MEKELLE UNIVERSITY

COLLAGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF INTERNAL AUDITING PRACTICE (IN THE

CASE OF DEDEBIT CREDIT AND SAVING INSTIUTION (DECSI),
HADINET BRANCH)
A RESEARCH SUBMITED IN PARTIAL FULFIL MENT OF
BACHELORS OF ART (B.A) DEGREE IN ACCOUNTING AND
FINANCE

BY: KIBROM ABRHA

ID No: CBE/UR/165378/2006
ADVISOR: DR. ASSEFA WOREDA

MAY, 2016

Mekelle,
Tigray, Ethiopia
 Acknowledgment
First, I would like to thank almighty GOD for his with whom i have
necessarily completed the up and down of three years’ journey. I would like
to thank mother of all St. Marry who made me the person who I am now by
hearing my thoughts, showing me the way and helping me when I needed
her.

I highly appreciated my respected advisor Dr Assefa Worede for his

constructive comments, patience and advice from the starting of the
proposal up to the compellation of this research paper.

Next I would like to thank Mekelle University for designing this program for
the students to develop their knowledge. Thirdly my deepest gratefulness
and indebtedness is going to the employee of Dedebit Credit and Saving
Institution. Finally, I would like to thank for all my friends and my family who
helped me to do this research paper.

i
 Abstract
The main purpose of this study was to investigate challenging factors that
has influenced the Dedebit Credit & Saving Institution to pursue their
internal audit practice. Six internal auditors, five DECSI employees and the
general manager of Hadinet branch were used as primary data source
(Questionnaires & Interviews). which were selected using census inquiry
sampling techniques. To obtain the required information open-ended and
closed ended questionnaires were used as data gathering tools. Then
descriptive analysis had been made their analysis to supported by tables
and percentage used and the analyzed data had been interpreted using
inferential analysis.
The findings of the study showed that lack of appropriate contracting
education program and lack of skill in dealing with people and
communicating effectively.
To alleviate those problems, it is recommended that the auditor should
have enough opportunity for contracting educational program. The increase
in competence of internal auditors and enhance the effective and efficiency
of internal audit work also member of the internal auditors should be well
trained for the work they assigned and improve their high level of
profession competency by obtaining professional certifications.

ii
iii
Contents
Acknowledgment ....................................................................................................................... i
Abstract ..................................................................................................................................... ii
CHAPTER ONE ......................................................................................................................... 1
1. INTRODUCTION ................................................................................................................... 1
1.1 Background of the study................................................................................................ 1
1.2 Statement of the problem............................................................................................... 1
1.3 Objectives of the study .................................................................................................. 2
1.3.1 General objectives ................................................................................................... 2
1.3.2 Specific objectives ................................................................................................... 3
1.4 Significance of the Study ............................................................................................... 3
1.5 Scope of the study ......................................................................................................... 3
1.6 Organization of the paper .............................................................................................. 4
CHAPTER TWO ........................................................................................................................ 5
2. REVIEW OF RELATED LITERATURE .................................................................................. 5
2.1 Overview of Internal Auditing ........................................................................................ 5
2.2 Types of Audits and Auditors ........................................................................................ 6
2.2.1 Types of audits ......................................................................................................... 6
2.2.2 Types of Auditors..................................................................................................... 7
2.3 Internal Auditing ............................................................................................................. 8
2.3.1 Definition of internal Auditing ................................................................................. 8
2.3.2 Historical development of Internal Auditing .......................................................... 9
2.3.3 Internal Auditing in Ethiopia...................................................................................10
2.3.4 Objective of internal Auditing ................................................................................10
2.3.5 The Roles of Internal Auditors ...............................................................................10
2.3.6 Characteristic of Internal Audit ..............................................................................13
2.3.7 Needs of skill sets and staffing for an internal audit activity ...............................13
2.3.8 Responsibility of internal audit ..............................................................................14
2.4 Effect of internal auditor’s work on the audit ..............................................................14
2.5 Professional Qualification to perform independent Audits ........................................14
2.5.1 Importance of the Auditors independence ............................................................15
2.5.2 Integrity and Objectivity .........................................................................................15
2.5.3 Due professional care .............................................................................................15
2.5.4 Code of Ethics for internal auditors.......................................................................15
 2.6 Performance standards of internal auditing ................................................................17
2.6.1 Managing the internal audit activity.......................................................................17
2.6.2 Applicability of internal auditing ............................................................................18
2.6.3 Quality of the internal audit personnel ..................................................................18
2.6.4 Barriers to Successful Audit Result ......................................................................19
2.6.5 Independence, Objectivity and Compliance ..........................................................19
2.6.6 The Relationship of Internal and External Auditors..............................................20
2.6.7 External Auditor Reliance on Internal Auditing ....................................................21
2.7 The Nature of internal control .......................................................................................22
2.7.1 Importance of internal control ................................................................................22
2.7.2 Objectives and related internal control relevant to an audit ................................23
2.7.3 Internal control Documentation .............................................................................24
2.7.4 Reason for internal control evaluation ..................................................................24
2.7.5 Inherent limitations of internal control systems ...................................................24
2.8 Evaluating internal control............................................................................................25
2.9 Problems of Internal Controls ......................................................................................26
2.9.1 Judgment .................................................................................................................26
2.9.2 Breakdowns.............................................................................................................26
2.9.3 Management Override.............................................................................................26
2.9.4 Collusion..................................................................................................................27
2.10 Effects of Poor Internal Control Practices .................................................................27
CHAPTER THREE ...................................................................................................................29
3. METHODOLOGY..................................................................................................................29
3.1. Study area .....................................................................................................................29
3.2. Types of data and source.............................................................................................29
3.3. Method of data collection .........................................................................................29
3.4. The sample design .......................................................................................................29
3.5. Data analysis and presentation ...................................................................................29
CHAPTER FOUR .....................................................................................................................30
4. DATA ANALYSIS AND PRESENTATION ............................................................................30
4.1 Result analysis and discussion ....................................................................................30
4.1.1 Social Demographic of respondents .....................................................................31
4.1.2 DECSI Hadinet Branch reliance on internal auditing practice .............................32
4.1.3 DECSI Hadinet Branch internal auditor objectivity ...............................................34
4.1.4 Internal auditor’s competence in DECSI Hadinet Branch.....................................35
 4.1.5 Audit records and reports ......................................................................................37
4.1.6 Inherent Internal control problems in DECSI ........................................................38
4.1.7 The application of internal auditing principle in practice in DECSI Hadinet
Branch ..............................................................................................................................39
4.2 Response from DECSI Hadinet branch employees ........................................................40
4.3 Response from interviewees ............................................................................................43
CHAPTER FIVE........................................................................................................................44
5. SUMMERY, CONCLUSION AND RECOMMENDATION ......................................................44
5.1 Summary ........................................................................................................................44
5.2 Conclusion .....................................................................................................................45
5.3 Recommendation ..........................................................................................................46
References ..............................................................................................................................48
 CHAPTER ONE

1. INTRODUCTION
1.1 Background of the study
Different change and factor have been influenced the auditing profession in recent year.
Technology announcement and regularity bodies have caused the auditing policy to re-
examine its purpose intention and methodology because of this the profession has
improved from transaction based approach to arise based focus. Therefore, all these
change have affected the internal auditing components of profession

Auditing is an important activity for all types of organizations where governmental, private
for profit, non-profit or any other. Auditing is a systematic process of objectively obtaining
and evaluating evidence regarding assertions about economic actions and events to
ascertain the degree of correspondence between those assertions and established
criteria and communication the result to interested user (Konrath, 1999).

The need for auditing, either external or internal auditing is increasing from time to time
by because it enables organizations that their resource has been utilized for intended.
Internal auditing is an independent, objective assurance and consulting activity designed
to add value and improve as organizations operations it helps an organization accomplish
its objectives in bringing a systematic disciplined for evaluating and improvement the
efficiencies of risk management, control and governance processes.

Internal auditing is an independent, objective assurance and consulting activity designed

to add value and improve an organization’s operations. It helps an organization
accomplish its objectives by bringing a systematic, disciplined approach to evaluate and
improve the effectiveness of risk management, control and governance processes.

1.2 Statement of the problem

Internal auditing is examination of internal control system in which it functions by
measuring and evaluating effectiveness of other control on the other hand external auditor
has reasonability to report on the truth and fairness of the account of the company.

1
The absence of proper internal auditing in the organization leads many problems. The
absence of primarily internal auditing in the organization will result in lack of continuous
assurance service.

The second problem in achieving internal auditing practice is the degree of limited
independence of internal auditor since internal auditors are employees of company this
serve; they can’t achieve the certified public accountants (CPA) independence in fact.
This limited independence reduces their role with company to the lever of the more
assistance to the top management.

The other problem is that inadequate internal control can expose the company to various
identifiable risk, such as waste of company available resource, fraud by employees and
lack of control over asset. By not having adequate internal auditing activities, the company
will loss substantial amount of resource and have difficulty to achieve its intended
objectives.

All the above mentioned point made the researchers to undertake a study of this nature.
Here in this paper, the researcher wants to assess the existing internal auditing system.

Depending on the above problem the researcher raises the following question: -

 Are the principles of internal auditing practice applying in DECSI?

 How internal audit practice affect external auditing function and what is their
relationship?
 What seems the quality of internal audit work in DECSI in terms of competence,
objectivity and independence?
 Does the auditor of the organization apply audit standards, procedures and policies
in working environment?
 Does the audit of the organization proceed on the basis of independent
professional?

