A SYSNOPSIS ON

IMPORTANCE OF INTERNAL AUDITING IN

CONSTUCTION INDUSTRY
With
TOWELL CONSTRUCTION & CO LLC
PC-112, PO Box-1040, Sultanate of Oman

UNDER SUPERVISION OF;

MR. KUMAR PRABAKARAN, MBA
SUBMITTED BY
NAME

: MUHAMMED AZIF. A

ENROLLMENT NO

: 060411350

STUDY CENTER CODE : 1402

REGIONAL CENTER

: ERNAKULAM

Submitted in partial fulfillment of the requirements for qualifying

Master of Business Administration (Finance)

School of Management Studies

INDIRA GANDHI NATIONAL OPEN UNIVERSITY
MAIDAN GARHI, NEW DELHI 110 068

Table of Contents
Sl No

Contents

Page No

Title of the project.

Introduction.

Rationale of study.

Review of literature.

Objectives of the study.

11

Research Methodology.

12

Expected contribution from study.

13

Chapterisation.

14

Bibliography.

15

CERTIFICATE OF ORIGINALITY

This is to certify that the project report entitled IMPORTANCE OF INTERNAL AUDITING IN
CONSTRUCTION INDUSTRY submitted to Indira Gandhi National Open University in partial
fulfilment

of the requirement for

the

award

of

the

degree

of MASTER OF BUSINESS

ADMINISTRATION ( MBA) , is original work carried out by Mr. MUHAMMED AZIF with enrolment
no. 060411350 under my guidance.

The matter embodied in this project is genuine work done by the student and has not been submitted
whether to this University or to any other University / Institute for the fulfilment of the requirement of any
course of study.

....

Signature of the Student:

Signature of the Guide

Date: 1st Nov 2011

Date: 1st Nov 2011

Name and Address

of the student

Name, Designation and address

of the Guide:

MUHAMMED AZIF

KUMAR PRABAKARAN

C/O P. K. ASHRAF

INTERNAL AUDITOR

PO BOX - 614, PC - 117

TOWELL CONSTRUCTION & CO LLC

AL WADI AL KABIR

PC-112, PO BOX-1040

SULTANATE OF OMAN

SULTANATE OF OMAN

Enrolment No - 060411350

1 - TITLE OF THE PROJECT

IMPORTANCE OF INTERNAL AUDITING IN

CONSTUCTION INDUSTRY
WITH
TOWELL CONSTRUCTION & CO LLC
PC-112, PO Box-1040, Sultanate of Oman.

2 - INTRODUCTION
About Towell Construction & Co LLC
WJ Towell & Co. LLC formed Towell Construction & Co LLC in 1994 as a
wholly owned company with a vision To be a reliable & trusted construction
house in Sultanate of Oman.
Towell Construction & Co. LLC is an excellent grade and ISO 9001:2008
certified Construction Company offering services in civil construction and electro
mechanical project requirement.
The company has marked its presence in various landmark projects and has
successfully completed projects in Muscat and other regions of Oman including
Sur and Sohar.
The company has 175,000 SQM of area constructed in addition to current ongoing
projects exceeding 430,000 SQM of built-up area (BUA), this excludes industrial
projects like ARCADIS, a Netherland based company to manage a PMC contract
for a VALE steel plant in Sohar.
Meeting timely schedules, maintaining high quality standards, care for its
workforce and priority on safety are the key strengths of the company; which work
on the values Respect, Speed, Integrity and Teamwork.
Services Offered
Multi-Disciplinary Team Offering Professional Construction & Engineering
Services
Residential Projects High End Apartments and Villas
Commercial Projects ,Offices & Showrooms
Industrial Structures & Projects
Warehousing and Storage Facilities
Project Management & Turnkey Projects
Electro Mechanical Services
2

Quality Policy
Towell Construction & Co LLC strive towards excellence by keeping quality at
the centre of everything we do
Focus on product quality as specified
Maximization of client satisfaction by providing the most appropriate solution
Provide value addition by adopting modern techniques
Effective resource management to ensure timely completion
Collaborative working with our vendors
Projects
Over 412,520 m2 Residential Area Developed
Project

