A

PROJECT REPORT ON
“INTERNAL AUDIT FUNCTIONS AND ITS PERFORMANCE
IN CENTRAL BANK OF AFGHANISTAN”

SUBMITTED BY

MOHAMMAD OMRAN SALAH

UNDER THE GUIDENCE OF

Prof. APARNA JAWALEKAR (REPORT GUIDE)

SUBMITTED TO

SAVITRIBAI PHULE PUNE UNIVERSITY

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR THE AWARD OF THE DEGREE OF

MASTER IN BUSINESS ADMINSTRATION (FINANCE)

INDIRA INSTITUTE OF MANAGEMENT, PUNE 2018-2020

 Acknowledgement

The successful accomplishment and preparation of the internship report would

not have been possible without the support and cooperation from different personals and
organizations, who have provided their valuable comments and made other significant
contributions.
First of all, I would like to thank Savitribai Phule Pune University for providing
us a wonderful opportunity to implicate theoretical knowledge in practical world through
internship program. I am equally thankful towards "Indira Institute of Management".
I would also like to express my sincere gratitude to my respected teacher,
supervisor Mrs. Prof. Aparna Jawalekar for her continuous guidance, supervision and
inspiration and respected Mrs. Dr. Purvi Shah head of finance department.
I must not forget the team leader of Central Bank of Afghanistan Zabihullah Rohi
and the team for providing me a platform to experience the corporate world.
Lastly, but not the least, I would like to take this opportunity to thank all those who have
directly or indirectly helped me in the preparation of this internship report.

Mohammad Omran Salah

rd
MBA 3 Semester
 CERTIFICATE
This is to certify that Mr. Mohammad Omran Salah is a bonafide student of Indira Institute
of Management- Pune and has successfully completed project report entitled “INTERNAL
AUDIT FUNCTIONS AND ITS PERFORMANCE IN CENTRAL BANK OF
AFGHANISTAN” for partial fulfillment of the course Master of Business Administration
(Finance) from Indira Institute of Management- Pune.

Dr. Pandit Mali Mrs.Aparna Jawalekar

(Director, IIMP) (Assistant Professor)
Table of Contents Page
Executive summary ................................................................................................................................... 1
Chapter 1 .................................................................................................................................................... 2
Introduction and Rational of the Study ........................................................................................................ 2
Significance of study .................................................................................................................................... 3
Chapter 2 .................................................................................................................................................... 4
Development/History of Bank ..................................................................................................................... 4
Contribution of the sector towards GDP ...................................................................................................... 5
State of Financial Institutions in Afghanistan .............................................................................................. 5
GDP composition by sector is ...................................................................................................................... 7
How Financial Institutions Can Contribute to Economic Development? ..................................................... 7
Major players ................................................................................................................................................ 8
Chapter 3 .................................................................................................................................................... 9
Organization Profile and Business Overview .............................................................................................. 9
Mission and Vision of the Central Bank ...................................................................................................... 9
Basic Task of DAB Are ............................................................................................................................... 9
Departments of Da Afghanistan Bank ....................................................................................................... 10
Registered address/Number of branches .................................................................................................... 10
HEAD OFFICE .......................................................................................................................................... 10
The Board of Directors at DAB Consists of .............................................................................................. 11
Financial Performances ......................................................................................................................... 12-15
Chapter 4 .................................................................................................................................................. 16
Introduction to Internal Audit .................................................................................................................... 16
Types of Internal Audit .............................................................................................................................. 18
Why Internal Audit is Important ................................................................................................................ 19
Role in Internal Control ............................................................................................................................. 20
Role in Risk Management .......................................................................................................................... 20
Nature of the Internal Audit Activity: ......................................................................................................... 21
Internal Audit Reports ................................................................................................................................ 22
Developing the Plan of Engagements ........................................................................................................ 22
Chapter 5 .................................................................................................................................................. 23
Internal Audit in Central Bank of Afghanistan (DAB) ............................................................................... 23
Vision, Mission and Objectives of CG ....................................................................................................... 23
Outline of DAB Audit Management Plan .................................................................................................. 24
Mandate of Internal Audit .......................................................................................................................... 25
Strategic Plan (2009-20) ............................................................................................................................. 25
Internal Audit Setup and Independence ..................................................................................................... 26
Responsibilities .......................................................................................................................................... 26
Organizational Structure ............................................................................................................................ 27
Position Description and Responsibilities of CG, Internal Audit .............................................................. 27
Quality Assurance ...................................................................................................................................... 29
Different levels of Internal Auditors in DAB ............................................................................................ 29
Responsibilities of Internal Auditors ......................................................................................................... 29
Audit Supervisor ........................................................................................................................................ 30
Authority, Organizational and Professional Standards .............................................................................. 31
Scope of work ............................................................................................................................................ 32
Fraud .......................................................................................................................................................... 33
Status of the Comptroller General ............................................................................................................. 34
Declaration of conflict of interest .............................................................................................................. 34
Audit Committee ........................................................................................................................................ 34
RELATIONSHIPS OF CG WITH MANAGEMENT / OTHER AUDITOR ............................................ 37
Staffing, Training, Development ............................................................................................................... 38
Reporting .................................................................................................................................................... 39
Follow Up ................................................................................................................................................... 41
Chapter 6 .................................................................................................................................................. 43
Task Undertaken ......................................................................................................................................... 44
The Purpose of My Assignment Was to .................................................................................................... 44
Procedure for the Assignment .................................................................................................................... 44
Outcome of the assignment ........................................................................................................................ 44
Chapter 7 .................................................................................................................................................. 46
Literature Review........................................................................................................................................ 46
Some Study Related to Topic ..................................................................................................................... 46
Research Gap ............................................................................................................................................. 46
Chapter 8 .................................................................................................................................................. 48
Research Methodology ............................................................................................................................... 48
Objectives of the study ............................................................................................................................... 48
Research Design, Sampling Plan, Sample Size, Data Source, Schedule design ........................................ 48
Method of data collection, Analysis Technique ......................................................................................... 48
Limitation.................................................................................................................................................... 49
Chapter 9 .................................................................................................................................................. 48
Analysis, Interpretation, Findings and Conclusions ............................................................................. 48-66
Findings, Suggestions and Conclusions ..................................................................................................... 67
Key Learning’s ........................................................................................................................................... 68
ANEXTURE I........................................................................................................................................ 69-73
Bibliography ............................................................................................................................................... 74
 ABBREVIATIONS

DAB: Da Afghanistan Bank

FOM: Faculty of Management
BAM: Bank-e-Millie Afghan (Afghan National Bank)
GDP: Gross Domestic Product
MFI: Microfinance Institutions
EBP: Export Promotion Bank
PTB: Pashtany Tejaraty Bank
BMA: Banke Millie Afghan
AIB: Afghanistan International Bank
IT: Information Technology
CM: Council of Ministers
FX: Foreign Exchange
ABA: Afghanistan Banks Association
FinTRACA: Financial Transactions and Reports Analysis Center of Afghanistan
IIA: Institute of Internal Auditors
RBIA: Risk Based Internal Auditing
CAE: Chief Audit Executive
CPA: Certified Public Accountant
IAD: Internal Audit Department
CG: Comptroller General
QA: Quality Assurance
CFO: Chief Finance Officer
MENA: Middle East and North Africa
IAF: Internal Audit Functions
IA: Internal Audit/Auditor
 Executive summary

Internship is a pathway between the theoretical knowledge and practicality in real world business
scenario. Savitribai Phule Pune University has been emphasizing internship as an academic
requirement to make such pathway for students. In this regard, I chose Central Bank of
Afghanistan. The whole internship tenure was for two months where I was provided with an
opportunity to work in internal audit department applying the theoretical knowledge into
practical use.

