Assessment On Challenges Of Internal Audit Practice Of Construction Company In Abuja

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Assessment On Challenges Of Internal Audit Practice Of Construction Company In Abuja

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PROJECT TOPIC AND MATERIAL ON ASSESSMENT ON CHALLENGES OF INTERNAL AUDIT PRACTICE OF CONSTRUCTION COMPANY IN ABUJA

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  • Name: Assessment On Challenges Of Internal Audit Practice Of Construction Company In Abuja
  • Type: PDF and MS Word (DOC)
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  • Length: [56] Pages

 

 

1.1Back Ground of the Study

The development and changes of the internal audit function is evident: the traditional oversight function (watchdog of controls) is replaced by the value-adding business advisor, through prevention of problems and identification of potential risks (Ahlawat & Lowe, 2004).Each activity and each of the bank’s subjects (i.e. its subsidiaries or branches) should fall within the scope of the internal audit. None of the bank’s activities or any of its subjects may be excluded from an internal audit examination. The Institute of Internal Audit’s (IIA, 2001), board of directors defined internal audit as: An independent, objective assurance and consulting activity designed to add and improve an Organization’s operations. It helps an organization to accomplish its objectives by bringing a Systematic, disciplined approach to evaluate and improve the effectiveness of risk management, Control, and governance processes.

The importance of internal  audit function within the organization can also be justified with the fact that a strong internal audit function is a deterrent to financial reporting irregularity in the presence of unambiguous potential GAAP (i.e. Generally Accepted Accounting Principles) violation (Arel et al., 2012). Krogstad et al. cited in(Sarens et al., 2012) state that internal audit function is bringing a systematic, disciplined approach to the evaluation and improvement of the effectiveness of internal control, risk management and governance processes.

With internal auditor’s growing role in modern corporate governance, independence has gained renewed attention and the Institute of Internal Auditors (IIA), a guidance setting body for internal audit activities, has promoted the internal audit function as an independent function that provides both assurance and consulting services (IIA, 2003). (Regoliosi & d’Eri, 2012) devote the internal audit function as being the most appropriate solution to meet objectives of assurance and consulting audit.

The IIA puts an emphasis on the importance especially for major corporate governance actors to understand the value that internal auditors bring to organizational operations by identifying opportunities to enhance efficiencies and effectiveness (IIA, 2009).

Corporate failures have increased the prominence of internal auditing. Regarding this issue, (Schneider, 2003) argued that the bankruptcies, financial irregularities and fraudulent activities that occurred in Enron, WorldCom and other firms have increased the need for corporate monitoring.  He concluded that external audit failures related to these events increase the role of internal auditing in corporate monitoring.

IIA (2010) defined internal audit effectiveness “as the degree (including quality) to which established objectives are achieved”. This means internal audit effectiveness is the ability of the internal auditor to achieve established objective within the organization, in effect, such objective should be stated in a clear terms and the means for achieving such objectives should also be provided (Dittenhofer, 2001).

Similarly, effective internal audit function could be a major asset for improving public confidence in financial reporting and corporate governance if it contain these element; Organizational independence, a formal mandate (Existence of approved audit charter, Unrestricted access, Sufficient funding, competent leadership, competent staff, existence of audit committee, stakeholder support, professional audit standards and unlimited scope (Belay, 2007), (De Smet & Mention 2011).

Generally the Empirical investigation done by (Radu & Ramona, 2013) indicated that the internal audit to function properly four critical factors had to take place. Firstly it had to be strategically positioned in order to contribute to increased business performance. This means the mission and role of internal audit should be defined within a wider governance framework and effectively communicated. Secondly internal audit should have strong risk identification and planning methodology to deliver a high quality service and use an appropriate technology to enhance the provision of internal audit services.

Internal audit must thirdly be independent from all decision factors involved in corporate governance, in this regard activities being audited must be independent from everyday internal processes, and must be able to exercise its assignment on its own initiative in all departments, establishments and functions of the organization. Finally the internal audit function must be adequately staffed with the right people to deliver on its mission and objectives.

Because of the great importance of internal auditors for the success of a firm, many researchers, for example Arena and (Azzone, 2010), (Chaveerug, 2011) and (Mihret et al, 2010) have conducted their studies on internal audit effectiveness emphasizing on examination of the factors (challenges) that influence internal audit effectiveness. therefore in view of the above issues, this paper aims to further and thoroughly examine the  challenges internal audit staffs and the department face, particularly Dashen bank S.C since most of the previous studies were concerned on public bodies and financial  institutions out of Ethiopia.

1.2 Organizational Background

Modern banking in Ethiopia has begun in 1905, when Bank of Abyssinia was first established in Addis Ababa. Though it is not the first, Dashen bank is a privately owned company established as per the new policy and Ethiopian investment code. The bank comes into existence on September 20, 1995G.C. The Bank obtained its license from the National Bank of Ethiopia on 20 September 1995 and started normal business activities on the first of January 1996. The first foundation members were 11-business men and professionals that agreed to combine their financial resources and expertise (Dashen Bank, 2015).

Headquartered in Addis Ababa, the Bank is the biggest private bank in Ethiopia. Based on the data from the report, it operates through a network of 161 branches, 220 ATMs, five dedicated Forex Bureaus, and 873 plus Point-of-Sale (POS) terminals spread across the nation besides these the Bank had established correspondent banking relationship with 480 banks covering 71 countries and 176 cities across the world. Furthering its competitive edge in the card business, Dashen bank had launched partnership with American Express in the last fiscal year.