Consultant

Saud Bahwan Plaza, Ghubrah (Residential /

Commercial)
Al Fardan Complex, Azaiba (Residential /
Commercial)
Talat Al Khoud- 91 villas
Al-Madina Residence 2, MQ
48 Villas , ASeeb, Mawaleh
Residential Commercial Complex, SEEB
Al-Madina Residence 1, MQ
Mirbat Terraces, MQ
21 Apartments, MQ
8 Villas, MQ
104 Apartments, Madinat Qaboos
Sky Deck Apartments at Madinat Qaboos 34
Luxury Apartments
24 Luxury Duplex Villas at Madinat Qaboos
Apartment Block (68 Apartments in Ghala)
16 Luxury Villas at Madinat Al Ilam

Vision & Mission

Ensuring Reliability
Timely Completion
Value Addition to the Customers
Cost Effective Systems and Processes
Delivering Solutions to Customers

Area (m2)

Kadri Consultant

171,000

Dar Al Handasah
Triad Oman

60,250
34,000

Al-Hatmy Consultants
Al-Abraj
Leeyana
Khathib & Alamy
Image Design
Al Abraj
Al Abraj
Al Abraj

13,500
11,000
9,000
9,000
5,000
6,000
3,200
45,050

Triad Oman
Triad Oman
Triad Oman
Towell Talati & Triad Oman

14,050
12,470
11,500
7,500

Internal Auditing - Definition

Internal Auditing is a profession and activity involved in helping organizations
achieve their stated objectives. It does this by using a systematic methodology for
analyzing business processes, procedures and activities with the goal of
highlighting organizational problems and recommending solutions. Professionals
called internal auditors are employed by organizations to perform the internal
auditing activity.
The scope of internal auditing within an organization is broad and may involve
topics such as the efficacy of operations, the reliability of financial reporting,
deterring and investigating fraud, safeguarding assets, and compliance with laws
and regulations.
Internal auditing frequently involves measuring compliance with the entity's
policies and procedures. However, Internal auditors are not responsible for the
execution of company activities; they advise management and the Board of
Directors (or similar oversight body) regarding how to better execute their
responsibilities. As a result of their broad scope of involvement, internal auditors
may have a variety of higher educational and professional backgrounds.
History of Internal Auditing
The Internal Auditing profession evolved steadily with the progress of
management science after World War II. It is conceptually similar in many ways to
financial auditing by public accounting firms, quality assurance and banking
compliance activities. Much of the theory underlying internal auditing is derived
from management consulting and public accounting professions. With the
implementation in the United States of the Sarbanes-Oxley Act of 2002, the
profession's growth accelerated, as many internal auditors possess the skills
required to help companies meet the requirements of the law.
Organizational Independence
To perform their role effectively, internal auditors require organizational
independence from management, to enable unrestricted evaluation of management
4

activities and personnel. Although internal auditors are part of company

management and paid by the company, the primary customer of internal audit
activity is the entity charged with oversight of management's activities. This is
typically the Audit Committee, a sub-committee of the Board of Directors. To
provide independence, most Chief Audit Executives report to the Chairperson of
the Audit Committee and can only be replaced with the concurrence of that
individual.
Role of Internal Control
Internal auditing activity is primarily directed at improving internal control. Under
the COSO Framework, internal control is broadly defined as a process, affected by
an entity's board of directors, management, and other personnel, designed to
provide reasonable assurance regarding the achievement of objectives in the
following internal control categories:
Effectiveness and efficiency of operations.
Reliability of financial reporting.
Compliance with laws and regulations.
Management is responsible for internal control. Managers establish policies and
processes to help the organization achieve specific objectives in each of these
categories. Internal auditors perform audits to evaluate whether the policies and
processes are designed and operating effectively and provide recommendations for
improvement.
ISO 9000 Internal Auditing
ISO 9000 is a family of standards for quality management systems. ISO 9000 is
maintained by ISO, the International Organization for Standardization and is
administered by accreditation and certification bodies. The rules are updated, as the
requirements motivate changes over time. Some of the requirements in ISO
9001:2008 (which is one of the standards in the ISO 9000 family) include
a set of procedures that cover all key processes in the business;
monitoring processes to ensure they are effective;
keeping adequate records;

