Accounting Project Topics

Effect of Internal Audit in an Organization

Effect of Internal Audit in an Organization

Effect of Internal Audit in an Organization

Chapter One


An audit is not primarily aimed at detecting Fraud and errors, or finding fault with the accounting staff of an organization.  Naturally, when examining the documents that form the basis of a financial statement, the auditor may detect fraud or errors and weaknesses in the accounting system. The primary objectives of the audit are the examination of all available and relevant evidence by the auditor with the intent to report on the correctness and to be able to determine the following:

  1.   To determine the extent to which management does not allow auditors to perform their function.
  2. To examine the level of education of internal audit staff.
  3. To determine the extent to which internal audit staff are professionally qualified.
  4. To examine the salaries of internal audit staff as compared with other company’s staff.
  5. To determine the relationship between the internal audit department and the Accounting Department and Management.




Theoretically, the internal audit function exists to help members of an organization to improve the performance of their activities (Ali It also become more important because an effective internal audit function is considered part of the solution to the perceived breakdown in the systems of business reporting, internal control and ethical behavior (Arel, 2006). Some of major roles and responsibilities of internal audit function are evaluates and provides reasonable assurance that risk management, control, and governance systems are functioning as intended and will enable the organisation’s objectives and goals to be met. Reports risk management issues and internal controls deficiencies identified directly to the audit committee and provides recommendations for improving the organisation’s operations, in terms of both efficient and effective performance, evaluates information security and associated risk exposures, evaluates regulatory compliance program with consultation from legal counsel, maintains open communication with management and the audit committee, engages in continuous education and staff development and provides support to the company’s anti-fraud programs. In 1999, IIA has issued a guidelines for internal auditor in performing internal audit work through Standards for the Professional Practice of Internal Auditing (SPPIA). This standards were classified into three categories which are, attribute standards, relate with the characteristics of individuals or internal auditing departments, performance standards describe internal audit activities and criteria for their quality, and implementation standards which discuss specific types of engagements, such as performance or compliance audits (Mcdonald 2003). Ali et. al 2013 describe internal audit function in public sector holds high potential for promoting accountability and improving government performance. Policy measures on internal audit includes: requiring the establishment of internal audit units, establishment of standards for the professional conduct of internal audit work; training’ resource allocation; expanding reporting arrangements and broadening mandates to make auditors responsible for performance assessments and understanding internal control as an import tools of accountability. Institutions of higher education are facing demand for accountability (Chamberlain et al, 1993), where issues all over the world should shift the focus of internal auditors involvement in evaluating the risk exposure, control and governance of the organization. The findings revealed that a substantial number of public and private higher education institutions do not have an internal audit function. However, public academic institutions comply with the guidelines issued by the Treasury Circular. Internal auditing is part of the governance structure in organization as a mechanism to assist the management in providing better control of the institution’s resources and quality education provided (Zakaria, Selvaraj & Zakaria, 2006).


Effectiveness has been define as the capacity to obtain results that are consistent with target objectives (Arena 2006). Other than that, a program can be seen as effective if its outcome goes along with its objectives (Ahmad, 2009). Thus internal control can be considered as effective if it achieve the three main objectives as discuss earlier, which are reliability of financial reporting, efficiency and effectiveness of operations and compliance with law and regulations. The primary objectives of an organisation’s system of internal control are to provide administrative management with reasonable assurance that financial information is accurate and reliable; the organisation complies with policies, plans, procedures, laws, regulations and contracts; assets are safeguarded against loss and theft; resources are used economically and efficiently; and established objectives and goals for operations or programs can be met (Fadzil, 2005) . Appropriate control is present when it can safeguard the company’s asset and reliable financial reporting can be produced. Internal control system normally emphasized on reliable and relevant reporting. Risks would be identified and control procedures would be set up at every level of transaction and balance to ensure the company meets the transparent and timely objectives. A good set of control would encourage efficient and effective use of company resources (Arens 2008). Every single process and operation would be developed with reasonable control to ensure all resources would be used at optimum level, manage to produce high quality product or services and at lower cost. Adequate control is also considered to be present if administrative management has planned and organised in a manner, which provides reasonable assurance that the organisation’s objectives and goals will be achieved efficiently and economically. Reasonable assurance is provided when cost-effective actions are taken to restrict deviations, such as improper or illegal acts, to a tolerable level (Fadzil, 2005). When the management set outs the company’s objectives, the next important step is to identify risks that may occur in order to achieved that objectives. Ability to identify risk would assist the management to design needed control (Beasley, 2007). An effective control system is achieved when it can cater and mitigate the risk. Ability to manage the risk through appropriate control lead organisation to achieved its objective.




Research design

The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to effect of internal audit in an organization

Sources of data collection

Data were collected from two main sources namely:

(i)Primary source and

(ii)Secondary source

Primary source:

These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.

Secondary source:

These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.

Population of the study

Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on the study effect of internal audit in an organization. 200 staff of first bank, Enugu state was selected randomly by the researcher as the population of the study.




Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey.  This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.





It is important to ascertain that the objective of this study was to ascertain effect of internal audit in an organization

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of internal audit in an organization


This study was on effect of internal audit in an organization.  Five objectives were raised which included: To determine the extent to which management does not allow auditors to perform their function, to examine the level of education of internal audit staff, to determine the extent to which internal audit staff are professionally qualify, to examine the salaries of internal audit staff as compared with other company’s staff, to determine the relationship between the internal audit department and the Accounting Department and Management . In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of first bank, Enugu state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up accountants, human resource managers, customer care officers and marketers were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


Based on the study findings, on effect of risk management on organization performance the study found that organization have appropriate risk based hence viable and productive internal audit review. The findings conforms to Bromilow and Berlin (2008) organizations set up internal control framework as an administrative necessity that helps in guaranteeing that all management practices are fittingly completed. From the discoveries, the study presumed that hazard based evaluating through hazard appraisal, chance administration, yearly hazard based arranging, interior examining models and inner inspecting staffing ought to be upgraded. Internal audit practices helps an organization to achieve its goals by bringing an orderly, trained way to deal with assess and enhance the adequacy of hazard administration, control, and administration forms. The internal audit action assesses chance exposures identifying with the association’s administration, operations and data frameworks. The interior evaluators are relied upon to give proposals to change in those territories where openings or insufficiencies are distinguished.


Based on the study findings, the following recommended were made:- The study recommended that risk assessment should be led at the level of individual organizations and over the wide range of exercises and auxiliaries of the solidified association. This includes evaluating the risks to determine which are controllable by the bank and which are not. This can be accomplished through various methods. This addresses both measurable and non-measurable aspects of risks and weighs costs of controls against the benefits they provide. In order for risk assessment to remain effective, senior management needs continually to evaluate the risks affecting the achievement of its goals and react to changing circumstances and conditions. Internal controls should also be revised to appropriately address any new or previously uncontrolled risks. On control environment, the study concludes that management attitude should be committed to ethical business practices and follows the established control procedures. This is the establishment for every other segment of inside control, giving order and structure. The study also concludes that where an enterprise has environmental considerations as some of their objectives it is entirely necessary and appropriate that internal control should facilitate the assured achievement of those objectives. Additionally, the study concluded that organizations should have separate environmental audits conducted by someone other than internal audit; but internal audit should be in a position to provide this service to the business, and to take account of work done by others that contributes to meeting this objective.


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