The report is based internal audit function and its performance in the Central Bank of
Afghanistan. The overall aim of internal audit Department is to provide independent assurance
that organization’s risk management, governance and internal control processes are operating
effectively. During the internship tenure in the Da Afghanistan Bank, I learned various aspects of
internal auditing and how does internal auditing apply. Apart from this knowledge regarding
internal audit department, it also improved my soft skill such as communication skill,
interpersonal skill as well as enhance my confidence level to work in a team.

Besides these learning, I observed DAB has flatter organizational structure. The corporate
environment was so friendly and cooperative. The entire staffs in the department were very
supportive, encouraging, inspiring and constantly guided me towards my learning phase.

Throughout the internship tenure, I got to know how crucial the internal audit department is to an
organization. I also got an opportunity to understand the mission, vision and corporate culture of
Central Bank of Afghanistan.
 Chapter 1

Introduction and Rational of the Study

1.1 Introduction to the title

Master’s in business administration (MBA) is the semester wise academic program for
management students designed to provide comprehensive and practical education. MBA
program in Indira Institute of Management is under the affiliation of faculty of management
(FOM) Savitribai Phule Pune University. It is full-fledged learning program of four semester
meeting the international of two years and constituting general business courses and advanced
courses for specific concentration. The internship is one of the essential parts required for the
completion of MBA program and allows students to imply their theoretical knowledge in the real
work place. It is the form of applied knowledge that enhances the individual’s ability and
confidence level to complete in the dynamic and global business world. The exposure to the
actual workplace provides the practical skills and acquaintance that cannot be acquired be mere
classroom education.

One of the major advantages of internship being placed in the 3th semester is that the student can
use the knowledge acquired in the previous semester to his/her advantage and perform efficiently
in the completion of the tasks he/she is assigned in the workplace. The internship gives the
insight to the organization and introduces to the corporate culture within the organization.
Internship assists in improving the interpersonal and communication skills required to sustain in
the competitive business environment. It provides a platform for gaining the essential managerial
and public relationship skills and is an excellent means for gaining work experience.

Thus, the internship is the totally practical based program that boots up the problem-solving
ability by utilizing the conceptual knowledge of an individual in the organizational setting. It is
the career enhancing program and is aimed at developing the level of understanding and
competence required to be professional manager.

In the recent years, people are becoming more practical and knowledge oriented. MBA course
has been extensively developed in order to reach the high expectations of the core based
companies that are involved in both, management of the business as well as within the human
resource department. This, itself shows the significance of this course. This includes the detailed
study of the various aspects of the internal audit and importance of internal auditing in the bank.
MBA course specialize their students in various important sectors such as Accounting, operation
management, Entrepreneurship, Finance, Human Resource Management, International Business,
Marketing etc.

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1.2 Significance of study

1.2.1 Provides experience and knowledge

Classroom studies are confined only to books and theoretical learning. Application of this
theories and lectures delivered in classrooms differ a little from the set format. Through
internship, students get not only get a firsthand experience of those theories, but also learn the
applications of these theories in real challenges.

1.2.2 Improves skills

Several skills and tasks are necessary to accomplish a job effectively and efficiently. These skills
are imparted to a student during his tenure as an intern. It exposes him to skills, such as oral and
written communication, presentation, leadership, planning, time, and project management. No
matter how simple or difficult the task is, students are taught to take up the challenge and polish
their skills to prove themselves to their seniors or employers.

1.2.3 Boosts Self –Confidence

Doing an internship is a great learning experience in itself. The entire journey of internship
allows a student to identify his strengths and weaknesses, and use both of them to the best
advantage of his job and company. While going through the interview process of entering the
company internship, the first question put up to students is about narrating their positive and
negative traits and how they can prove themselves fit for the said position.

1.2.4 New Career Opportunities

Internship is the first ladder to success. Doing an internship in a specialized field helps students
to build up a good network. When a student enters a company, he is not regarded as an intern
(despite being one), but as an employee who will give his best to the company. Further, if the
intern is successful in providing himself worthy for the company, he may just land up getting a
permanent position in the same company after completing the internship program.

1.2.5 Real Corporate Feel

Another major advantage of doing an internship is working in the real corporate environment,
without having to leave school or college. Internship programs are carried out allowing students
to experience the workplace atmosphere. These programs are seen as great opportunities to
utilize the time and knowledge to gain understanding and experience and make the most out of it
in terms of converting it into a prospective career.

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 Chapter 2
Industry Profile

2.1 Overview of Industry /Bank

Meaning of Bank: A Bank is a licensed and regulated financial institution that leads money,
Accepts deposits and carries out other financial transactions for its clients. Bank is a financial
institution which deal with money from the surplus unit (savers) and lend to deficit unit (users).
Banks raises the funds by accepting depositing, borrowing funds and issuing equity.

According to Kent: "A bank is an organization whose principal operations are concerned with
the accumulation of the temporarily ideal money of the general public for the purpose of
advancing to others for expenditure."

In summary, a Bank can be defined as any business organization that offers acceptance of
deposits, which is subject to withdrawal on demand (either through check or electronic
transfer, or both) and grants loans and credits to private individuals and business firms on
Commercial basis.

2.2 Development/History of Bank

Banking practice is introduced from England. The early goldsmiths used to have large vaults
which sonly built and heavily guarded. It is believed that banking was practiced at that time of
"Manu" as it is referred in Manusmriti .The history of banking begins in ancient Greece, Rome
and Mesopotamia. The history of modern banks begins from Bank of Venice established in 1157
AD, Bank of Barcelona established in 1694.

Through there is much controversy as to the origin of the word "Bank". Some believe that it
originated from the Latin word "Bancus" meaning a bench. Similarly some believe that it
originated from the French word "Banque" and some to Italian word "Banca" all meaning a
bench. Some have stronger belief that it originated from the German word "Banck" meaning
collective fund. Ancient money dealer used to deal on a bench.

History of banking in Afghanistan started in 1933, Bank-e-Millie Afghan (BMA) was the first
financial institution established in Afghanistan in 1933. Similarly, it was the first financial
institution established in a public private partnership set up with 72 percent share held by private
sector. As a first bank in Afghanistan, BMA introduced formal banking services to the people
and government of Islamic Republic of Afghanistan. Since then, the banks competitive strength
and ongoing market leadership philosophy lays in its strong capital base and proven
trustworthiness.
In 1976, it was fully nationalized by the government of Afghanistan. Since its establishment,
BMA is a leading banking in providing modern and secure banking services. Securing
depositors' funds is the top priority of the bank. At the same time, the bank is contributing
considerably to the development of manufacturing, agriculture, services, and international trade
in the country.

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 BMA is operating based on strong corporate governance principles, financial risk management
and strict compliance to keep its credibility and trust. BMA has 15 city branches in Kabul and 21
provincial branches and equity investments in United States of America and England. And it is
celebrating its 84th years of fame.

According to CM (Council of ministers) approval number 152 dated 3/2/1318 (1939) Wolesi
Jirga (House of Representatives) approval number 11 dated 19/6/1318,(1939) Meshrano Jirga
(senate) historical approval dated 12/6/1318(1939) and then-king’s approval number
1317/5280dated17/11/1318,(1939)Da Afghanistan Bank was established in capital Kabul with
initial asset of 120 million Afghanis, which, with its defined authorities and responsibilities, was
able to set up its branches and subsidiaries inside and outside the country.
In late 2001, following decades of conflict, the financial and banking systems of Afghanistan
were devastated. Afghanistan had six licensed state-owned commercial banks5 that were
almost entirely Kabul-based and, to a large extent, inactive. The banks lacked connectivity,
reliable information on assets and liabilities, and did not follow commonly agreed and
accepted accounting standards.
There have been substantial improvements in development outcomes in Afghanistan since
2001. These improvements were particularly in expanded access to essential services such as
water, sanitation, and electricity, and improved outcomes in education and health.