 checking output for defects, with appropriate and corrective action where
necessary;
regularly reviewing individual processes and the quality system itself for
effectiveness; and
facilitating continual improvement
A company or organization that has been independently audited and certified to be
in conformance with ISO 9001 may publicly state that it is "ISO 9001 certified" or
"ISO 9001 registered". Certification to an ISO 9001 standard does not guarantee
any quality of end products and services; rather, it certifies that formalized
business processes are being applied.
Marketing departments take advantage of public confusion and ignorance about
ISO 9000. Goods and services outstanding proclaim their ISO 9000 STATUS.
Most consumers suppose that ISO 9000 is the same as ISO 9001.
Although the standards originated in manufacturing, they are now employed across
several types of organizations. A "product", in ISO vocabulary, can mean a
physical object, services, or software.
Quality is a "culture" - ISO 9001 "Quality" is an important Accreditation to
achieve, it is also essential for maximum benefit that information is shared so that
the culture of the business ensures that the Quality culture is embedded.

3 - RATIONALE FOR THE STUDY

The construction industry is a key indicator and driver of economic activity and
wealth creation. This industry has a profound impact on the society and the
products of this vital industry are of various types like, buildings, roads and
bridges, utility distributions systems, railways, airports, harbours, etc. The future of
this investment laden industry depends upon its capacity to evolve on business,
technological and environmental fronts.

Internal auditors have a key role to play in construction industry with respect to
multi dimensional challenges faced by this industry like, project risk, funding
strategies, cost reduction, project monitoring, etc. This demands that internal
auditors understand the basic concepts and peculiarities of this industry and brace
them up to newer challenges.

Internal auditors who understand the basic structure and processes of construction
project management and tailor their internal audit work to the unique time and
organizational framework can play a meaningful role. They can assist in
implementing controls that provide reasonable assurance of mitigating cost,
schedule and technical risk to an immaterial level.
The ICAI Institute had in 1987 issued the Guidelines on Internal AuditConstruction Industry. Since then the construction industry has transformed in
view of introduction of the new trades and work practices, better safety and quality
standards, productivity benchmarks both by government organizations and by the
industry. This version of Technical Guide on Internal Audit of Construction
Industry is aimed to help the readers in understanding not only the regulatory
framework and technical aspects of the construction industry but also the
7

procedures to be undertaken by the internal auditor. This Guide has been divided
into various chapters dealing with the fundamental concepts in construction
industry. These chapters deal with the introduction, technical aspects, regulatory
framework of the construction industry, methodology for internal audit and internal
audit checklists of functional areas. The Appendix containing flow charts regarding
various processes carried out in the industry and a glossary of terms used in the
construction industry provide valuable guidance to the readers.

4. REVIEW OF LITERATURE
Internal auditing is conducted in diverse legal and cultural environments; within
organizations that vary in purpose, size, complexity, and structure; and by persons
within or outside the organization. While differences may affect the practice of
internal auditing in each environment, conformance with The IIA's International
Standards for the Professional Practice of Internal Auditing (Standards) is
essential in meeting the responsibilities of internal auditors and the internal audit
activity.
If internal auditors or the internal audit activity is prohibited by law or regulation
from conformance with certain parts of the Standards, conformance with all other
parts of the Standards and appropriate disclosures are needed.
If the Standards are used in conjunction with standards issued by other
authoritative bodies, internal audit communications may also cite the use of other
standards, as appropriate. In such a case, if inconsistencies exist between the
Standards and other standards, internal auditors and the internal audit activity must
conform to the Standards, and may conform with the other standards if they are
more restrictive.
The purpose of the Standards is to:
1. Delineate basic principles that represent the practice of internal auditing.
2. Provide a framework for performing and promoting a broad range of valueadded internal auditing.
3. Establish the basis for the evaluation of internal audit performance.
4. Foster improved organizational processes and operations.
The Standards are principles-focused, mandatory requirements consisting of:
9

Statements of basic requirements for the professional practice of internal auditing

and for evaluating the effectiveness of performance, which are internationally
applicable at organizational and individual levels.