1.3 Objectives of the study

1.3.1 General objectives
The general objective of the study is to evaluate and examine whether DECSI internal
auditing practice is effective and efficient or not.
2
1.3.2 Specific objectives
 Assessing the importance of internal auditing system in the existing condition
with in the Company.
 Identifying the quality of internal audit work in the company.
 Assessing the degree of independence of the internal auditor from those who
task they reviewing.
 Assessing internal auditing as internal control.
 Assessing limitation of internal auditing practices.
1.4 Significance of the Study
This study would contribute many of organizations and various individual:

 Various problems that related to internal auditing would be investigated and

presented to the organizations for the purpose of coping with it.
 The finding of this study suggest the possible solution of internal auditing related
problems that leads the organization to apply the proper internal auditing principle.
 The finding of this research helps the researchers to elaborate the knowledge and
know how about internal auditors.
 This helped the auditor in this organization to know their role in the organization.

1.5 Scope of the study

This study covers internal audit practice of the DECSI in Hadinet branch. This study deals
with the quality and application of the internal and the division of the internal audit practice.

1.6 Limitation of the study

To undertake this study, the researcher has encountered the following problems.

a) The study was limited to only on the topic of fixed asset valuation method and
allocation of depreciation expenses.
b) The study was conducted on specific area.
c) The study was conduct based on the sample size.
d) The study was limited for a given time and resources.
e) My study was limited based on response of respondent only.

3
1.7 Organization of the paper
This study is organized in to five chapters. The first chapter is an introduction section, and
the second chapter will deal with related literature review. The third will deal with research
design and methodology. The fourth chapter will deal with data analysis and presentation
of the finding. Finally, Chapter five will deal with conclusion and recommendations.

4
 CHAPTER TWO

2. REVIEW OF RELATED LITERATURE

2.1 Overview of Internal Auditing
Over the years, internal auditing has had different emphasis and roles. Previously, the
emphasis was more towards one-size-fits-all approach whereby audits were scheduled
on a cyclical, methodological basis, and auditors’ role was reported against a checklist
of existing company policies and procedures to ensure that the internal controls of the
company were functioning well. Ever since, the role of internal auditor is only to reduce
or to eliminate risk. This practice may have been appropriate in times of slower
development and not-so-rapid technological evolution but they would not be applicable
today since today’s businesses rely on sophisticated electronic technology in every
aspect of their operations and they also require timely information to make decisions
regarding global operations.

Internal auditing is an independent, objective assurance and consulting activity

designed to add value and improve an organization’s operations (Howard F, 1980).
Being independent and objective, internal auditing helps an organization accomplish its
objectives by bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance processes.

Internal audit activities are performed in diverse legal and cultural environments; within
organizations that vary in purpose, size, and structures; and by persons within or
outside the organization (Larry F, Knorath, 1999). These differences may affect the
practice of internal auditing in each environment. However, compliance with the
Standards is essential if the responsibilities of internal auditors are to be met.

Internal auditing dates from ancient times. The role of auditors during that period was
limited to providing validation services for governmental and family units in order to
prevent theft, fraud, and other malfeasance from the treasuries of the ruler (Carmichael
& Willingham, 1979).

For auditing purposes, two persons were employed to check the accounts: one was the
internal auditor and the other was the external auditor (William C. Boynton, 1995). The

5
usual technique utilized by the auditors was to listen to the oral reports given by the
appointed officials responsible for financial matters. That is why the term “auditor” is
thought to have been derived from this “hearing of accounts”. This practice continued
until it was replaced by paper as the means to evidence financial transactions.

Internal auditing is an important element to management since it provides audit services

for managers at all levels including the board of directors and audit committee
(Whittington and genie, 1995). Internal auditor’s responsibilities are assuring the
integrity of financial and operational information and reports, organization is complying
with laws, statutes, policies, procedures and financial instruments and is operating
efficiently and economically, the goals and objectives of the company have been
accomplished and resources have been provided with; and also safeguarding the
assets of the organization. This means internal auditors’ responsibilities are now
broader and more demanding. Based on these responsibilities, it is not difficult to
observe how the internal auditing practices can improve the company’s corporate
governance structure. In fact, the revised definition of internal auditing indicates that the
scope of audit work includes evaluating and improving the effectiveness of a company’s
governance process since the new internal auditing concept expects the internal audit
to function efficiently, effectively and economically the organizational activities and
controls besides assisting management in high-level decision-making (Internal Auditors,
2000). Brodie (1989) however commented that generally management has been rather
slow to recognize the full value and potential of internal audit experience even though
there has been a steady improvement in the professional standing of internal auditors.
Therefore, there is a need for continuous effort to enhance the understanding of the role
of internal auditing and the benefits it can bring to the organizations and to society as a
whole.

2.2 Types of Audits and Auditors

2.2.1 Types of audits
According to Arnes (1997) there are three types of auditing: operational Audits,
compliance audits, and audits of financial statements.

6
Operational audits: - an operational audit is a review of any parts of an organization
operating procedures and methods for the purpose of evaluating efficiency and
effectiveness. Because of many different areas in which operational effectiveness can be
evaluated it is impossible to characterize the conducted of a typical operational audits.

In one organization, the auditor might evaluate the relevancy and sufficiency of
information used by management in making decision to acquire new fixed asset, while in
the different organization the auditor may evaluate the efficiency of the paper flow in
processing sales. In operational audit, the reviews are not limited to accounting.

Compliance Audits: - the purpose of a compliance audits is to determine whether the

audit is following specific procedures or rule set down by some higher authority. A
compliance audit for private business could include determining whether accounting
personnel are following the procedures prescribed by the company controller. Reviewing
wage rates for compliance with minimum wage laws, or examining contractual agreement
with banks and other lenders to be sure the company is compiling with legal requirements.
Results of compliance audits are generally reported to someone with in the organization
unit being audited rather than to be broad spectrum of user.

Audits of final statements: - an audit of financial statements is conducted to determine

whether the overall financial statement the quantifiable information being verified are
stated in accordance with specified criteria. The criteria are generally accepted
accounting principles, although it is also common to conduct audits of financial statement
prepared using the cash basis or some other basis of accounting appropriate for the
organization. The financial statement most commonly included are the statement of
financial position, income statement and statements of cash flows, including
accompanying foot notes.

2.2.2 Types of Auditors

The four most widely known types of auditors are (Arens, 1997)

General Accounting office (GAO) Auditors: - the united states (US) is a nonpartisan
agency in the legislative branch of the federal government. The GAO which is headed by
7
the comptroller general, report to and is responsible solely to congress. Many of the
GAO’s audit responsibilities are the same as those of a certified public accountants
(CPA). Mach of financial information prepared by various government agency is audited
by the GAO before it is submitted to congress. In many states, experience as GAO
auditors the experience requirement for becoming CPA.

Internal revenue agents: - the internal revenue services (IRS) under the direction of the
commissioner of internal revenue, has as its responsibility the enforcement of the federal
tax laws as they have been defined by congress and interpreted by the courts. A major
responsibility of IRS is to audit the returns of tax payers to determine whether they have
complied with tax lows. The auditors who perform these examinations are referred to as
internal revenue agents.

Internal auditors: - internal auditors are employed by individual companies to audit for
management much as the GAO does for congress. The internal audit group in some legal
firm can include over a hundred persons and typically report directly to the president,
another high executive officer or even the audit committee of board of directors.

Internal auditor’s responsibilities vary considerably, depending on the employer some

internal audit staff consist of only one or two employees who may spend most of their
time doing routine compliance auditing. Other internal audit staff consists of numerous
employees who have diverse responsibilities, including many outside accounting areas.

Certified public accountant (CPA): - CPA firm have as their primary responsibility the
performance of audit function on published financial statement of all publicly traded
companies, most other responsibly large companies and many small companies and non-
commercial organization. The use of the title certified public accountant (CPA) is
regulated by state law through the licensing department of each state.

2.3 Internal Auditing

2.3.1 Definition of internal Auditing
Internal Auditing is an independent, objective assurance and consulting activity designed
to add value and improve an organizations operation. It helps an organization accomplish

8
its objectives by bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance processes. (Kamal G, 1996)
2.3.2 Historical development of Internal Auditing
Internal auditing was developed in the years between 1900 to 1950. However, it was not
until the late thirties and early forties that it became widely utilized. Brinks (1941)
published the first significant text on internal auditing. This publication served as a catalyst
to bring together in that same year the twenty-four founders of the Institute of Internal
Auditors (Divid N Recchuite, 1982). The Institute and the profession grew rapidly due, to
a great extent, to the pressing needs of World War II. It was also during this period that
internal auditors began to be more concerned with more than a financial audit. Large
organizations began to realize that the internal auditors can perform a greater service
than just looking for accounting errors. Thus, internal auditors began to change to new
concepts of auditing and focus upon improving operations rather than just scouting for
accounting errors. This new concept of auditing received management acceptance
because the recommendations made by internal auditors were more helpful than those
typically provided by external auditors; and, significantly, because findings remained
internal and were not made public.