2.3 Contribution of the sector towards GDP:

The financial system of Afghanistan is dominated by private banks. As of end-2016 the banking
sector consists of 15 banks with total assets of US$4 billion, customer deposits of US$3.6 billion
and a gross loan portfolio below US$0.7 billion.
Banking sector assets represent 21 percent of GDP. The sector is composed of: three State-
owned Banks (SBs), which hold 27 percent of banking assets and account for27 percent of
deposits and 6 percent of total loan portfolio; nine full-fledged Private-Owned Banks
maintaining 65 percent of banking sector assets, 92 percent of loan portfolio and 65 percent of
the sector deposits; and finally, 3 branches of Foreign commercial Banks (FBs) with a 9 percent
asset share, a 1percent share of loan portfolio and 8 percent deposit share. All banks in the three
categories are regulated and supervised by the Central Bank of Afghanistan (Da Afghanistan
Bank – DAB).
The non-bank financial sector is negligible. Only four operating insurance companies are
offering limited general insurance services. The formal microfinance sector, comprised of 5
microfinance institutions (MFIs), manages a total loan portfolio equivalent to almost 20 percent
of the banking sector’s loan portfolio (US$124 million as of end-April 2017). While the
microfinance sector has grown significantly in the past decade, its outreach remains modest.

2.4 State of Financial Institutions in Afghanistan:

Afghanistan’s banking sector remains underdeveloped and vulnerable as it copes with systmic
challenges uncovered by the collapse of Kabul Bank in 2010. While banks are highly liquid,
credit growth is sluggish. Credit to the private sector expanded by only 6 percent in 2015 and 5
percent in2016, which barely offset the 6.6 percent contraction in 2014.

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Confidence in the banking sector is yet to fully recover from the Kabul Bank crisis in 2010,
during which massive fraud led to a run on the country’s then largest bank, necessitating a
government bailout (equivalent to 5 percent of Afghanistan’s GDP in 2010). Just before its
collapse, Kabul Bank held 34 percent of total banking assets in Afghanistan, almost three times
the amount of its closest competitor. Weak oversight and corruption of all governance functions
of the institution allowed for endemic related party transactions and fraudulent loan origination,
which in turn led to the eventual loss of over 92 percent – or approximately US$861 million - of
its loan book. The Kabul Bank crisis and its aftermath underscores the need to improve the
health of the financial sector, especially considering continuing stresses from deteriorating asset
quality and substantial dollarization of banks. Non-performing loans of the overall banking
sector have steadily increased over the past four years and, by end-June 2017, reached 16.9
percent, a record high since the Kabul Bank crisis. At the same time, around 69 percent of bank
loans and 66 percent of deposits were denominated in US dollars. While banks are required to
keep reserves at DAB in Afghanis only, their capacity to lend in local currency is severely
constrained.

Poor credit risk management has undermined financial performance. BMA and Pashtany
Bank over the last decade have suffered severe equity losses as the result of poorly originated,
controlled and recovered credit risks. Related party lending, as well as constituency driven credit
origination and noncommercial considerations in the granting of loans undermined the portfolios’
viability, as much as the overall vulnerability of borrowers to external shocks.
Obsolete Information Technology (IT) systems and infrastructure not only add to efficiency
constraints but also compound operational risks.

The banking system grew rapidly in the post-Taliban period: by 2005 there were eleven licensed
banks: three state-owned banks and eight private local and foreign banks, including Standard
Chartered Bank, and Afghanistan International Bank (AIB) established with25 percent
ownership held by the Asian Development Bank. Three state-owned banks were relicensed
initially: the Export Promotion Bank (EPB), Banke Millie Afghan (BMA) and Pashtany Tejaraty
Bank (PTB). Despite numerous shortcomings (weak management, unsound practices and
banking law violations), these banks were still operating at a profit. The other three state-owned
banks were not relicensed, primarily because they failed to meet minimum capital requirements.
As of 2005, most banks offered basic services and their operations were constrained severely due
to deficiencies with regard to inadequate laws and regulations (including bankruptcy, mortgage
and contract laws), property rights and inaccurate, incomplete and flawed title deeds and
inefficient and corrupt courts. Uncertainty and security issues limited the operation of
commercial banks in remote areas. As of March 2008, the financial system of Afghanistan
comprised:
i) 15 licensed commercial banks with 183 branches in 20 provinces;
ii) 332 foreign exchange dealers; and
iii) 100 licensed money service providers.

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2.5 GDP composition by sector is:
Agriculture sector: 23%
Industry sector: 21.1%
Service sector: 55.9%

One third of GDP is contributed by agriculture sector. It is one of the major GDP contributing
sectors because Afghanistan is agriculture based country. Industry sector contributes very less
proportion in Afghanistan economy. Afghanistan has not grown industry sector as compare to
international development pace. Service sector is the major sector in GDP. Service sector
includes hospitality, educational, consultancy, tourism, medical, foreign employment, banking
and insurance and so on. The financial system of Afghanistan is dominated by private banks. As
of end-2016 the banking sector consists of 15 banks with total assets of US$4 billion, customer
deposits of US$3.6 billion and a gross loan portfolio below US$0.7 billion. Banking sector assets
represent 21 percent of GDP.

2.6 How Financial Institutions Can Contribute to Economic Development?:

The banking system plays an important role in the modern economic world. Banks collect the
savings of the individuals and lend them out to business- people and manufacturers. Bank loans
facilitate commerce.
Manufacturers borrow from banks the money needed for the purchase of raw materials and to
meet other requirements such as working capital. It is safe to keep money in banks. Interest is
also earned thereby. Thus, the desire to save is stimulated and the volume of savings increases.
The savings can be utilized to produce new capital assets.
Thus, the banks play an important role in the creation of new capital (or capital formation) in a
country and thus help the growth process.
Banks arrange for the sale of shares and debentures. Thus, business houses and manufacturers
can get fixed capital with the aid of banks. There are banks known as industrial banks, which
assist the formation of new companies and new industrial enterprises and give long-term loans to
manufacturers.
The banking system can create money. When business expands, more money is needed for
exchange transactions. The legal tender money of a country cannot usually be expanded quickly.
Bank money can be increased quickly and used when there is need of more money. In a
developing economy (like that of Afghanistan) banks play an important part as supplier of
money.
The banking system facilitates internal and international trade. A large part of trade is done on
credit. Banks provide references and guarantees, on behalf of their customers, on the basis of
which sellers can supply goods on credit. This is particularly important in international trade
when the parties reside in different countries and are very often unknown to one another.
In Afghanistan banks grant loan to different sector like: agricultural sector, industry sector
services sector, and play important role in GDP.

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 2.7 Major players:
According to function and nature of bank, in Afghanistan banks are classified in following
types:-
1) Central Bank
2) Commercial Bank
3) Finance Companies

1) Central Bank:-According to CM (Council of ministers) approval number 152 dated 3/2/1318

(1939) Wolesi Jirga (House of Representatives) approval number 11 dated
19/6/1318,(1939) Meshrano Jirga (senate) historical approval dated 12/6/1318(1939) and then-
king’s approval number 1317/5280dated17/11/1318,(1939)Da Afghanistan Bank was established
in capital Kabul with initial asset of 120 million Afghanis, which, with its defined authorities and
responsibilities, was able to set up its branches and subsidiaries inside and outside the country.
Based on DAB law, stability of price is the primary objective of this bank and therefore devising,
implementing and adopting of monetary policies, foreign currency policy and provision, printing
of banknotes and minting of coins are considered among Central Bank duties. Furthermore, as
the banker and the financial institution of the state, DAB, according to the law, issues licenses to
and supervises banks, FX dealers, financial services providers and securities and provides safe
and sound payment system as well.

