by the management
- Inability of internal audit function to be carried out without fair or favour
- Inability to enforce audit standard and guidelines because of limitations and hierarchy as well as
- Inadequate system of internal control set by management e.t.c
- RESEARCH OBJECTIVES
The objective of this study is to ascertain whether internal audit is an effective instrument of management control in Nigerian business organizations. The objective intend to achieve include:-
- To suggest ways of implementing the internal audit function
- Establish that there is overriding of audit function and inability to enforce audit standards and guidelines
- ascertain the concepts of internal
- Determine factors that enhance management control.
- SIGNIFICANCE OF THE STUDY
The significant of this study is to assist the Nigerian business organizations in safeguarding its resources by promoting an efficient and effective business and customer service environment based on sound and practical internal controls. The controls if strictly adhere to will in no measure contribute greatly to the growth of the organization and at the same time assist the auditors and management in achieving their goals.
Some of the ways of achieving these are:-
- Accurate record of materials
- Proper channel of the materials or resources
- Effective monitoring by the management
- Independent of internal auditors
- regular stock taken of materials
- good remuneration of staff
- adequate use of auditing standard and guidelines by auditors
- proper use of funds
- enforcement of internal audit function
- implementation of internal audit function t.c
- RESEARCH QUESTIONS
The research question to be proved right or wrong are:-
- does the financial statement prepared by the management dependent or reflect implementation of internal audit function?
- Are there overriding of audit function in business organizations?
- Are the auditors working credibly in performing their duties?
- HYPOTHESIS STATEMENT
HO: The financial statement prepared by the management does not reflect implementation of internal audit function
HI: The financial statement prepared by the management reflect the implementation of internal audit function
H2: The internal auditors are working credibly in performing their duties.
- 7 : LIMITATION OF THE STUDY
This study is limited to the assessment of internal audit as an instrument of management control in Nigerian Business organization as well as the level of implementation of internal policies on audit function. Areas looked into include:-
- Method of preparation of the financial statement by the management
- Level of compliance by management with various auditing guidelines and standard
- The credibility of the internal auditors in the course of their assignment.
- SCOPE OF THE STUDY
The scope of the study will cover both manufacturing and non manufacturing organizations. The selected company under manufacturing is JOHN HOLT PLC and UNION BANK for non manufacturing organization.
- DEFINITION OF TERMS
ACCOUNTING POLICIES:- These are rules, principles, conventions and procedure adopted in preparing and presenting financial statements. Judgement is required in the choice of accounting policies, which are appropriate to the circumstances of an enterprise and are best suited to represent “True and fair view” of its results and financial position.
AUDIT DEPARTMENT:- This is a department saddled with the responsibility of reporting the truth and fairness of the financial position shown by the balance sheet, profit or loss shown by the profit and loss accounts by law and accounting standard.
ERROR:- This refers to unintentional mistakes in the financial statement in the application of Accounting principles.
EXTERNAL AUDITOR:- They are often referred to as independent auditors. They are called external auditors because they are not officers of the organization but staturily required. They are independent because they are not employees of the companies being audited.
FINANCIAL STATEMENT:- This consist of balance sheet, profit and loss account or income statement, note on accounts, source and application of funds, statement value added statement and historical financial summary which users to assess the financial liquidity. Profitability and viability of business enterprise.
FRAUD :– This refers to intentional misrepresentation of financial information by one or more individuals among management, employees or third parties.
INFORMATION:- These are facts and figures extracted from the book of account or accounting staff so as to allow the auditor to form an opinion on the truth and fairness of the book of account.
INTERNAL AUDITORS:- They are the auditing staff of internal audit departments of organizations employed by the management of the company.
MANAGEMENT:- These are the team at the helms of affairs of an organization. They are responsible for the day running of the organization working towards achieving the set target.
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