Internal auditors adopted the term “operations” or “operational” auditing to describe their
new improved service. This term first came to the attention of internal auditors in an article
by Kent (1948). Basically, operational auditing uses an inductive approach in that it drew
from accounting documents recommendations for change that is it moved from the
specific or actual to the ideal. Internal auditors thus pioneered the concept of operational
auditing. However, during this same period a similar concept, called management
auditing, was developed in the literature of management. It is believed that Rose (1932)
first coined the term “management audit”. He wrote and published this book of the same
name in London. Rose’s audit was basically designed to analyze the functional activities
of a company and had been previously developed for Policy holder companies. Benedict’s
(1948) followed Rose’s work and his system offers to evaluate management by means of
weighted factorial analysis. Both writings by Rose (1932) and Benedict (1948) represent
the earliest attempts to develop an interview type management audit. The management
audit was organized around the functions of management and followed a deductive

9
approach as opposed to the inductive approach of operational auditing. These two similar
but separate concepts were the forerunners of today’s movement toward the extension
of the scope of auditing. Management auditing and operational auditing began to merge
in the late 1950s and early 1960s. Internal auditors frequently referred to their audit as a
management audit, and many writers stated that the terms were synonymous. At present,
both terms refer to an audit that goes beyond traditional financial attestation into the area
of managerial economy, efficiency and effectiveness. Such audits may be deductive or
inductive, internal or external.

2.3.3 Internal Auditing in Ethiopia

An Internal Auditing function has existed for quite a long time in Ethiopia. Perhaps the
most direct impact on the current status of internal auditing in Ethiopia came from another
important document issued in 1987. Proclamation No. 13/1987 not only reemphasized
the importance of the internal audit function in government departments and public
enterprises; it also empowered the Office of Auditor General in three aspects of whether
accounting records are properly maintained and reliable, whether the assets of the
ministries and enterprises are adequately safeguarded and properly maintained. On July
1, 1997 the Financial Administration Regulations No. 17/1997 was issued in which the
responsibility of internal audit function was transferred from the Office of the Auditor
General to the Minister of Finance to develop and maintain appropriate standards of work.

2.3.4 Objective of internal Auditing

The objective of internal Auditing is to assist all members of management in the effective
discharge of their responsibilities, by furnishing them with analysis appraisals,
recommendations, and pertinent comments concerning the activities reviewed. The
internal auditor is concerned with any phase of business activity. This involves going
beyond the accounting and financial records to obtain a full understanding of the
operations under review. (Johannes Kinfu FBE, AAU, 2007)

2.3.5 The Roles of Internal Auditors

Internal auditors play a vital role in ensuring that an organization is efficiently run, morally
sound, technologically advanced, cognizant of the environment and other areas of
concern, and safe from unnecessary risk (Institute of Internal Auditors, 2000). Previous

10
definitions on internal auditing suggested by different authors also enhanced the roles of
internal auditors.

Sawyer and Shekhan and shekhars (2003) defined internal auditing as “a systematic,
objective appraisal of the diverse operations and controls within an organization to
determine whether financial and operating information is accurate and reliable, risks to
the enterprise are identified and minimized, external regulations and acceptable internal
policies and procedures are followed, satisfactory standards are met, resources are used
efficiently and economically, and organization’s objectives are effectively achieved”. In
the revised Statement of responsibilities of Internal Auditing issued by the Institute of
Internal Auditors (1990) as part of the Standards framework, the section on objectives
states:

“The objective of internal auditing is to assist all members of management in the effective
discharge of their responsibilities by furnishing them with analyses, appraisals,
recommendations and pertinent comments concerning the activities reviewed. The
internal auditor is concerned with any phase of business activity where he can be of
service to management. This involves going beyond accounting and financial records to
obtain a full understanding of the operations under review”. With reference to these
objectives, Sawyer (1996) noted four benefits managers have gained from internal
auditing assistance. These benefits were providing managers with the bases for judgment
and action, helping managers by reporting weaknesses in control and performance and
in recommending improvements, providing counsel to managers and boards of directors
on the solutions of business problems, and supplying information that is timely, reliable
and useful to all levels of management.

Additionally, the Statement sets forth the types of services that should be performed and
the kinds of activities carried on by the internal audit function in attaining the overall
objective. Internal auditors should first review and appraise the soundness and adequacy
of the accounting, financial, and other operating controls, and promote effective controls
at reasonable cost. Secondly, the internal auditors should ascertain the extent of
compliance with established policies, plans, procedures, laws and regulations, which
could have a significant impact on the company’s’ operations. Then the internal auditors

11
review the means of safeguarding assets and when appropriate, verify the existence of
such assets and appraise the economy and efficiency with which resources are
employed. Lastly, the internal auditors review operations or programs to ascertain
whether results are consistent with established objectives and goals and whether the
operations or programs are being carried out as planned. Reviewing and evaluating the
adequacy and effectiveness of an organization’s internal control system and the quality
of performance in carrying out assigned responsibilities is representative of several
primary core activities of internal audit work. The purpose of the review of the adequacy
of the internal auditing is to ascertain whether the established system provides
reasonable assurance that the organization’s objectives and goals will be met efficiently
and economically. Adequate control is considered to be present if administrative
management has planned and organized in a manner, which provides reasonable
assurance that the organization’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. The role of
internal auditing in the review of effectiveness of the system of internal control is to
ascertain whether the system is functioning as intended. Effective control is present when
the administrative management directs the system in such a way as to provide reasonable
assurance that the organization’s objectives and goals will be achieved. The purpose of
the review for quality of performance is to ascertain whether the organization’s objectives
and goals have been achieved. The primary objectives of an organization’s system of
internal control are to provide administrative management with reasonable assurance that
financial information is accurate and reliable; the organization 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. Internal auditing focuses on an evaluation
of this system or framework of internal control. (C. William, and John T. Parish, 1999)

A second type of audit work that internal auditors are guided to perform is reviewing the
accuracy and reliability of financial and operating information and the means used to
identify, measure, classify and report such information. Information systems provide data
for decision-making, control, and compliance with external requirement. Therefore,

12
internal auditors should examine information systems and determine whether financial
and operating records and reports contain accurate, reliable, timely, complete and useful
information, and controls over record keeping and reporting are adequate and effective.
The performance of reviews of the systems established to ensure compliance with
policies, plans, procedures, laws, regulations and contracts represents a third element of
audit activity described by the Standards. Administrative management is responsible for
establishing the systems designed to ensure compliance with such requirements as laws,
rules, regulations, policies and procedures. The internal auditor’s role is to determine
whether the systems designed by management are adequate and effective and whether
the activities audited are complying with the appropriate requirements. Further, as
described by the Standards, the internal auditor’s role includes providing appraisals with
recommendations regarding administration management established objectives and
goals for operations and programs. (David N. Richute, 2006).

2.3.6 Characteristic of Internal Audit

 Auditor is company employee.
 Review of company activities is continuous.
 Have a direct influence on the scope of external auditor activity.
 Primary concern is in serving the needs of the organization.
 Accountable for management and does not issue opinion to the general public.
 Working is subdivided primary according to operating function and line
management responsibility.

2.3.7 Needs of skill sets and staffing for an internal audit activity
A broad range of skills and expertise, and ongoing professional development are critical
to the formation and maintenance of an effective internal audit activity. Essential elements
include in-depth knowledge of the organization s industry and internal audit Standards
and best practices; technical understanding and expertise; knowledge on, skills for
implementing and improving processes in both financial and operational areas; strong
communication and presentation skills, and professional certification, Todays internal
auditors must provide to their audit committees explicit assurance on organizational
governance, as well as meet ever-increasing demands of management and other

13
stakeholders. They must excel as internal control and risk management experts to ensure
the controls over key systems and business processes are robust and effective.
2.3.8 Responsibility of internal audit
Some responsibilities of internal audits are as follow

 Responsible for evaluating design and effectiveness of compliance function

 Develop long –range audit plan
 Audit of new management areas to evaluate internal control system
 Follow-up on significant findings from pervious audit
 Audit /review operational areas for stewardship of resources and compliance with
established policies and procedures.
 Review internal administrative and accounting control to safeguard resources
and ensure compliance with laws and regulations.
2.4 Effect of internal auditor’s work on the audit
 Internal auditor work may affect the nature time and extent of the audit including.
 Procedures the auditors perform when obtaining an understanding of the entity’s
internal control.

The auditor obtains a sufficient understanding of the design of control relevant to the audit
of financial statements to skin the audit and to determine whether they have been placed
in operation. Since a primary objective of many internal audit functions is to review
assess, and monitor internal controls, the procedures performed by the internal auditors
in this area may provide useful information to the auditor. (K.C sherkar and Lek sherkhar,
2003)

2.5 Professional Qualification to perform independent Audits

In view of the reliance by third parties on the work of auditors engaged in performing the
attest function. It is understandable that there would be concern for the professional
qualification of the public accountants who do this work. Because in some states anyone
who wishes may assume the designation public accountants such a designation gives an
indication that the person qualified to render competent service to the public. (Howard F,
1980)

14
2.5.1 Importance of the Auditors independence
In addition to possessing adequate training and professional experience the accountant
who makes an audit for the purpose of attesting to the fairness of a client financial
statement must act in an independent capacity. Because the accountants are an
employee of the business the accountant’s action are not subject to supervision by the
management of the business and this situation alone creates considerable independence.
Independence is also an attitude of mind and independent though and action are equally
as important as the independent relationship between accountant and client. Unless the
accountant is independent the opinion expressed is no more reliable than the statement
which have been prepared by management. (Arens, 1997)

2.5.2 Integrity and Objectivity

Integrity and objectivity are per-eminent qualities expressed in all auditors. An auditor
should be straight forward, hones and sincere in this approach to professional work. An
auditor must be fair and should not allow prejudice or bias to override this objectivity. He
should ensure that he is maintaining an important attitude he is reporting and the financial
statement which are subjected to his examination. He should both be and appear to be
independent of any interest which might be regarded whatever its actual effect as being
in compatible with integrity and objectivity. In other words, an accountant who is practicing
auditing profession should be and seen to be independent in each professional
assignment he under takes of any interest which might detract him from objectivity.
(K.C sherkar and Leksherkhar. 2000)

2.5.3 Due professional care

This standard requires the auditors to carry out every step of the audit engagement in an
alert and diligent manner full compliance with this standard with standard would rule out
any negligent acts or material omissions by the auditor of course auditors as well as
members of other professions inevitably make occasional errors in judgment but this
human element does not justify in difference or in judgment or intention to professional
responsibilities. (O.Ray whittingtion 1989)

2.5.4 Code of Ethics for internal auditors

the purpose of code of ethics is to promote all ethical culture in the profession of internal
auditing. A code of ethics is necessary and appropriate for the profession of internal

15
auditing founded as it is on the trust places in its objective assurance about risk
management control and governance the code of ethics extended beyond the definition
of internal auditing to include two essential components.