2) Commercial Bank:-A Commercial bank is a type of Bank that provides services such as
accepting deposits, making business loans, and offering basic investment products. Commercial
bank can also refer to a bank, which more specifically deals with deposit and loan services
provided to corporations or large/middle-sized business – as opposed to individual members of
the public/small business – Retail banking, or Merchant banks. At present there are 15
Commercial banks in Afghanistan.

3) Finance Companies:- The mission of finance company is to encourage investment in the rural
and urban economy of Afghanistan, and to support economic and social development by serving
men and women owned business and the credit needs of small and medium enterprises (Trade,
Services, Manufacturing, Mining, Production and Agriculture) in the rural and urban areas where
they reside and conduct business all over Afghanistan. Afghanistan Rural Finance Company is
one of the leading finance company in Afghanistan.

2.8 Afghanistan Banks Association (ABA):- Afghanistan Banks Association (ABA) is a non –
political, non-government, not for profit, and independent association established in September
2004 to meet the need of growing banking sector as a united body representing all banks to serve
as their voice in dialogues with Da Afghanistan Banks (DAB), Government and other
Stakeholders. ABA was initially founded by nine licensed banks, but membership has since
grown to include 14 duly licensed banks.
ABA strives to promote a strong, healthy and competitive banking industry in Afghanistan and it
represents the common interests of Afghanistan banking sector. ABA is funded primarily by its
member banks, but is empowered to generate its own revenues and to accept donor funding.

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 Chapter 3
Organization Profile and Business Overview

3.1 DAB History:

According to CM (Council of ministers) approval number 152 dated 3/2/1318 (1939) Wolesi
Jirga (House of Representatives) approval number 11 dated 19/6/1318,(1939) Meshrano
Jirga(senate) historical approval dated 12/6/1318(1939) and then-king’s approval number
1317/5280dated17/11/1318,(1939)Da Afghanistan Bank was established in capital Kabul with
initial asset of 120 million Afghanis, which, with its defined authorities and responsibilities, was
able to set up its branches and subsidiaries inside and outside the country.
Afghanistan’s banking system was first founded with the institution of BMA in 1312 HS, which
was managing Afghanistan’s state banking affairs before the establishment of DAB. After
DAB’s establishment, state banking responsibilities were transferred from Bank Millie Afghan to
DAB. As of establishment date until 1380(2001) HS, Da Afghanistan Bank was carrying out
commercial activities as other commercial banks alongside managing of state banking affairs.
But after 1381 HS and as per article 12 of Afghanistan Constitution, DAB as an independent
institution with its specific duties, goals and responsibilities promoted to as Central Bank of the
country. Based on DAB law, stability of price is the primary objective of this bank and therefore
devising, implementing and adopting of monetary policies, foreign currency policy and provision,
printing of banknotes and minting of coins are considered among Central Bank duties.
Furthermore, as the banker and the financial institution of the state, DAB, according to the law,
issues licenses to and supervises banks, FX dealers, financial services providers and securities
and provides safe and sound payment system as well.

3.2 Mission and Vision of the Central Bank:

3.2.1Vision:
The vision of Da Afghanistan Bank is that of a monetary institution which upholds international
best practice in fostering price stability and a sound financial system conducive to macro-
economic stability, favorable investment climate, private sector development and broad-based
economic growth.

3.2.2Mission:
The mission of Da Afghanistan Bank is to foster price stability and build a robust financial
system.

3.3 Basic Task of DAB Are:

 Formulate, adopt and execute the monetary policy of Afghanistan.
 Hold and manage the official foreign exchange reserves of Afghanistan.
 Print and issue Afghani banknotes and coins.
 Act as banker and adviser to, and as fiscal agent of the State.
 License, regulate and supervise banks, foreign exchange dealers, money service providers,
payment system operators, securities service providers, and securities transfer system operators.

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 Establish, maintain and promote sound and efficient systems for payments, for transfers of
securities issued by the State or DAB, and for the clearing and settlement of payment
transactions and transactions in such securities.
 Accept foreign bank applications from banks that wish to operate in Afghanistan.

3.4 Departments of Da Afghanistan Bank

1. Governor's Office Department.

2. Monetary Policy Department.
3. Financial Supervision Department.
4. Market Operation Department.
5. Comptroller General’s Office.
6. Financial Disputes Resolution Commission.
7. FinTRACA.
8. Afghan Deposit Insurance Corporation.
9. Public Credit Registry Department.
10. Accounting and Finance Department.
11. Information Technology Department.
12. Human Resources Department.
13. General Counsel.
14. Banking Operation Department.
15. Payments Department.
16. Financial Sector Strengthening Projects (FSSPs).
17. General Services Department.
18. Financial Inclusion Department (FID).
19. Procurement Department.
20. Financial Risk Management Department.

3.5 Registered address/Number of branches:

The bank currently has 47 branches throughout the country, with five of these situated in Kabul,
where the headquarters is also based.

3.6 HEAD OFFICE

Address: Ibni-Sina Watt. Kabul, Afghanistan
Phone: +93(20)2104146
Fax: 0093(20)2100305
EMAIL: info@dab.gov.af

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3.7 The Board of Directors at DAB Consists of:
1. Khalil Sediq – The Governor and Chairman of the Executive Board, Supervisory Board
and Board of Directors.
2. Wahidullah Nosher– The First Deputy Governor and Vice Chairman of the Executive
Board, Supervisory Board and Board of Directors.
3. Dr. Abdul Ghani Ghawasi.
4. Drs. Narges Nehan.
5. Dr. Shah Mohammad Mehrabi.

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 3.8 Financial Performances
The fiscal year of Afghanistan starts from 21th December and ends in 21th December. The latest
financial highlight of bank is given below.

Figure 1 Source https://dab.gov.af/Annual-Financial-Report

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Figure 2 Source https://dab.gov.af/Annual-Financial-Report

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Figure 3 Source https://dab.gov.af/Annual-Financial-Report

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Figure 4 Source https://dab.gov.af/Annual-Financial-Report

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 Chapter 4

Introduction to Internal Audit

4.1 Internal Audit:

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. Internal auditing is a catalyst for improving an
organization’s effectiveness and efficiency by providing insight and recommendations based on
analyses and assessments of data and business processes. With commitment to integrity and
accountability, internal auditing provides value to governing bodies and senior management as
an objective source of independent advice. Professionals called internal auditors are employed by
organizations to perform the internal auditing activity.

Internal audit is not a discipline of accountancy; external Audit is related to accountancy, but
internal audit is an entirely separate discipline more closely related to Enterprise Risk
Management. Internal Audit does, of course, cover financial risk amongst its portfolio, but this is
one very minor element of the role. Significant misunderstandings in this area have resulted in
many organizations recruiting accountants with external audit experience to staff an internal
audit function; this is usually detrimental to the quality and completeness of assurance provided
to the Non-Executive Directors/Board, and may, in part, have contributed to corporate failures
where key operational risks that were not directly related to financial statements remained
unidentified and/or unmanaged by the Executive Management. When IIA and ACCA signed the
Global Memorandum of Understanding, IIA President David A. Richards said, "The IIA and
ACCA are both long-standing, highly respected professional associations, each with members
from all around the world. Although we represent two distinctly different professions, our codes
of ethics and perspectives on enhanced professionalism, ongoing education, and quantifiable
research mirror one another."

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.

Traditionally, internal auditing involved 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. Developments in internal auditing have moved away from "compliance" which is a
function of management control, towards Risk Based Internal Auditing (RBIA) which results in
monitoring and evaluation of the risk based control framework to manage enterprise risk.

