Internal Auditing As An Aid To Management (A Study Of Household Products Company, Orlu, Imo State)

CHAPTER ONE


Internal Auditing

INTRODUCTION

1.1 BACKGROUND OF THE STUDY.

At the beginning of the century, most businesses are small and sole-operated. The owners/managers are overly involved with most of the decision making. As business grows in size and complexity, professional managers take position of the owners and the operators. Consequently, they rely heavily upon streams of accounting and statistical report which summarizes current happenings and conditions in the enterprise. The information carried by these streams of report enables management to control and direct the enterprise in order to assure management that the information received are both reliable and accurate. A system of internal audit is developed to monitor the activities of the company. The need for maintaining the adequate efficient and effective internal audit, therefore cannot be overemphasized especially in days when Nigeria’s economy still is witnessing depression and every company is making effort in ensuring that wastage, pilferage, misappropriation are checked or avoided, and to ensure that assets are being secured. Some problems were noticed during the cause of this research; problems within the company, these problems necessitate this work. The pg. 12 researcher noticed that there was ineffective co-operation between the internal audit and management, audit reports were sometimes ignored by the management. The relationship between the internal auditor and external auditor was strained making work harder for the external auditor. The lack of internal audit to prevent pilferage and fraud within the company thereby preventing an error free working condition.

1.2 STATEMENT OF PROBLEM

Often, management and internal audit department function were seen as contradictory rather than complementary. Internal audit department is setup to ensure adherence to management policy but this objective cannot be achieved because of interference and undue influence by the top management. More so, monthly or quarterly internal audit report as the case may be in an organization is expected to provide information required by management to determine how effective their policies and implementation are. It is on this realization that this study will attempt to determine how effective are those information to aid management in solving day to day problems. It signifies defects or problems; the research will examine number of them namely: pg. 13 a) There exists no relationship between the internal audit and management. b) Co-operation does not exist between the internal auditor and external auditor. c) Internal audit does not assist in detection and prevention of fraud.

1.3 OBJECTIVES OF THE STUDY.

Objectives of the study include:  To ascertain if the duties of the internal auditor assist management in taking informed decision.  To ascertain if there exist co-operation between the internal auditor and external auditor.  To find out if internal audit assists in the detection and prevention of fraud. 1.4 RESEARCH QUESTIONS. i) Is there any relationship between the internal audit and management? ii) Does co-operation exist between the internal auditor and external auditor? iii) Does internal audit assist in the detection and prevention of pilferage and fraud?

 1.5 STATEMENT OF HYPOTHESIS

To justify the research topic, internal audit as an aid to management and to enable the researcher to draw a logical conclusion, there is need to make guesses as solutions to the topic which are subject to acceptance and rejection are based on the result of the test.

HYPOTHESIS ONE

 H0: There is no relationship between the internal audit and management. 

H1:

There is a relationship between the internal audit and management.

HYPOTHESIS TWO  H0:

There is no co-operation between internal auditor and external auditor.  H1: There is co-operation between internal auditor and external auditor.

HYPOTHESIS THREE

 H0: Internal audit does not assist in the defection and prevention of pilferage and fraud.  H1: Internal audit assist in the detection and prevention of pilferage and fraud.

 1.6 PURPOSE OF THE STUDY.

 The purpose of the study is to determine the extent of co-operation between the internal audit and management.  To ascertain the extent of co-operation between the internal auditor and external auditor.  To evaluate the extent to which internal audit helps in preventing pilferage and fraud.  To find out if internal audit is equipped enough to prevent an error proof working condition.

1.7 SIGNIFICANCE OF THE STUDY.

The benefits of the study to: The Internal Auditi) Internal audit within an organization is effective for efficient work of the general staff.

ii) The internal audit in an organization will help detect, minimize or eliminate fraud in an organization

. iii) Internal audit assist the management in the smooth running of the organization by complying with the policies, laws and regulation.

iv) Internal audit in an organization will help to review and appraise the effectiveness, adequacy and application of accounting, financial and pg. 16 other controls in order to promote effective control at the lowest possible cost.

v) Whether an internal audit department could help to determine the reliability and integrity of financial and other data produced within the organization, thereby securing the jobs of employees. The management of the organizationi) Management will experience an error free working environment maintained by internal audit

. ii) Management will enjoy the reduction or elimination of pilferage and fraud within the organization. iii) The general staff will be effective and dedicated.

iv) Management will enjoy a healthy relationship between it and internal auditors. The External Auditorsi) Good internal audit by the internal auditor will save time for the external auditor.

ii) Co-operation will lead to easier and more efficient work.

iii)Assistance of internal auditor will lead to smooth investigation.

 1.8 SCOPE AND LIMITATION OF THE STUDY

This research work is to evaluate internal auditing in an organization using soap, detergent and household products company as a case study. The research work particularly focuses on the internal audit as an aid to management in the chosen company.

LIMITATION OF THE STUDY

There are constraints encountered in carrying out this research work, this includes;

1. TIME FACTOR

This research work was conducted simultaneously with normal academic work within a short period of time in which some valuable information could be obtained.

2. FINANCIAL DIFFICULTY

In an effort to have a sufficient research material to be able to write extensively on the subject matter, the researcher was faced with some financial predicament considering high cost of not only education materials coupled with the high transport fare.

1.9 DEFINITION OF TERMS AUDITING

It is defined as a process of carrying out an independent examination and expression of opinion on the financial statement of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevant Law and Regulation.Internal Auditing

INTERNAL AUDIT

MILLICHAMP 1996, defined internal audit as “An independent appraisal of an organization for the view of the internal audit control system as a service to the organization.Internal Auditing It objectively examines, evaluates and reports on the adequacy of internal audit control as a contribution to the proper economic efficient and effective use of the resources”. Internal audit reviews existing accounting system and related internal work. It assists in the implementation of new accounting systems. It identifies and draws attention to management weakness in control or measures which are unsaid to the organization. To investigate and eliminate pilferage and fraud, thereby ensuring the survival of the organization.Internal Auditing

EXTERNAL AUDITOR

They are independent firm or persons appointed from outside an entity to audit the accounts and activities of that entity. They are also referred to as statutory auditor whose appointment, duties and other related matter are provided by law.Internal Auditing

INTERNAL AUDITOR

He is an employee of a particular firm as related to its operation. It is in itself an internal control which reports the effectiveness of the other controls. Its objective is to help manager in discharging their responsibilities and to evaluate compliance with cooperate procedure within the organization.Internal Auditing

MANAGEMENT

It is a body charged with the responsibility of planning, directing and controlling of all the activities within the organization. Therefore management control is the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organizations goals (Anthony and Welsch, 1974).Internal Auditing

 REFERENCES

Adeniyi, A. Adeniji, (2010). Auditing and Assurance Services, Value Analysis Consult Publishers, Lagos. Anthony and Welsch, (1974). Fundamentals of Management Accounting, Richard D. Irwin, INC. Chambers: Andrew D. et al, (1987). Internal Auditing 2 nd edition, Pitman Publishers. Millichamp, A. H. (1990). Auditing: A Complete Course Text, 5th edition, D. P. Publication.Internal Auditing