1. Principles
2. Rule of conduct
In the code, the six principles are identified as follows:

 Responsibilities
 The public interest
 Integrity
 Objectivity and independence
 Scope and nature of services

Responsibility

CPA’s render important and essential services in our free enterprise system all members
have responsibilities to those who use their professional services. In addition, members
have an ongoing responsibility to cooperate with other member to:

 Improve the art of accounting

 Maintain the public’s confidence in the profession
 Carry out the self-regulatory activities

The public interest

Members should accept the obligation to act in a way that will serve the public interest,
honor the public trust, and demonstrate commitment to professionalism. The public
interest is defined as the collective well-being to the community of people and institutions
that CPAS aerie the CPA’s public interest includes clients, creditor, grantors,
governmental agencies, employees, stock holders, and the general public.

Integrity

16
To maintain and brooders public confidence, members should perform all professional
responsibilities with the highest sense of integrity. Integrity is a personal characteristic
that is in dependable in CPA. This element is the benchmark by which members must
ultimately judge all decisions made in engagement integrity is also the quality in which
public trust is based.

Objectivity and independence

A member should maintain objectivity and be free of conflicts of interest in discharging

professional responsibilities. A member in public practice should be independent in fact
and appearance when providing auditing and other attestation services.

Objectively is a state of mind although this principle is not precisely measurable, it

nevertheless is held up to members as and imperative objectivity means being impartial
and unbiased in all matters pertaining to an engagement. Independence is the corner
stone of the profession’s philosophical structure.

Scope and nature of services

Member in public practice should observe the principle of the code of professional
conduct in determining the scope and nature of service to be provide. This principle
applies only to a member who renders services to the public.

2.6 Performance standards of internal auditing

2.6.1 Managing the internal audit activity
According to Ratlift (1988) the chief audit executive should effectively manage the internal
audit activity to ensure if adds value to the organization.

Planning: - the chief audit executive should establish risk based plans to determine the
priorities of the internal audit activity consistent with the organization’s goals.

The chief audit executive should consider accepting proposed consulting engagements
based on the potential to improve managements of risk, add value and improve the

17
organization’s operations. Those engagements that have been accepted should be
included in the plan.

Resource management: - the chief audit executive should ensure that internal audit
resources are appropriate, sufficient and effectively employed to achieve the approved
plan.

Reporting to the board and senior management: - the chief audit executive should
report periodically to the board and senior management on the internal audit activity’s
purpose, authority, responsibility and performance relative to its plan. Reporting should
also include significant risk exposures and control issues, corporate governance issues
and other matters needed or requested by the board and senior management.

2.6.2 Applicability of internal auditing

The development of internal auditing has major extent been centered in the business
organization. This ties continuous in the exacting literature of the profession and the
convenient of problems with work of business organization.

This ties however unduly deny the universal applicability of internal auditing to all type of
organization more over they fail to recognize that some of the most progressive internal
auditing is how being done by non-business type organization a related fact also is that
many organization are blend of business and non-business activities all of these
development confirm that the need for internal auditing exist in all type of organization
when the completeness of activities, the volume of transaction and dependence on large
number of people to exist in some combination to create operational problem

2.6.3 Quality of the internal audit personnel

In ascertaining the quality of the internal personnel, the independent auditor should
enquire in to (Shekahar, 2003):

 The qualifications and technical training of the internal audit personnel insome
cases both the internal auditors and the independent auditors belong to the same
professional organization and are subject to the same professional regulation
except for independence.

18
  The client’s practices for the recruitment and training of the internal audit
personnel.
 The extent of supervision provided by the chief internal auditor, including the
supervision on planning, monitoring progress, assessing conclusions reached,
reviewing reports and following up to ensure that recommendations accepted are
carried out.
 The standing of and regard for the abilities internal Auditors personnel in the client
organization.
2.6.4 Barriers to Successful Audit Result
The most common barriers for the some achieve successful audit result because of the
following.
Conflicting goals management and auditor:
One of the most common barriers to successful audit results internal auditors face of
understanding of management goals and the ensuring conflicts that rise.
Absence of full range of technical competence:
The absence of some form of legal requirement for technical competence has put internal
auditing in jeopardy. Areas that could be affect by the absence of technical competence
are morale in the audit staff, the conclusion drown, making decision and corporate
objectives at whole.
Neglect of the most important phase of the study:

Internal audit the title analysis found in the observations focuses on easily identifiable
area corn. This neglect has been the direct cause for audit failure.

Neglect of internal audit of fundamental communication:

Neglect to communicate clearly with the entity audited poor communication of audit
results has coursed the down failed of some audit and led to a negative misconception
about auditor (G.Braith woite, 1989).

2.6.5 Independence, Objectivity and Compliance

Internal auditor should be independent of the activity they audit internal auditor are
independent when they can carry out their work freely and objectively, independence

19
permits internal auditor to render the logical and unbiased judgment essential to the
proper conduct to audits its is achieved through organizational status and objectivity.
Objectivity is an independent mental attitude which internal auditor should maintain in
performing audit. Internal auditor are not to subordinate their judgment on audits matters
to that of others. Objectivity requires internal auditor to perform audit in such a manner
that they have all honest belief in their work product and that no significant quality
compromises are made internal auditors or not to be placed in situation in which they fell
unable to make objective processional judgment. Compliance with standard of conduct
and policies internal auditor should comely with processional standard of conduct. The
code of the institute of internal auditor set for standard of conduct the code calls for high
standard honest, objectivity, diligence and loyalty to which internal auditor should conform
(Hourd F. Settler, 1990).

2.6.6 The Relationship of Internal and External Auditors

2.6.6.1 Similarities
More specifically, the work of both the internal and the external auditor is carried out
largely by similar methods in such areas as:

 Both must be competent as auditors and remain objective in performing their

audits, including planning and performing test of control and substantive tests.
 An effective system of internal check to prevent and /or detect errors and fraud
and that it is operating satisfactorily.
 An adequate accounting system to provide the information necessary for preparing
true and fair financial statements.
 Examination of the soundness and effectiveness of internal cheek
 Examination and checking of accounting records and statements
 Verification of asset and liabilities
 Observation, enquiry, the making of statistical comparison and other measures as
may be judged necessary.
 Performance of detailed examination of balance and transaction
2.6.6.2 Difference
There is some fundamental difference between the two forms of audit:

20
Scope: - in the case of an independent audit, the duties responsibilities, rights and
liabilities so the auditor are laid down under the respective statues. On the other hand,
the extent of the work to be undertaken by the internal auditor is mainly determined by
the management the company.

Approach: - the internal auditor’s approach is with the view of ensuring that the
accounting system is efficient and effective so that accounting system (information)
presented to the management through the period is accurate and discloses material facts.
The independent auditors approach, however, is governed by his duty to satisfy himself
that the accounts to be presented to the shareholders show a true and fair view of the
profit or loss for the financial period and of the state of the company’s at the end of that
period.

Responsibility: - the responsibility of the internal auditor is towards the management

whereas, the independent auditor is responsible directly to shareholders. The external
auditor is responsible to financial statement users who rely on audit to add credibility to
the statement.

Professional guidance: - For internal auditors is provided by the institute of internal

auditors (IIA). The IIA is an organization similar to the AICPA that establish ethical and
practice standards, provides education and encourages professionalism for its members.

Independence: - the independent auditor has get an independent status, while the
internal auditor, being and employee of the organization does not possess this
independence of status.

2.6.7 External Auditor Reliance on Internal Auditing

The increased capability and scope of internal audit work has enabled external auditors
to rely increasingly on internal auditors work in conducting the external audits.
Furthermore, as a result of increasing their investment in internal auditing. Companies
have sought ways to reduce external audit fees by substituting internal audit work. A
2005 survey of 117 chief internal audit executives found that in 88% of their companies
external auditors relied to some extent on the work of the internal auditors (Kaplan &

21
Schultz, 2006).

Relying on internal auditing can avoid unnecessarily duplicating audit procedures. It

also can benefit external auditors because internal auditors have certain advantages.
The internal auditors generally have more knowledge about the company's procedures,
policies, and business environment than do the external auditors. However, external
auditors must reconcile the advantages of relying on internal auditing with the need to
maintain both the appearance and reality of independence as defined for external
auditors.

External auditors may rely on internal auditing primarily in three ways:

 External auditors may rely on the internal audit function as part of the company's
overall system of internal controls;
 External auditors may rely on work already done in internal audits relating to
testing of internal controls or testing of accounts or transactions;
 External auditors may use internal auditors to directly assist them in conducting
audit procedures.