16
 The modern approach seeks to ensure that key risks are identified, a risk appetite is defined, and
controls are instigated in a fit for purpose way to manage risk according to the risk appetite of the
organization.
Publicly-traded corporations typically have an internal auditing department, led by a Chief Audit
Executive ("CAE") who generally reports to the Audit Committee of the Board of Directors,
with administrative reporting to the Chief Executive Officer.

4.2 Other Definitions

The definition above (first sentence of this page) is in essence the IIA's definition. A similar
definition has been developed by the accounting profession and adopted by the government
auditors: the ISA 610 and the INTOSAI’s standard ("ISSAI") 1003 define the internal audit
function as "An appraisal activity established or provided as a service to the entity. Its functions
include, amongst other things, examining, evaluating and monitoring the adequacy and
effectiveness of internal control."

4.3 The Difference between Internal and External Audits

 Internal auditors are company employees, while external auditors work for an outside audit
firm.
 Internal auditors are hired by the company, while external auditors are appointed by a
shareholder vote.
 Internal auditors do not have to be CPAs, while a CPA must direct the activities of the
external auditors.
 Internal auditors are responsible to management, while external auditors are responsible to
the shareholders.
 Internal auditors can issue their findings in any type of report format, while external auditors
must use specific formats for their audit opinions and management letters.
 Internal audit reports are used by management, while external audit reports are used by
stakeholders, such as investors, creditors, and lenders.
 Internal auditors can be used to provide advice and other consulting assistance to employees,
while external auditors are constrained from supporting an audit client too closely.
 Internal auditors will examine issues related to company business practices and risks, while
external auditors examine the financial records and issue an opinion regarding the financial
statements of the company.
 Internal audits are conducted throughout the year, while external auditors conduct a single
annual audit. If a client is publicly-held, external auditors will also provide review services
three times per year.

In short, the two functions share one word in their names, but are otherwise quite different.
Larger organizations typically have both functions, thereby ensuring that their records, processes,
and financial statements are closely examined at regular intervals.

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4.4 Types of Internal Audit
 Operational Audit: An operational audit evaluates performance of a particular function
or department to assess its efficiency and effectiveness. Financial data may be used, but
the primary sources of evidence are the operational policies and achievements related to
organizational objectives. Internal controls and efficiencies may be evaluated during this
type of audit. Some areas of operational audits include: organizational structure,
processes and procedures, accuracy of data, management and security of assets, staffing,
and productivity.
 Compliance Audit: A compliance audit evaluates an area’s adherence to established
laws, standards, regulations, policies, and/or procedures. Compliance audits are done
because of a policy or statutory requirement. While the audit is done for regulatory
reasons, the objectives are still to ensure adequate control over an important internal
process.
 Financial Audit: A financial audit is a historically oriented, independent evaluation
performed for the purpose of attesting to the fairness, accuracy, and reliability of
financial data. The central objective is to ensure that the financial activity of the
department, unit or area is completely and accurately reflected in the appropriate
financial reports.
 Follow up Audit: These are audits conducted approximately six months after an internal
or external audit report has been issued. They are designed to evaluate corrective action
that has been taken on the audit issues reported in the original report. The purpose of a
follow-up audit is to revisit a past audit’s recommendations and management’s action
plans to determine if corrective actions were taken and are working, or if situations have
changed to warrant different actions.
 Investigative Audit: This is an audit that takes place as a result of a report of unusual or
suspicious activity on the part of an individual or a department. It is usually focused on
specific aspects of the work of a department or individual. Investigations are conducted to
determine the extent of loss, assess weaknesses in controls, and make recommendations
for corrective actions.
 IT Audit: An Information Technology (IT) audit evaluates controls related to the
institution’s automated information processing systems. The information technology
audit function develops audit programs to assess, evaluate, and make recommendations to
management regarding the adequacy of internal controls and security inherent in an
organization’s information systems, and the effectiveness of the associated risk
management. The goal is to ascertain that IT systems are safeguarding assets, maintaining
data integrity, and efficiently operating to achieve business objectives.
 Management Audit: Also called performance audit, are internal consulting projects.
Because an internal audit is an activity independent of management, it is often an
excellent resource to provide independent and objective insight on the efficiency of
business processes. Management can request internal auditors to review a business
process, organization, or strategy; and the auditors do not have to worry about backlash
from management.


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  A common management audit is a review of organizational structure, such as having
internal audit look at how administrative work is divided among divisions and if there are
opportunities to be more efficient.
 Other types: of internal audits would include the integrated audit, which is a
combination of the IT Audit and the Operational Audit.

4.5 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.

4.6 Why Internal Audit is Important?:

 Provides Objective Insight: You can’t audit your own work without having a definite
conflict of interest. Your internal auditor, or internal audit team, cannot have any
operational responsibility to achieve this objective insight. In situations where smaller
companies don’t have extra resources to devote to this, it’s acceptable to cross-train
employees in different departments to be able to audit another department. By providing
an independent and unbiased view, the internal audit function adds value to your
organization.
 Improves Efficiency of Operations: By objectively reviewing your organization’s
policies and procedures, you can receive assurance that you are doing what your policies
and procedures say you are doing, and that these processes are adequate in mitigating
your unique risks. By continuously monitoring and reviewing your processes, you can
identify control recommendations to improve the efficiency and effectiveness of these
processes. In turn, allowing your organization to be dependent on process, rather than
people.
 Evaluates Risks and Protects Assets: An internal audit program assists management
and stakeholders by identifying and prioritizing risks through a systematic risk
assessment. A risk assessment can help to identify any gaps in the environment and allow
for a remediation plan to take place. Your internal audit program will help you to track
and document any changes that have been made to your environment and ensure the
mitigation of any found risks.
 Assesses Controls: Internal audit is beneficial because it improves the control
environment of the organization by assessing efficiency and operating effectiveness. Are
your controls fulfilling their purpose? Are they adequate in mitigating risk?
 Ensure Compliance with Laws and Regulations: By regularly performing an internal
audit, you can ensure compliance with any and all relevant laws and regulations. It can
also help provide you with peace of mind that you are prepared for you next external

19
 audit. Gaining client trust and avoiding costly fines associated with non-compliance makes
internal audit an important and worthwhile activity for your organization.

4.7 Role in Internal Control

The role of internal audit is to provide independent assurance that an organization’s risk
Management, governance and internal control process are operating effectively. Internal
auditor’s deal with issues that is fundamentally important to the survival and prosperity of any
organization. Unlike external auditors, the look beyond financial risks and statements to consider
wider issues such as the organizations reputations, growth, its impact on the environment and the
way it treats its employees.

Internal auditors have to be independent people who are willing to stand up and be counted.
Their employers value them because they provide an independent, objective and constructive
view. To do this they need a remarkably varied mix of skills and knowledge. They might be
advising the projective running a difficult change program one day, or investigating a complex
overseas fraud the next.
From very early on in their careers, they talk to executives at the very top of the organization
about complex, strategic issues, which is one of the most challenging and rewarding parts of
their role

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.

4.8 Role in Risk Management

Internal auditing professional standards require the function to monitor and evaluate the
effectiveness of the organization's Risk management processes. Risk management relates to how
an organization sets objectives, then identifies, analyzes, and responds to those risks that could
potentially impact its ability to realize its objectives.

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 In larger organizations, major strategic initiatives are implemented to achieve objectives and
drive changes. As a member of senior management, the Chief Audit Executive (CAE) may
participate in status updates on these major initiatives. This places the CAE in the position to
report on many of the major risks the organization faces to the Audit Committee, or ensure
management's reporting is effective for that purpose.