The bank ended the year 2014/15/F.Y with a record of earning per share Birr 589 & high profit before tax of Birr 963.8 million &, marginally higher than the previous Birr 957.6 million achievements. Dashen bank is established with a vision of providing service which is unparalleled. It has a mission to provide efficient and customer focused domestic and international banking services, overcoming the continuous challenges for excellence through the application of appropriate technology (Dashen Bank, 2015).

Dashen is the most reputable brand in the domestic banking market; a reputation earned through consistent delivery of values and preeminence unmatched by its competitors. The Bank also works in partnership with leading brands in the electronic payments industry (VISA, MasterCard Union Pay & American Xpress) and prominent money transfer operators (Western Union, Money Gram, Express Money, Dahabshiil ,Transfast, Ezreemit & Flow cash ) and currently introduce mobile and agency banking services to its esteemed customers.

It is fact that the bank plays important role in the economic development of the nation by providing different services to the customer. This comes to reality if there exists strong internal audit department functioning independently for the smooth operation to take place.

(http://www.nbebankMarch 10, 2016).

1.2 Organizational Background

Modern banking in Ethiopia has begun in 1905, when Bank of Abyssinia was first established in Addis Ababa. Though it is not the first, Dashen bank is a privately owned company established as per the new policy and Ethiopian investment code. The bank comes into existence on September 20, 1995G.C. The Bank obtained its license from the National Bank of Ethiopia on 20 September 1995 and started normal business activities on the first of January 1996. The first foundation members were 11-business men and professionals that agreed to combine their financial resources and expertise (Dashen Bank, 2015).

Headquartered in Addis Ababa, the Bank is the biggest private bank in Ethiopia. Based on the data from the report, it operates through a network of 161 branches, 220 ATMs, five dedicated Forex Bureaus, and 873 plus Point-of-Sale (POS) terminals spread across the nation besides these the Bank had established correspondent banking relationship with 480 banks covering 71 countries and 176 cities across the world. Furthering its competitive edge in the card business, Dashen bank had launched partnership with American Express in the last fiscal year.

The bank ended the year 2014/15/F.Y with a record of earning per share Birr 589 & high profit before tax of Birr 963.8 million &, marginally higher than the previous Birr 957.6 million achievements. Dashen bank is established with a vision of providing service which is unparalleled. It has a mission to provide efficient and customer focused domestic and international banking services, overcoming the continuous challenges for excellence through the application of appropriate technology (Dashen Bank, 2015).

Dashen is the most reputable brand in the domestic banking market; a reputation earned through consistent delivery of values and preeminence unmatched by its competitors. The Bank also works in partnership with leading brands in the electronic payments industry (VISA, MasterCard Union Pay & American Xpress) and prominent money transfer operators (Western Union, Money Gram, Express Money, Dahabshiil ,Transfast, Ezreemit & Flow cash ) and currently introduce mobile and agency banking services to its esteemed customers.

It is fact that the bank plays important role in the economic development of the nation by providing different services to the customer. This comes to reality if there exists strong internal audit department functioning independently for the smooth operation to take place.

(http://www.nbebankMarch 10, 2016).

1.3 Statement of the Problem

Internal auditors have the right and ability to access all information in every part of the organization and their function lies at every activities of the corporate governance system. All the stakeholders will therefore benefit from having a strong Internal Audit Function (IAF) which will provide value to the other cornerstone of corporate governance (Smet & Mention, 2011).

Admassu & Asayehgn (2014) discussed that banking industry in Ethiopia is in a rudimentary and fragile state. The expansion of banking business both horizontally and vertically over the years has posed new challenges to the internal auditor. In modern banking, the internal auditor has been challenged by a new dimension of business process development in banks.

This has basically arisen from the extensive employment of advanced technology, namely, information and communication technology, in banks and the consequential business process outsourcing that has sprung up throughout the world as an efficient cost-cutter for banking firms (Wijewardena, 2007)

The study carried out in Tanzania Dar es Salaam, with the objective of finding out challenges facing effectiveness in internal audit at national electoral commission , has indicated that lack of independence from employer, inadequate skills among internal auditors, inadequate facilities at the internal audit department ,inadequate funds to carry out internal audit, inadequate cooperation among staff, limited transparency and openness, as well as lack of commitment from management staff to be the major challenges which will adversely affect the effectiveness and quality of internal audit department (Sosthenes, 2013).

A research done by Jayalakshmy et.al(2012) indicated that the internal audit in Commercial Banks within Tanzania is still embracing the conservative approach which is primarily concerned with compliance and monitoring rather than adopting value added approach, the inference of the study whereby funds are being spent on activities which do not add value to the Stakeholders implying that the audit approach employed could be the challenge by itself that can hamper the audit practice effectiveness.

The study done with the objective of identifying the most important factors affecting audit quality in Jordanian Commercial Banks (JCBs) has shown that a positive correlation between audit quality and audit efficiency, the reputation of auditing office, auditing fees, the size of audit firm, and the proficiency of auditor mean to say that these factors as being challenges that affect the audit quality (Abdulhadi, 2013)

A study conducted on commercial banks in Ethiopia in title, factors determining internal audit quality has come to a conclusion, that internal auditors in Ethiopian commercial banks believe the performance, competence and use of information technology by internal auditors as significant factors affecting internal audit quality (Wubishet & Dereje, 2014) and this study will investigate in depth about the challenges that encounter internal audit department of Dashen Bank Share Company.

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