2.7 The Nature of internal control

According to Boynton (1995) internal can be defined as the process through which an
entity attempts to minimize the likelihood of accounting related errors, irregularities, and
illegal acts. Internal control is a process, effected by and entity is board of director’s
managements, and other personal designed to provide reasonable assurance regarding
the achievement of objectives in the following categories:

 Reliability of financial reporting

 Compliance with applicable law and regulations
 Effectiveness and efficiency of operations
2.7.1 Importance of internal control
The importance of internal control to management and independent auditors has been
recognized in the professional literature of or many years. In 1947 publication by the

22
AICPA entitled internal control cited the following factors as contributing to the expanding
recognition of the significance of internal control.

 The scope and the sit of the business entity has become so complex and wide
spread that management must rely on numerous reports and analyses to
effectively control operations.
 The check and review inherent in good system of internal control afford protection
against human weaknesses and reduce the possibility that errors or irregularities
will occur.
 It is impracticable for auditors to make audits of most companies with in economic
fee limitation with out keying on the client’s system of internal control.
2.7.2 Objectives and related internal control relevant to an audit
As noted previously, management adopts internal controls to provide reasonable
assurance of achieving three categories of objectives

1. Reliability of financial information

2. compliance with applicable laws and regulations, and
3. effectiveness and efficiency of operations. Because not all of those objective
and related control are relevant to an audit of financial statements, one of the auditors
first tasks in meeting the second standard of field work is to identify those objective and
controls that are relevant, Generally, this includes those that pertain directly to the first
category, reliability of financial reporting. Thus, particular significance are controls that
are intended to provide reasonable assurance that financial statement prepared by
management for external users are fairly presented in conformity with generally accepted
accounting principles.

Other objectives and related controls may also be relevant if they pertain to data the
auditor uses in applying audit procedures example includes objectives and related
controls that pertain to:

 Non-financial data used in analytical procedures such as the number of employees,

volume of goods manufactured, and other production and marketing statistics.

23
  Certain financial data developed primarily for internal purposes such as budgets and
performance data used by auditor to obtain evidence about the amount reported
in the financial statements.
2.7.3 Internal control Documentation
Whenever the independent auditors on the word carried out by the internal audit
department the same should be properly document along with the reason supporting the
secession. Such documentation should include the examination and assessment on the
quality of the internal audit personal the degree of their independence the objectivity with
which work is performed the scope of the internal audit function and also the details of
any specific tests of transactions balances or working paper besides the extent of the
internal audit work to which the independent has relied and the conclusions arrived at
should be documented. (k.C shekhar and Lekshmy shekhar 2000)

2.7.4 Reason for internal control evaluation

The primary reason for conducting an evaluating of a company’s internal control is to give
the auditors a basis for planning the audit and determining the nature, timing and extent
of audit procedures in the account balance audit program. The presumption is that the
auditors have prepared a preliminary audit program and have ideas about the work they
want to do.

2.7.5 Inherent limitations of internal control systems

According to Arens (1997) internal controls can never be regarded as completely
effective, regardless of the care followed in their design and implementation. Even if
systems personnel could design an ideal system, its effectiveness depends on the
competency and dependability of the people using it.

Because of these in beret limitations of controls and because auditors cannot have more
than reasonable assurance of their effectiveness, there is almost always some level of
control risk greater than zero. Therefore, even with the most effectively designed internal
controls the auditor must obtain auditor must obtain audit evidence beyond testing the
controls for every material financial statement account.

24
It is general accepted that internal control procedures can provides reasonable in no such
case, absolute assurance that the object of control relating to accounting system are
achieved this could be due to possible existence of creation inherent limitation includes:

 Management’s consideration that a control be cost effective

 The fact that most controls tend to be directed at anticipated types of transaction
and not at unusual and unforeseeable.
 The potential for human error due to carelessness, distribution, errors of judgment
and misinterpretation of instruction.
 The possibility that person responsible for exercising control could abuse that
responsibility.
 Most of the control procedures are devised in relation to anticipated types of
transactions and hence may not be effective in relation to unusual or extraordinary
transactions.
 Human errors due to errors to judgment or interpretation, misunderstanding,
carelessness, fatigue or distraction may undermine the effective operation of
control procedures.
2.8 Evaluating internal control
There is to be a proper study and evaluation of the existing internal control as a basis for
reliance there and for determination of the resultant extent of the tests to which auditing
procedures are to be restricted. An auditor studies internal control to obtain:

 A knowledge and understanding of an entity’s prescribed procedure and methods.

 A reasonable degree of assurance that prescribed procedures and methods are in
use and operating as planned. In turn, an auditor evaluates the prescribed
procedures and methods and the degree of compliance.
An auditor’s an evaluation should relate to the existing system of internal control, not to
controls no longer applied or those contemplated for the future. Occasionally, employees
may by pass controls they believe are time-consuming or unnecessary.

25
In addition, some control may have been redesigned, but not yet implemented, an auditor
must be of control by pass and redesigned control in order to assure studying and
evaluating control which actually exist.

Under generally accepted auditing standards, the scope of study and evaluation of
internal control includes accounting control, but not administrative control.

2.9 Problems of Internal Controls

No matter how well internal controls are designed, they can only provide reasonable
assurance that objectives have been achieved. Some problems are inherent in all
internal control systems (Mercer University – United States of America (Georgia). These
include:

2.9.1 Judgment
The effectiveness of controls will be limited by decisions made with human judgment
under pressures to conduct business based on the information at hand. According to
Lannoye (1999) Effective internal control may be limited by the realities of human
judgment. Decisions are often made within a limited time frame, without the benefit of
complete information, and under time pressures of conducting agency business. These
judgment decisions may affect achievement of objectives, with or without good internal
control. Internal control may become ineffective with management fails to minimize the
occurrence of errors for example misunderstanding instructions, carelessness,
distraction, fatigue, or mistakes.

2.9.2 Breakdowns
Even well designed internal controls can break down. Employees sometimes
misunderstand instructions or simply make mistakes. Errors may also result from new
technology and the complexity of computerized information systems.

2.9.3 Management Override

High level personnel may be able to override prescribed policies and procedures for
personal gain or advantage. This should not be confused with management
intervention, which represents management actions to depart from prescribed policies
and procedures for legitimate purposes. With Annoyed, management may override or
disregard prescribed policies, procedures, and controls for improper purposes. Override

26
practices include misrepresentations to state officials, staff from the central control
agencies, auditors or others. Management override must not be confused with
management intervention (i.e. the departure from prescribed policies and procedures for
legitimate purposes). Intervention may be required in order to process non-standard
transactions that otherwise would be handled inappropriately by the internal control
system. A provision for intervention is needed in all internal control systems since no
system anticipates every condition.

2.9.4 Collusion
Control systems can be circumvented by employee collusion. Individuals acting
collectively can alter financial data or other management information in a manner that
cannot be identified by control systems. The effectiveness of segregation of duties lies
in individuals’ performing only their assigned tasks or in the performance of one person
being checked by another. There is always a risk that collusion between individuals will
destroy the effectiveness of segregation of duties. For example an individual received
cash receipts from customer can collude with the one who records these receipts in the
customers’ records in order to steal cash from the entity (Williams 2000).

2.10 Effects of Poor Internal Control Practices

When we recommend improving controls within a department, we often hear three basic
arguments for not implementing our recommendations:

• There is not enough staff to have adequate segregation of duties.

• It is too expensive.

• The employees are trusted and controls are not necessary.

These arguments represent pitfalls to unsuspecting management. Each argument is in

itself a problem that needs to be resolved.

• The problem of not having enough staff or other resources should be discussed with
your supervisor. In most cases, compensating controls can be implemented in situations
where one person has to do all of the business-related transactions for a department.

27
• If implementing a recommended control seems too expensive, be sure to consider the
full cost of a fraud that could occur because of the missing control. In addition to any
funds that may be lost, consider the cost of time that would have been spent by the
department during the time of an investigation of the matter, and the cost of hiring a new
employee. Fraud is always expensive and the prevention of fraud is worth the cost.

• Finally consider the issue of trust. Most employees are trustworthy and responsible,
which is an important factor in employee relations and departmental operations.
However, it is also the responsibility of administrators to remain objective. Experience
shows that it is often the most trusted employees who are involved in committing frauds.

28
 CHAPTER THREE
3. METHODOLOGY

3.1. Study area

This study has been conducted on Dedebit Credit and Saving Institution (DECSI).

3.2. Types of data and source

The researcher has used primary data source. Questionnaire and interview has been
used as a primary data source’s for the researcher.

3.3. Method of data collection

In the data collection process different types of data collection method has been used in
the study. These methods vary according to the source of data that has been collected.
To collect primary data, two different types of data collection method has been used, such
as unstructured interview and questionnaires.

3.4. The sample design

The sampling techniques that is going to be implemented for the study is census inquiry
sampling. This techniques of sampling are selected because it includes all the population.
By using these techniques all individuals are selected. The total number of sampling 21
who are currently working on the organization directly or indirectly related with internal
auditing.

3.5. Data analysis and presentation

The data collection through the questionnaires and interview were organized and
analyzed. Then tabulate in the form of tables and interpretation was made. The data that
was gain from the questionnaires was analyze quantitatively, whereas the data that was
gain from the interview also analyze qualitatively and conclusion and recommendation
were given.

29
 CHAPTER FOUR
4. DATA ANALYSIS AND PRESENTATION
This chapter is concerned with the characteristics of sample size, the presentation as well
as analysis of data gathered through questionnaire and interview. In this chapter, the data
collected through questionnaire and interview is going to be analyzed and presented in
the table form and it is seeming appropriate to interpret each data which are presented in
table form.