Project Will Cover:

Control of monitoring and measuring devices.
Corrective and prevention action procedures.
Document control procedures.
Estimation procedures.
Financial management procedures.
Human Resources and Administration procedures.
Identifying and resolving NC procedure.
Internal Quality audit procedure.
IT procedure.
Management Review Meeting procedure.
Plant and Machinery procedure.
Project Management procedure.
Purchase procedure.
Quality Control procedure.
Records Control procedure.
Stores Management procedure.
Sub contracting procedure.
Training procedure.

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5 OBJECTIVES OF THE STUDY

The objectives of Internal Audit are
To verify the accuracy and authenticity of the financial accounting and
statistical records presented to the management.
To ascertain that the standard accounting practices are consistently followed
by the organization.
To establish that there is a proper authority for every acquisition, retirement
and disposal of assets.
To confirm that liabilities have been incurred only for the legitimate
activities of the organization.
To organize and improve the system of internal check; in particular to see (i)
that it is working; (ii) that it is sound; and (iii) that it is economical.
To facilitate the prevention and detection of frauds.
To examine the protection afforded to assets and the uses to which they are
put.
To make special investigations for Management.
To provide a channel whereby new ideas can be brought to the attention of
management.
To review the operation of the overall Internal Control System and to bring
material departures and non-compliances to the notice of the appropriate
level of management; to locate unnecessary and weak controls for making
the entire control system effective and economical.

11

6 RESEARCH METHODOLOGY
DATA COLLECTION METHODS:
The data will be collected using both by primary data collection methods as well as
secondary sources.
PRIMARY DATA: Most of the information will be gathered through
primary sources. The methods that will be used to collect primary data are:
a) Questionnaire.
b) Interview.
c) Physical checks and verification.
SECONADARY DATA: Secondary data that will be used are web sites and
published materials related to Internal Auditing as well as any relevant
information on capital of the company at Muscat, Sultanate of Oman.
SAMPLE SIZE: 50-75.

12

7 EXPECTED CONTRIBUTION FROM THE STUDY

The study is expected to contribute the following:
Contribute ideas and suggestions to individuals to relate with Internal Audit
of Construction Company and thereby improve performance levels.
Provide an organizational development tool to companies in the relatively
new field of Internal Audit based on empirical research data.
Help teams and department employees to identify, access and manage their
own and others manage the Internal Audit of the company and thereby
improving working relationships and increase effective production level of
the company.

13

8 CHAPTERISATION
Detailed / final project report will include the following chapters;
Introduction:

Chapter I

Objective and scope of study:

Chapter II

Methodology:

Chapter III

(Details of methodology used in studying and collecting the data

and issue will be described):
Chapter IV

Descriptive work:
Descriptive work on topic, this chapter will include analysis
and interpretation of data tabulation and categorization;
Study report:

Chapter - V

Study report of other researcher will be observed and analyzed.

Conclusion:

Chapter VI

Limitation:

Chapter VII

Recommendation:

Chapter VIII

Bibliography:

Chapter IX

14

9 - BIBLIOGRAPHY
1. A Students Handbook on Auditing By G. Shekar, FCA and B. Saravana
Prasath, FCA.
2. Technical Guide on Internal Audit of Construction Industry By The
Institute of Chartered Accountants of India, New Delhi.
3. Auditing and Assurance Standards issued by The Institute of Chartered
Accountants of India, New Delhi.
4. Internal Audit Charter issued by California State University, Northridge.
5. International Auditing Standards issued by The Institute of Internal
Auditors.
6. Mr. P.O. Joseph ACA, Financial Controller, Towell Construction & Co
LLC.
7. ISO Standards issued by International Organization for Standardizations.
8. www.auditnet.org, www.pitaly.com, www.smartdraw.com, www.icai.org
www.caclubindia.com, www.zainbooks.com, www.misti.com

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