4.9 Role in Corporate Governance

Internal auditing activity as it relates to corporate governance is generally informal,
accomplished primarily through participation in meetings and discussions with members of the
Board of Directors. Corporate governance is a combination of processes and organizational
structures implemented by the Board of Directors to inform, direct, manage, and monitor the
organization's resources, strategies and policies towards the achievement of the organizations
objectives. The internal auditor is often considered one of the "four pillars" of corporate
governance, the other pillars being the Board of Directors, management, and the external auditor.

A primary focus area of internal auditing as it relates to corporate governance is helping the
Audit Committee of the Board of Directors (or equivalent) perform its responsibilities effectively.
This may include reporting critical internal control problems, informing the Committee privately
on the capabilities of key managers, suggesting questions or topics for the Audit Committee's
meeting agendas, and coordinating carefully with the external auditor and management to ensure
the Committee receives effective information.

4.10 Nature of the Internal Audit Activity:

Based on a risk assessment of the organization, internal auditors, management and oversight
Boards determine where to focus internal auditing efforts. Internal auditing activity is generally
conducted as one or more discrete projects. A typical internal audit project [14] involves the
following steps:

 Establish and communicate the scope and objectives for the audit to appropriate management.
 Develop an understanding of the business area under review. This includes objectives,
measurements, and key transaction types. This involves review of documents and interviews.
Flowcharts and narratives may be created if necessary.
 Describe the key risks facing the business activities within the scope of the audit.
 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored.
 Develop and execute a risk-based sampling and testing approach to determine whether the most
important controls are operating as intended.
 Report problems identified and negotiate action plans with management to address the problems.
 Follow-up on reported findings at appropriate intervals. Internal audit departments maintain a
follow-up database for this purpose.
Project length varies based on the complexity of the activity being audited and Internal Audit
resources available. Many of the above steps are iterative and may not all occur in the sequence
indicated.

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 By analyzing and recommending business improvements in critical areas, auditors help the
organization meet its objectives. In addition to assessing business processes, specialists called
Information Technology (IT) Auditors review information technology controls.

4.11 Internal Audit Reports

Internal auditors typically issue reports at the end of each audit that summarize their findings,
recommendations, and any responses or action plans from management. An audit report may
Have an executive summary; a body that includes the specific issues or findings identified and
related recommendations or action plans; and appendix information such as detailed graphs and
charts or process information. Each audit finding within the body of the report may contain five
elements, sometimes called the "5 C's":
1. Criteria: What is the standard? The standard may be a company policy or other benchmark.
2. Condition: What is the particular problem identified (difference between criteria and actual
status)?
3. Cause: Why did the problem occur (which control over risk was missing - design effectiveness
failure; or which control did not execute as planned -operating effectiveness failure)?
4. Consequence: What is the risk/consequence (or opportunity foregone) because of the finding?
5. Corrective action: What should management do about the finding? What have they agreed to do
and by when?
The recommendations in an internal audit report are designed to help the organization achieve its
goals, which may relate to operations, financial reporting or legal/regulatory compliance. They
may relate to effectiveness (i.e., whether goals were met or compliance with standards was
achieved) or efficiency (i.e., whether the outputs were generated with minimum inputs).
Audit findings and recommendations also relate to particular assertions about transactions, such
as whether the transactions audited were valid or authorized, completely processed, accurately
valued, processed in the correct time period, and properly disclosed in financial or operational
reporting, among other elements.

4.12 Developing the Plan of Engagements:

Internal auditing standards require the development of a plan of audit engagements (projects)
based on a risk assessment, updated at least annually. The input of senior management and the
Board is typically included in this process. Many departments update their plan of engagements
throughout the year as risks or organizational priorities change.
This effort helps ensure the audit activity is aligned with the organization’s objectives, by
answering two key questions: First, what goals are the organizations trying to accomplish in the
upcoming period? Second, how can the Internal Audit Department assist the organization in
achieving these goals?
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements. Changes in people, processes, or systems often generate audit project ideas.
Various documents are reviewed, such as strategic plans, financial reports, consulting studies, etc.
Further, the results of prior audits and resolution of open issues are considered. The preliminary
plan of engagements is documented and prioritized. Audit resources and expertise are then
considered and a final plan is presented to senior management and the Audit Committee.

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 Chapter 5
Internal Audit in Central Bank of Afghanistan (DAB)

Introduction
5.1 Purpose
The basic objective of Internal Audit is to provide independent, objective assurance and
consulting services designed to add value and improve the DAB’s operations. To assist auditors
in achieving an acceptable level of performance, The Institute of Internal Auditors, an
international body, has issued a Professional Practices Framework which is intended to be used
throughout the world in the conduct of internal audit assignments. In specific areas of
specialization, such as audits of financial records and audits related to computer-based systems
and functions, other authoritative bodies have issued audit statements and guidelines. A
professional internal audit department must have established levels of capability. The most
efficient way of measuring the capability of individual auditors is through a process of
accreditation.

There are existing professional examinations, administered internationally, which provide this
feature. The certification examinations offered by the Institute of Internal Auditors, however, do
not provide multiple levels of performance and may be regarded as too expensive to be routinely
taken by government internal auditors. Accreditation would require formal examination and be
tied to the competency framework. Those occupying positions as professional internal auditors
should be required to hold the appropriate accreditation.

5.1 Vision
To transform Comptroller General’s Office or Internal Audit Department (IAD) into a modern,
efficient, and proactive Department, fully capable to conduct independent audit of all activities
of Da Afghanistan Bank (DAB).

5.2 Mission
The mission Comptroller General’s Office or Internal Audit Department (IAD) is to provide
independent, objective assurance and consulting services designed to add value, improve
operational efficiency and internal control system in line with international best practices, for
accomplishment of DAB’s mission.

5.3 Objective
The main objective of the IAD is to assist all wings of management in the effective discharge of
their responsibilities by providing them with reliable and independent information on the
performance of the organization as a whole.
The internal audit is mainly concerned with examination and evaluation of internal controls and
quality of performance. This involves the review of activities, programs and projects to ensure:

 Reliability and integrity of financial and operating information.

 Operations are in compliance with laws, regulations, policies, plans, and procedures.

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  Means of safeguarding inventories and assets and verify the existence of such assets
physically and in the ownership of DAB.
 That the risks are appropriately defined and carry out risk assessment of all the key
functions of DAB.
 The activities of different departments/offices in order to ascertain whether results are
consistent with established objectives and goals and whether the activities are being
carried out as planned.
 That the operations are being carried out in economic and efficient manner and to
confirm the effectiveness of different operations in delivering the banking services.

5.4 Mission and Management Charter:

The mission of DAB is to foster price stability and build a robust, stable modern and sound
financial system. According to the Da Afghanistan Bank law 2003, DAB’s mandate includes
promoting and maintaining the stability of the value of the Afghanistan currency ; regulating the
financial system and facilitating economic growth through a sound banking and credit system.
Five strategic pillars as per five years strategic plan of the Bank are as under
 Strategic pillar 1. Improve effectiveness of monetary policy
 Strategic pillar 2. Deepen financial intermediation
 Strategic pillar 3. Accelerate capacity building
 Strategic Pillar 4. Effective information
 Strategic pillar 5. Promote good governance
Promotion of good governance includes transparency, accountability and implementation of
strong internal control systems including internal audit functions. It also fosters to managing the
bank’s risk exposure effectively and independently.
The goal of the bank is to adopt international best practice in corporate governance taking into
account the interests of recognized stakeholders in decision making.