4.1 Result analysis and discussion

This chapter presents the result and analysis done on the internal auditing practice in
DECSI Hadinet Branch. This discussion covers both the attribute standard and
performance standard of internal auditors. A total of eleven questionnaires were
distributed to respondents that are working in DECSI in Hadinet Branch. From those
eleven questionnaires six of them are filed properly and forwarded by internal auditors.
The responses obtained from Hadinet branch employees which are five, those are analyzed
separately because both of they are asked separate questions. The data gathered in the
two method, that are eleven questionnaires and three interviews and analysis made on
this data is presented on the following section.

30
4.1.1 Social Demographic of respondents
Table 4.1, Social Demographic of respondents

No No of respondents Percentage (%)

Sex of respondents Male 5 83.33%

Female 1 16.67%

Total 6 100%

Age of respondents 20-35 1 16.67%

36-45 3 50%

46-55 1 16.67%

Above 55 1 16.67%

Total 100%

Education Level of Respondents 12th completed 0 0%

Certificate 0 0%

Diploma 0 0%

Degree and above 6 100%

Total 6

Year of service of the From 1-4 2 33.3%

respondents
From 5-9 3 50%

From 10-14 1 16.7%

From 15-19 0 0%

From 20-24 0 0%

25+ 0 0%

31
 Total 6 100%

Source: - Survey from Distributed Questionnaire’s, internal auditors of DECSI (2008 E.C).

As shown in table 4.1; 83.3% of respondents are male and 16.67% are females. This
shows the majority of the respondents are males. Male and females are not equals or
fairly distributed in internal auditor’s management. This indicates there is a gender
imbalance in the institution

As indicated in table 4.1; 16.67% of the respondents are between the age of 20-35 years
and 50% of respondents are between 36-45 years and 16.67% of respondents are
between 46-55 years. The remaining 16.67% of respondents are aged above 55 are
working aged more than 55 years.

As shown in table 4.1; 100% of the respondents are degree and above. So, the researcher
understands that, DECSI internal auditors are educated employees. Therefore, the
institution can serve its customer on time because of educated employees give their
service the customer when they need.

As shown in table 4.1; 33.3% of the respondents have an experience between 1-4 years,
50% of respondent’s experience between 5-9 years, 33.3 of experience are between 5-9
years and also 16.7% of the respondents have an experience between 10-14 years. This
work experience leads us to say an employee of the organization is highly experienced.
This implies there are familiar with jobs and they have been experienced, these have
great advantage for effective internal control.

4.1.2 DECSI Hadinet Branch reliance on internal auditing practice

As indicated earlier, internal auditing practice of a company is useful for enhancing the
effective and efficient auditor work of the company. This will increase quality. In addition,
greater participation and coordination of internal auditors may result in lower audit cost.
The contribution of internal audit function to the financial statement audit depends on the
quality of internal auditing rules and procedures and the proper application of these rules
and procedures.

32
To address the first question, which concern about DECSI’s Hadinet Branch reliance on
internal auditing practice, respondents were asked whether or not they rely on proper
internal audit work and the degree of reliance. As shown under Table 4.1 below 10 out of
14(71.4%) of the respondents yes and 4 out of 14(29.6%) of respondents replied partially
they rely.

Practically on internal quit work during the audit of financial statement.

Table 4.1.2.1 DECSI Hadinet Branch internal auditor’s response in reliance of internal
audit work.

No. Responses Respondents

No. Percent

1 yes 5 83.3%

2 partially 1 16.7%

3 No 0 0%

Source: - Survey from Distributed Questionnaire’s, internal auditors of DECSI (2008 E.C).

As indicated in table 4.1.2.1, 83.3% of the respondents have agreed that DECSI Hadinet
Branch are relied on internal audit work, 16.7% are partially agreed to the statement.
This implies that DECSI in Hadinet Brach is relied in internal audit work.

Table 4.1.2.2 DECSI Hadinet Branch internal auditor’s response in level of reliance on
internal audit work.

No. Level of reliance Respondents

No. Percent

1 High 4 66.7%

2 Medium 2 33.3%

33
 3 Low 0 0%

Source: - Survey from Distributed Questionnaire’s, internal auditors of DECSI (2008 E.C).

As indicated in the above two table 4.1.2.2, DECSI in Hadinet Branch has enough internal
auditor work which amount 66.7% of their work relied on the internal audit work. The
reliance on the level of internal audit work medium results 33.3% of the respondents,
therefore we can say that, DECSI is relied on internal auditing with high level of reliance.
The quality of internal audit work depends on adequate and relevant as required by
auditing standard.

4.1.3 DECSI Hadinet Branch internal auditor objectivity

As indicated in the proposal internal auditor should be objective in performing always
audits. an internal auditor should ideally report to the higher level of management and for
other concerned party, such as audit committee that allow internal auditor activity to
achieve their responsibilities and be independent of oppositional management in fact and
in appearance. For the audit work quality and functioning and they should avoid contact
of interest.

Depending on the above issues related with the internal auditor’s objectivities the
response obtained by the questionnaire are presented in the following table (i.e. table
4.1.3.1)

Table 4.1.3.1 DECSI Hadinet branch Internal Auditor objectivity

Responses

Strongly Strongly
agree Neutral disagree
No statement agree disagree

N N
No % No % No % % %
o o

1 Internal auditors in DECSI

Hadinet Branch are free from 16.6 10
conflicting duties. 4 66.7% 1 16.6% 0 0% 1 % 1 %

34
2 The internal auditors in DECSI
Hadinet Branch exercise due
professional care in performing
audit. 5 83.3% 1 16.7% 0 0% 0 0% 0 0%

Source: - Survey from Distributed Questionnaire’s, internal auditors of DECSI (2008 E.C).

Depending on the table 4.1.3.1 the researcher can under stood as the response of internal
auditor work (i.e. strongly agree and agree) increase the higher the internal auditor’s
objectivity. This result told in quality of internal auditor Function. The table show that
majority of respondents 66.7% agreed with the statement that internal auditor in DECSI
Hadinet Branch Are Free from conflicting of duties, 16.6% of the respondents also agreed to
the statement and the remaining 16.6% of the respondents disagreed with the statement. The
internal auditors in DECSI, Hadinet Branch are exercising due professional care in
performing audit work are 83.3% of respondents strongly agreed, 10% of the respondents
agree to the stated statement. From this it is possible understand that internal auditors in
DECSI in Hadinet Branch have objective. In other words, this objectivity increases the
extent of reliance on internal audit practice.

4.1.4 Internal auditor’s competence in DECSI Hadinet Branch

If the organization has competent internal audit staff, it is expected to provide more
valuable inputs to work improving internal controls of an organization, which will affect the
quality of internal audit work to be competence internal auditors should have enough level
of knowledge, skill and discipline. The degree of competence of internal auditor depend
on their practical experience, availability of continuing educational and the quality of
internal audit working appear.

Therefore, examine the competence of internal auditors are practical experience.

Respondents were asked to indicate the extent of their opinion with the following
statements which are excused to have influence (direct relations) with competence of
internal auditor.

 Internal auditors in DECSI Hadinet Branch does not have appropriable contracting
educational program.

35
  Internal auditors in DECSI Hadinet Branch have enough level of practical
experience
 The internal auditors prepare working paper to reduce test confident out the result
of test and conclusion drawn in the DECSI.

Table 4.1.4.1 the internal auditor’s opinion on the degree of competence DECSI Hadinet
Branch

Responses

Strongly Strongly
agree Neutral disagree
No Statement agree disagree

N
% No % No % No % No %
o

I Enough level of practical 16.7 33.3

experience 3 50% 1 % 2 % 0 0% 0 0%

II Appropriable contracting 16.7

educational program 0 0% 0 0% 4 66.7% 1 % 1 16.7 %

III Working paper documentation

and report have enough in quality 83.3 16.7
and quantity 5 % 1 % 0 0% 0 0% 0 0%

Source: - Survey from Distributed Questionnaire’s, internal auditors of DECSI (2008 E.C).

As clearly shown in table 4.1.4.1, most of the respondents agreed on statement indicated
on no [I] 33.3% of the respondents are neutral, 16.7% of respondents have agreed and
50% of the respondents strongly agreed that there is Enough level of practical experience

36
in DECSI Hadinet branch. This implies that internal auditor’s in DECSI Hadinet Branch
have enough level of practical experience.

For the statement indicated under no [II] 66.7% of the respondent are neutral, 16.7% of
the respondent disagree and the remaining 16.7% of the respondent strongly disagreed
that there is Appropriable contracting educational program. This implies that DECSI dosnt
have Appropriable contracting educational program.

For the statement indicate on no [III] 16.7% of the respondents have agreed, 83.3% of
respondent have strongly agreed that Working paper documentation and report have
enough in quality and quantity.

The internal auditors prepare working paper to reduce test carried out, the result of test
and conclusion draw in the DECSI. Therefore, DECSI has enough level of practice to
prepare working documentation and report. By considering these three situations, we can
suggest that whether the internal auditor does not have appropriate continuing
educational grogram they are almost competent. Because they have enough level of
practical experience and proper working paper documentation and report. Internal
auditing by competent internal audit staff is relevant and reliable for the users of financial
statements of DECSI. Therefore, the competences of internal auditors in DECSI Hadinet
Branch lack of appropriate continuing educational program.

4.1.5 Audit records and reports

Table 4.1.5.1 internal auditor’s suggestion about good qualities of internal auditing items of
records and report.

Responses

Strongly Strongly
agree Neutral disagree
No statement agree disagree

N
No % % No % No % No %
o

37
I Financial record and reports contain
accurate, reliable timely complete and
useful information in DECSI Hadinet
branch 6 100% 0 0% 0 0% 0 0% 0 0%

II The audit head prepares activity report

and submitted to management and to
the board

6 100% 0 0% 0 0% 0 0% 0 0%

Source: - Survey from Distributed Questionnaire’s, internal auditors of DECSI (2008 E.C).

As clearly shown in table 4.1.5.1, all of the respondents strongly agreed on statement
indicated on no [I] which the Financial record and reports contain accurate, reliable timely
complete and useful information in DECSI Hadinet branch. For the statement indicated
under no [II] all of the respondents strongly agree that The audit head prepares activity
report and submitted to management and to the board. This implies that the company is
going the right direction.

4.1.6 Inherent Internal control problems in DECSI

No matter how well internal controls are designed, they can only provide reasonable
assurance that objectives have been achieved. Some problems are inherent in all internal
control systems.

No Limitation of internal control No of respondents Percentage

1 Judgment 5 83.3%

2 Breakdowns 1 16.7%

3 Management override - -

4 Collusion - -

Source: - Survey from Distributed Questionnaire’s, internal auditors of DECSI (2008 E.C).

As the above table shows internal control problems occur in DECSI, 83.3% of the
respondents respond that judgment is the main problem of inherent internal control

38
problem in DECSI as the rest 16.7% responded breakdown is the problem of inherent
internal control in DECSI.

4.1.7 The application of internal auditing principle in practice in DECSI Hadinet

Branch
In the first part of this chapter, the questionnaire results indicate that the extent of internal
auditor’s reliance on internal auditing practice and quality of internal audit work in DECSI
is high. The reason for high internal auditing practice in DECSI is due to high level of
objectivity and competence of internal auditor. To analysis this, respondents were asked
to indicate the extent of their point of view with the following three statement that may be
basic causes for the DECSIs internal auditor dependability. From the three the first one
is, the programs in DECSI Hadinet Branch are regularly revised to covers changes in
client system; the second, audit procedure, including testing and sampling techniques
improves is selected in advance where practicable and expanded; the third, the internal
auditor in DECSI Hadinet Branch are skilled dealing with people and in communicating
effectively.

Table 4.1.7.1 internal auditor’s suggestion about good qualities of internal auditing items of
objective and competent

Responses

Strongly Strongly
agree Neutral disagree
No statement agree disagree

N
No % % No % No % No %
o

39
I Programs in DECSI are regularly
revised to cover change in the clients
system 1 16.7% 3 50% 2 33.3% 0 0% 0 0%

II Audit procedure such as testing and

sampling techniques is selected in
advance 3 33.3% 1 16.7% 2 33.3% 0 0% 0 0%

III The internal auditors in DECSI are

skilled dealing with people and
communicating effectively 0 0% 1 16.7% 1 16.7% 4 66.7% 0 0%

Source: - Survey from Distributed Questionnaire’s, internal auditors of DECSI (2008 E.C).

The three factors which mentioned above influence the internal auditors practice as
indicated by the professional auditing standard. As clearly show in the table 4.6 on no [I]
16.7% strongly agreed for the statement that program in DECSI’s regularly revised to
cover the change in the client’s system while 16.7% of respondents have agreed and
33.3% of respondent are neutral.

As indicate in table 4.1.7.1 on no (II) tell as the DECSI have enough level of audit
procedures, which have 33.3% of respondent have strongly agreed and 16.7% of
respondent have agreed while 33.3% of the respondents are neutral.

The other statement on table 4-6 no (III) the internal auditors in DECSI are skilled dealing
with peoples and in communicating effectively most of the respondents 66.7% of
respondents disagree with the statement while, 16.7% agreed and 16.7% are neutral.

Generally, from above analysis we can understand that internal auditors in DECSI are
compliance with role, police and regulations. Therefore, this realize that adequate work
performed by internal auditors in line with internal auditing principle of the DECSI which
increase the effectiveness of DECSI.

4.2 Response from DECSI Hadinet branch employees

Table 4.2.1: Data collected through questionnaires from DECSI Hadinet branch employees.

Number Statement Yes % No %

40
 1 Internal auditing department of your origination is 4 80% 1 20%
functioning well?

2 Is there adequate planning and supervision in the 4 80% 1 20%

organization?

3 Does internal auditors of DECSI has enough level 4 80% 1 20%

of knowledge, skill and practical experience?

4 Do employees have sufficient understand of 3 60% 2 40%

internal control structure of the organization?

5 Do the internal auditors of the organization get 1 20% 4 80%

continuous training on internal auditing?

No Statement Excellent % Very % Good % Bad % Very %

Good bad

6 How do you 4 80% 1 20% - - - - - -

rate the
internal
auditor’s
independence
in
organization?

Source: - Survey from Distributed Questionnaire’s, DECSI Employees (2008 E.C).

As indicated in the above table DECSI employees have responded to the given Questionnaire,
the first statement was, if their organization internal auditing department functioning well, 80% of
the respondents believe that it is functioning well, as the remaining 20% didn’t think the
department is functioning well.

The second statement was if there is adequate planning and supervision in their organization,
80% of the respondents responded that there is adequate planning and supervision in their

41
organization, while 20% of the respondents don’t believe that there is adequate planning and
supervision in their organization.

The third statement was about if internal auditors of DECSI has enough level of knowledge, skill
and practical experience. 80% of DECSI employees thinks that the internal auditors of DECSI
have enough level of knowledge, skill and practical experience, while the remaining 20% of
DECSI employees did not think the internal auditors of DECSI have enough level of knowledge,
skill and practical experience.

The fourth statement was if DECSI employees have sufficient understand of internal control
structure of the organization. 60% of the respondents believe that DECSI employees have
sufficient understand of internal control structure of the organization, while the remaining 40% of
the respondents don’t believe that DECSI employees have sufficient understand of internal
control structure of the organization.

The fifth statement was if internal auditors of the organization get continuous training on internal
auditing. 20% of the respondents (DECSI Employees) thinks that internal auditors of the
organization get continuous training on internal auditing, while the remaining 80% of the
respondents (DECSI Employees) didn’t think that internal auditors of the organization get
continuous training on internal auditing. This clearly shows that DECSI employees have no clear
information about whether internal auditors of the organization whether get continuous training
on internal auditing or not, because their answer supposed to be the same if they knew internal
auditors get continuous training.

The sixth and the last statement was how the employees of DECSI rate the internal auditor’s
independence of the organization. 80% of the respondents (DECSI Employees) rate the internal
auditor’s independence of the organization Excellent, 20% of the respondents (DECSI
Employees) rate the internal auditor’s independence of the organization Very Good. Internal
auditor’s independence in the organization seems at best in DECSI as we understand from the
questioner.

42
4.3 Response from interviewees
Interview has been used to collect primary data from the organization, three persons
where interviewed during the process, two of them are auditors head which they are
found in the head office and one person is interviewed from Hadinet branch which is the
head manager of the branch.

The first interview question was if there is there adequate planning and supervision in
the organization, the auditors head responded that, “there is an almost perfect adequate
planning and supervision in the organization which it leads it to success of DECSI for over
years”, the branch manager also responded that “the head office and the branches have
different jobs, the branches of DECSI job is to give loan to customers etc. while the head
office only work adequate planning and supervision”. Both the auditors head also
responded that “DECSI head office supervise us in the audit work and the head office
had adequate plan in audit”.

The second interview question was which limitations they think that internal control will
mostly have in DECSI. Which all the three respondents agreed on chances of human
error (being careless, misunderstandings, etc.)

The third interview question was what are the mechanisms through which DECSI uses
to minimize the aforementioned limitations of internal controls. The respondents said
that “there is no such thing as a perfect control system. A limited inherent in any system
is the element of human error, misunderstandings, fatigue and stress. Employees are to
be encouraged to take earned vacation time in order to improve operation through cross
training while enabling employees to overcome or avoid stress and fatigue. Internal
controls should reduce the risks associated with undetected errors or irregularities, but
designing and establishing effective internal control is not always a simple task and
always cannot be accomplished through a short set of quick fixes”.

43
 CHAPTER FIVE
5. SUMMERY, CONCLUSION AND RECOMMENDATION
5.1 Summary
The study was aimed at investigating the internal auditing practice used by DECSI of
Hadinet branch. To collect necessary information, the researcher used questionnaire and
interview. The study was based on the research question. According to the study DECSI
of Hadinet branch properly applied internal auditing practice and DECSI also practice’s
(applied) some of the internal auditing principles like due professional care, independence
and proper planning and supervision etc. The factors affecting internal auditing practice
of DECSI of Hadinet branch were Appropriable contracting educational program. The
major drawback of DECSI of Hadinet branch is lack of skill in dealing with people and
communicating effectively were a draw back as the researcher found out from
questionnaires and interviews.

44
5.2 Conclusion
Depending on the finding of the study, the following conclusion were made: -

1. Internal auditing practice is one of the most important function in any organization
for undertaking different purpose; such as examining and controlling the
organization’s resource. In any area of an organization’s activity must need internal
auditing application consistently. For this research, data gathering instruments are
two methods. These are questionnaire and interview. From both questionnaire and
interview the respondents agree for existence of enough auditing practice in
DECSI Hadinet Branch. Therefore, internal auditing practice in DECSI Hadinet
Branch is high.
2. Internal auditor in DECSI Hadinet Branch have enough level of practical
experience and working paper documentation and report to record test carried out.
3. When the researcher studied consider the analysis part, there is some problem in
reliability of audit work accessibility for continuing educational program on internal
auditing. The effect of this problem will reduce the quality of audit work.
4. The researcher also discovers chances of human error (being careless,
misunderstandings, etc.) are the limitations that occurs in internal control of
DECSI.
5. There are inherent limitations which are discovered in the study that exists in
DECSI in Hadinet branch, Judgment is the main problem in DECSI.