5.4 Outline of DAB Audit Management Plan:

The main objective of the internal audit is to assist all wings of management in the effective
discharge of their responsibilities by providing them with reliable and independent information
on the performance of the organization as a whole.
The internal audit is mainly concerned with examination and evaluation of internal controls and
quality of performance. This involves the review of activities, programs and projects to:
 Ensure reliability and integrity of financial and operating information;
 Ensure and report the compliance with those laws and regulations, policies, plans,
procedures which could have significant impact on the operations of central bank;
 Ensure means of safeguarding inventories and assets and verify the existence of such
assets physically and in the ownership of Da Afghanistan Bank.
 Ensure that the risks are appropriately defined and carry out risk assessment of all the
key functions of the bank
 Review the activities of different departments/offices in order to ascertain whether
results are consistent with established objectives and goals and whether the activities
are being carried out as planned;

24
  Ensure that the operations are being carried out in economic and efficient manner and
to confirm the effectiveness of different operations in delivering the banking services.

5.5 Mandate of Internal Audit:

Article 21 of Da Afghanistan Bank Law 19th February 2004 contains the provision for
appointment of Comptroller General and establishment of Comptroller General’s office (Internal
Audit Department) in Da Afghanistan Bank (Central Bank of Afghanistan).
Functions of Internal Audit Department as provided under Article 21(4) of Da Afghanistan Bank
Law are reproduced hereunder:
The Comptroller General and the Audit Department have the duty:
1. To establish and maintain appropriate risk management procedures and instruments for
Da Afghanistan Bank and to supervise their use.
2. To perform continuous audits of the administration and operations of Da Afghanistan
Bank, in order to supervise observance of the laws and regulations that apply to Da
Afghanistan Bank.
3. To audit, and to submit to the Supreme Council reports and recommendations on, the
accounts and records as well as the accounting procedures and controls and budgets of Da
Afghanistan Bank.
4. To audit regularly the financial statements and related documents of Da Afghanistan
Bank and if these have been properly prepared, to issue certifications to that effect.
5. To monitor the proper implementation of the decisions of the Supreme Council,
Executive Board and the Governor.
6. To carry out any other assignment and duty given to the Comptroller General by the
Supreme Council or the Governor.

5.6 Strategic Plan (2009-20)

One of the important objectives associated with Strategic Plan (2009-20) of Da Afghanistan
Bank is ‘To implement strong internal control systems including internal and external audit
functions’ in order to promote good governance. The activities associated with the objective to
implement strong internal control systems are described hereunder:
 Internal audits to carry out independent and objective reviews and appraisals
 Internal audit findings to be discussed by management and actions taken
 Supreme Council shall set appropriate policies on internal control and seek regular
assurance to satisfy itself that the system is functioning effectively
 Supreme Council shall regularly receive and review reports of internal controls.
 Ensure that the bank has an adequately resourced internal audit function
 Establish an audit committee of the supreme council to ensure that appropriate plans are
in place for the external audit at the start of each audit cycle. It shall review the scope of the
audit; planned levels of materiality, the seniority, expertise and experience of the audit
team and the amount of time the external auditors plan to spend on the audit.
 Audit Committee of the Supreme Council shall meet as soon as possible after the
completion of external audit.

25
  Discuss with the external auditors major issues arising from the audit including resolved
and outstanding issues.
 Review key accounting and audit judgments.
 Review the audit representation letters before signature by management review the
management letter from the auditors and management responses to their findings and
recommendations.

5.6 Internal Audit Setup and Independence:

Any sizeable organization requires a functional Internal Audit Department (IAD) providing audit
services. The Internal Audit Department in Da Afghanistan Bank operating as per International
standards for Professional Practices on Internal Auditing. Independence of the Department is a
basic attribute in this regard. Chief of the IAD (Comptroller General) reporting administratively
to the head of the organization (Governor) and functionally to the Audit Committee. The
Department free from any interference in determining its scope of work, implementing the audit
work and reporting its findings.

The Internal Audit Department in Da Afghanistan Bank headed by Comptroller General who
assisted by Deputy Comptroller General and have adequate qualified Auditors and other staff
required to implement the annual audit work plan as developed by him and approved by the audit
committee. Audit Staff divided into different teams. Each team headed by a Team Leader.
All the teams responsible to carry out internal audit of various departments/offices assigned by
the Comptroller General. One section of professionally qualified auditors responsible for
Quality Assurance in Internal Audit Department.

Head of Quality Assurance section responsible for supervision, monitoring and reporting the
works carried out by the Internal Audit Department. This section also ensures follow up and
compliance of the audit reports. Initially, the Quality Assurance section also assist international
consultant in preparation of Internal Audit Manual for Da Afghanistan Bank. One specialized
team established for the work of inspection his team responsible to the CG.
When an internal audit team finds an observation containing fraud, it reported formally to the
comptroller general and comptroller general hand over the issue to inspection team for further
investigation. This team is directly responsible to comptroller general and should approach
through CG or DCG only. Size of the Internal Audit department, number of auditors and
supporting staff determined and approved depending upon manpower requirement by the
Comptroller General.
5.7 Responsibilities
The Comptroller General of internal audit serve as the Chief Audit Executive of the Internal
Audit Department and perform advanced level professional internal audit work including
performance, financial and compliance audit and provide directions to development of the annual
audit plan, ongoing training, coaching and supervision to internal audit staff. He maintains
organizational and professional ethical standards, and work independently with considerable
initiative and independent judgment.
The Comptroller General and other staff of Internal Audit department have responsibility to;

26
  Develop a flexible annual audit plan using an appropriately risk based methodology,
including any risks or control concerns identified by the departments and submit that
plan to the audit committee for review and approval as well as periodic updates,
 implement the approved annual audit plan as well as any special audits requested by the
governor or the audit committee,
 maintain a professional audit staff with sufficient knowledge, skills, experience and
professional certifications,
 issue periodic reports to the audit committee and to the DAB summarizing results of
audit activities,
 assist in the investigation of suspected fraudulent activities within the
departments/offices of DAB and inform the management and audit committee of the
results
5.8 Organizational Structure:
The Internal Audit Department of the DAB functions under the direct supervision of the Comptroller
General, who reports to the Audit Committee of the Supreme Council. To carry out the Departmental
functions, the Department has the following sections.
1- Quality Assurance Section.
2- Audit Teams.
3- Inspection Section.

-Comptroller General
-Executive Assistant
-Deputy Comptroller General
-Quality Assurance Section
-Audit Teams
-Inspection Unit

5.9 Position Description and Responsibilities of CG, Internal Audit

 Chief Audit Executive of the Internal Audit Department
 Perform advanced level professional internal audit work including performance, financial
and compliance audit
 Provide direction to development of the annual audit plan, ongoing training, coaching and
supervision to internal audit staff.
 Maintain organizational and professional ethical standards.
 Direct audit staff in the planning, organizing, directing and monitoring of internal audit
operations
 Assist in hiring, training and evaluation of staff; taking corrective actions to address
performance problems
 Direct the identification and evaluation of the DAB’s risk areas and provide key input to
the development of audit plan
 Direct the performance of audit procedures, including identifying and defining issues,
developing criteria, reviewing and analyzing evidence, and documenting client
procedures and processes
 Direct the audit staff in conducting interviews, reviewing documents, developing and
administering surveys, composing memos and for preparing working papers

27
  Direct the audit staff in identification, development, and documentation of audit issues
and recommendations
 Communicate the audit results via written reports and oral presentations to management
and audit committee.
 Develop and maintain productive client and staff relationships through individual
contacts and group meetings.
 Pursue professional development opportunities, including external and internal training
and professional association memberships, and share information gained with coworkers
 Represent internal audit department at management and audit committee meetings and
with external organizations
 Perform related work as assigned by the audit committee

5.10 Position Description and Responsibilities of Deputy CG, Internal Audit:

Accountability / working Relationships
Deputy Comptroller General is accountable to report the Comptroller General.
5.10.1Job Specification:
Deputy Comptroller General is accountable to report the Comptroller General in following areas;
 Development of annual audit plan.
 Implementation of the approval annual audit plan, as well as any special audits assigned
by Government or audit committee.
 Issuing periodic progress report to Audit committee.
 Reviewing audit reports received from QAS and inspection team, to check and to edit the
reports to be submitted than, the Comptroller General, Executive Board and Audit
committee.
 Assisting in the inspection of fraudulent activities within the departments/offices of DAB
and communicate the results thereof with.
 Being secretariat of Audit committee.
 Any other work assigned by Comptroller General ; and
 Acting as Comptroller General in the absence of Comptroller General.