6. The Researcher discovers DECSI’s audit records and reports showed from the
collected questionnaires, Financial record and reports contain accurate, reliable
timely complete and useful information in DECSI Hadinet branch also The audit
head prepares activity report and submitted to management and to the board
which will make the audit process really good. DECSI is doing a great job and
should continue with the same work.

45
5.3 Recommendation
In view of the conclusion, the following build suggestion and recommendation were
made in the hope that they would minimize the problem identified in the study area.

1. The reliability of internal auditing practice as one can understand from the
analysis part is high.
 The researcher recommends DECSI, their level of reliance in internal
auditing is high which is good for DECSI. As the reliance is high any
small errors could do harm DECSI, so I Recommend DECSI to have a
program which could minimize avoidable errors.
2. The internal auditor in DECSI Hadinet Branch does not have appropriable
contracting educational program. This low level of internal auditors contracting
educational program affect the competence of internal auditors to be at low
level. This affect the internal auditing work to be poor and decrease the quality
of internal audit work.
 To solve this problem, the auditor should have enough opportunity for
contracting educational program. The increase in competence of
internal auditors and enhance the effective and efficiency of internal
audit work.
 The internal auditing principle in DECSI Hadinet Branch applied in
practice without any violation. But, the agreement percentage for the
statement, the internal auditor in DECSI are skilled dealing with people
and in communicating effectively is low.
To reduce these problem, member of the internal auditors should be well
trained for the work they assigned and improve their high level of profession
competency by obtaining professional certifications.

3. The researcher understand that the organizations has limitation that occurs in
internal control of the company that is chances of human error (being careless,
misunderstandings, etc.), The solution is Employees are to be encouraged to
take earned vacation time in order to improve operation through cross training
while enabling employees to overcome or avoid stress and fatigue. Internal

46
 controls should reduce the risks associated with undetected errors or
irregularities.
4. DECSI employees rate the internal auditor’s independence in organization
very highly which is a great for the company. The independence will make
external audit even greater which will be shown by another companies in
needs of the company audit report.
5. Judgment decisions may affect achievement of objectives, with or without
good internal control. Internal control may become ineffective with
management fails to minimize the occurrence of errors for example
misunderstanding instructions, carelessness, distraction, fatigue, or mistakes.
So the study recommends that DECSI should make a strategy that give the
employees a free time to fresh their head with a trip or other relaxing services
like massage or even see a physiatrist.

47
 References
 Divid N Recchuite, 1982. Auditing concept and standard. University of Nottre
Dame.
 Howard F (1980) “Auditing principle” 4th edition prentice Hall of India.
 Larry F, Knorath, 1999. Auditing concepts and Applications, Approach. Arisk
Analysis university of Toledo.
 William C. Boynton, 1995. Modern Auditing 6th University of Michigan.
 Carmichael & Willingham, 1979, Comprehensive Auditing, New Approach for
internal auditing, Britain.
 Kamal G (1996) “Fundamentals of Auditing” Hill publishing Company.
 Johannes. Kinfu, Auditing introduction to Principles practices, FBE. AAU.
 Arens 1997. Auditing interated appoabs 7th edition jersey (USA).
 Shekhan and shekhars, 2003. Auditing Approach 5th edition.
 David N. Richute, Auditing Concepts and Standard, South Western publishing Co.
2006. USA.
 Konrath. Larry. Auditing Concepts & Applications. A risk Analysis. Approach 4th ed.
South Western Colle USA. 1999.
 Shekhar, Auditing. Vikas publishing House, 2003.
 Walter B. Meigs & etal, Principles Auditing 9th edition, 1989.
 Whitting ton & parry 11th edition, Irwin, 1995.
 K.C shekhar and leksmy S (2000) “Auditing incorporating Companies” Vikas
publishing India.
 Ravinder K (2001) “Fundamentals of principle Auditing” prentice hall India
 Shekhan and Shekhars, 2003, Auditing Apptoch 5th edition
 C. William, and John T. Parish, 1999, principle of auditing, 11th edition, USA.

48
 APPENDIX 1
MEKELLE UNIVERSTY
COLLEGE OF BUSINESS & ECONOMICS
DEPARTMENT OF ACCOUNTING & FINANACE

This is questionnaire designed to meet the objective of a research titled

“Assessment of Internal Auditing Practice” for partial fulfillment of Bachelors of
Art (B.A) Degree in Accounting & Finance from Mekelle University. Dear
respondents, I would like to assure you that your response will only be used for
academic purpose and remain confidential.
THANK YOU IN ADVANCE FOR YOUR COOPERATION…

QUESTIONNAIRE
TOPIC: ASSESSMENT OF INTERNAL AUDITING PRACTICE
HOW TO COMPLETE THE QUESTIONNAIRE?
Most of the questions seek response by ticking in the box that corresponds to the
appropriate answer. For DECSI internal auditors only
SECTION A: SOCIAL DEMOGRAPHIC PROFILE OF RESPONDENTS

1. What is your sex?

□Male □Female
2. In which age group do you belong?
□20 – 29 □30 – 39 □40 – 49 □50 – 79
3. Which level of education are you?

□ 12 th completed □ Certificate □ Diploma □ Degree or above

4. Which year of service are you in DECSI?
□Less than 1 year
□1 – 4 years
□5 – 9 years
□10 – 14 years
□15 – 19 years
□20 – 24 years
□25+

49
SECTION B: INTERNAL AUDITING PRACTICE
1. Did Dedebit credit and saving institution in Hadinet branch relied on internal audit
work?
Yes Partial
No
2. If your answer for question 1 is ‘yes’ or partial how much is the reliance?
High Medium
Low
3. If your answer for question 1 is “no”.

Internal auditors are not competent

Internal auditor has not adequate scope of work.

Internal auditor department is not stuffed properly.

Internal audit department has lack of following up.

4. The internal auditor in Dedebit credit and saving institution in Hadinet branch have an
appropriate continuing educational program

Strongly agree Disagree

Agree Strongly disagree

Neutral

5. The internal audit in DECSI are Free from conflicting duties and able to investigate any
area.
Strongly agree Disagree

Agree Strongly disagree

Neutral

50
 6. The internal auditor of DECSI in Hadinet branch exercise due professional care in
performing internal audit

Strongly agree Disagree

Agree Strongly disagree

Neutral

7. The internal auditor in DECSI in Hadinet branch is skilled in dealing with people and in
communicating effectively

Strongly agree Disagree

Agree Strongly disagree

Neutral

8. The internal auditors of DECSI prepare working paper to recorded test carried out, the
result of rest and conclusion drawn in the institution.

Strongly agree Disagree

Agree Strongly disagree

Neutral

9. The internal auditor in DECSI Hadinet branch have enough level of practical experience

Strongly agree Disagree

Agree Strongly disagree

Neutral

10. Financial record and reports contain accurate, reliable timely complete and useful
information in DECSI Hadinet branch.

Strongly agree Disagree

Agree Strongly disagree

Neutral

11. The audit head prepares activity report and submitted to management and to the board
Strongly agree Disagree

51
 Agree Strongly disagree

Neutral

12. Which inherent limitation of internal control occurs on DECSI?

Judgment Breakdowns Management override Collusion

52
 APPENDIX 2
MEKELLE UNIVERSTY
COLLEGE OF BUSINESS & ECONOMICS
DEPARTMENT OF ACCOUNTING & FINANACE

QUESTIONNAIRE
This is questionnaire designed to meet the objective of a research titled
“Assessment of Internal Auditing Practice” for partial fulfillment of Bachelors of
Art (B.A) Degree In Accounting & Finance from Mekelle University. Dear
respondents, I would like to assure you that your response will only be used for
academic purpose and remain confidential.
THANK YOU IN ADVANCE FOR YOUR COOPERATION…
HOW TO COMPLETE THE QUESTIONNAIRE
All of the questions seek response by ticking in the box that corresponds to the appropriate
answer.
For Hadinet branch employees only

1. Do you believe that internal auditing department of your origination is functioning

well?

Yes No

2. How do you rate the internal auditor’s independence in organization?

Excellent Very Good Good Bad very bad

3. Is there adequate planning and supervision in the organization?

Yes No

4. Do you believe that of internal auditors of DECSI has enough level of knowledge,
skill and practical experience?

Yes No

5. Do employees have sufficient understand of internal control structure of the

organization?

Yes No

6. Do the internal auditors of the organization get continuous training on internal

auditing?

Yes No

53
 APPENDIX 3

MEKELLE UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING & FINANCE

DEAR INTERVIEWEES

The main objective of interview is to collected primary data for research

project titled “Assessment of internal auditing practice” for partial fulfillment
of the requirement in BA degree in accounting & finance. Hence, your
response will be used only for academic purpose and remain confidential.

I. Personal information
1. Educational level _______________________
2. year of services _______________________
II. main question
3. Is there adequate planning and supervision in the organization?
4. Which the following limitations do you think that internal control will mostly have in
DECSI? Use rating scale 1 strongly agree 2, agree 3, strongly disagree, and 4
disagree
No Item 1 2 3 4

1 Chances of human error (being careless misunderstandings,

etc.)

2 Ignorance of unusual activity

3 Collusion of employees with the outside parties

4 A person who is exercising may be irresponsible

5 A procedures for controlling may vary due to the changes

conditions

6 What other factors do you think that affect the internal control
practice?

5. What are the mechanisms through which DECSI uses to minimize the
aforementioned limitations of internal controls?
6. How do you evaluate the quality of internal auditing practice in general?

54