5.11. Quality Assurance:

5.11.1Principles of Quality Assurance
 The work of internal audit controlled at each level of operation to ensure that a
continuously effective level of performance, Compliant with these standards, is being
maintained. The Internal Audit Department has separate Quality Assurance division to
perform audit reviews and ensure compliance to audit findings.

5.11.2 The Role and Responsibility of QA Division as Under:

 Implementation of the internal audit policies and procedures.
 Conduct follow up of issues approved by DAB supreme council and board of
directors.
 Review the audit activity of audit teams in order to ensure compliance with

28
 international standards on auditing.
 Review the draft audit reports before submission to C.G./Deputy C.G. for
finalization.
 Maintenance and monitoring of the budget for the internal audit activity.
 Maintenance and updating of the overall internal audit plan.
 Identification of the risk areas and the internal audit plan to address these risks.
 Acquisition and deployment of audit tools and use of technology to enhance the
efficiency and effectiveness of the internal audit activity.
 Co-ordination with the external auditors.
 Staffing related aspects of internal audit – recruitment, training, etc.
 Planning and implementation of the training and professional development of the
internal audit staff.
 Implementation of the performance metrics for the internal audit activity and
periodic monitoring of the same.
 Review of the follow up actions taken on the findings of the internal audit
activity.

5.12 Job Description of Inspection Team

 Conduct inspection of fraudulent activities and preparation of preliminary case files.
 To stump all DAB related files, day books, attendance sheets.
 Signing and stump the employee’s clearance forms .
 Inspection of special cases such as physical combat between DAB employees.
 Maintenance of related files.
 Inspect all other issues assigned by CG or governor.

5.13 Different levels of Internal Auditors in DAB:

There are three levels of internal auditors in Da Afghanistan Bank;
 Team Leader (9th Grade)
 Audit Supervisor ( 8th Grade)
 Junior Auditor (7th Grade)

5.13.1 Responsibilities of Internal Auditors

5.13.1.1 Team Leaders;
 The responsibilities of the Audit Team Leader are as follows:
 Perform advanced level internal audit work on sampling basis.
 Provide major input for development of annual audit plan.
 Provide training, coaching and supervision to internal audit staff.
 Assist the Comptroller General or Deputy Comptroller General in managing audit
staff and in the planning, organizing, directing and monitoring the audit assignment.
 Assist in training and evaluation of staff; taking corrective actions to address
performance problems.

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  Manage the identification and evaluation of DAB’s risk areas and provide key input
to the development of audit plan.
 Manage the performance of audit procedures, including identifying and defining
issues, developing criteria, reviewing and analyzing evidence, and documentation.
 Manage the audit staff in conducting interviews, reviewing documents, developing
and administering surveys, composing memos and for preparing working papers.
 Manage the audit staff in identification, development, and documentation of audit
issues and recommendations.
 Communicate the audit results through written reports and oral presentations to
management.
 Develop and maintain productive client and staff relationships through individual
contacts and group meetings.
 Pursue professional development opportunities and share information gained with
colleagues.
 Coordination with external auditors.
 Perform other related tasks assigned by Deputy Comptroller General or Comptroller
General.

5.13.1.2 Audit Supervisor:

 The responsibilities of the Audit Supervisor are as follows:
 Supervise Auditors in performing audit on sampling basis, including identifying and
defining issues, developing criteria, reviewing and analyzing evidence.
 Identify and evaluate DAB’s risk areas and provide key input to the development of
audit plan.
 Conduct interviews, review documents, administers surveys, compose memos and
prepare working papers.
 Identify, develop, and document audit issues and recommendations using independent
judgment concerning areas to be reviewed.
 Communicate or assist in communicating the audit results via written reports and oral
presentations to management.
 Develop and maintain productive auditee relationships through individual contacts
and group meetings.
 Pursue professional development opportunities, including external and internal
training and professional association memberships, and shares information gained
with co-workers.
 Perform other related tasks assigned by Audit Team Leader.

5.13.1.3 Junior level of Internal Auditors;

The responsibilities of the Auditor are as follows:
 Conduct internal audit work on sampling basis under close supervision in performing
audit procedures, reviewing and analyzing evidence, documenting DAB’s processes
and procedures.

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  Conduct interviews, review documents and prepare working papers.
 Identify, develop and document audit issues and recommendations using independent
judgment.
 Communicate or assist in communicating the audit results through written reports and
oral presentations to management.
 Support audit management in development and maintenance of productive auditee
relationships through individual contacts and group meetings.
 Pursue professional development opportunities, including external and internal
training, and share information gained with co-workers.
 Perform other related tasks assigned by Audit Supervisor/Audit Team Leader.

5.14 Authority, Organizational and Professional Standards:

Auditors take reasonable professional care in specifying evidence required, in gathering and
evaluating the evidence and in reporting findings.
The IIA standard requires professional performance of a quality appropriate to the complexities
of particular audit assignment. It imposes upon auditors the need to be alert for situations, control
weaknesses and transactions which could be indicative of fraud, improper or unlawful
expenditure, unauthorized operations, waste and inefficiency.
In determining which audit tests and procedures are to be applied to achieve reasonable
professional care, the following matters are relevant:
 Requirements to meet audit objectives.
 Relative materiality of matters to be investigated.
 Prior knowledge of the effectiveness of the systems of internal control.
 Estimate of costs of implementing internal audit plans in relation to likely benefits to be
derived.

5.15. Authority
Authority and Independence is essential to the effectiveness of Internal Auditing. This
independence is obtained primarily through organization status and objectivity.
The organizational status of the Internal Auditing function, and the support accorded to it by
management, are the major determinants of its effectiveness. The Comptroller General is
therefore responsible to the Audit Committee whose authority is sufficient to ensure both
comprehensive range of audit coverage, and the adequate consideration of and effective action
on the audit findings and recommendations.
Whilst the auditor may recommend standards for controls and review procedures before they are
implemented. The design, installation and operation of systems or drafting of procedures for
systems are not an Audit function. Performing such activities is presumed to impair audit
objectivity and could be seen to be displacing the role of management.

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 5.16 Professional Standards:
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. DAB’s
internal audit department is adopting standards on internal audit as framed by Institute of
Internal Auditors (IIA) and accepted worldwide.

The purpose of the Standards is to:

 Define the basic principles that represent the practice of internal auditing as it
should be
 Establish the basis for the measurement of internal audit performance
 Encourage improved organizational processes and operations.
 The Standards consist of Attribute Standards and Performance Standards. The
Attribute Standards address the characteristics of organizations and individuals
performing internal audit activities. The Performance Standards describe the
nature of internal audit activities and provide quality criteria against which the
performance of these services can be measured.
 If DAB knowingly (unavoidably or deliberately) does not comply IIA Standards
on a long term basis, the reasons for non-compliance should be documented and
discussed with Audit Committee.

5.17 The Attribute Standards.

5.17.1 Purpose, Authority and Responsibility
 The purpose, authority and responsibility of the internal audit activity formally
defined by the Audit Committee in a Charter, which:
 Are consistent with the definition of internal audit and with these Standards.
 Establish the responsibilities and objectives of internal audit.
 Establish the organizational independence of internal audit, including the direct
accountability of internal audit to the Audit Committee and make appropriate
objective assessment of the resource requirements of internal audit
 Establish internal audit’s right of access to all records, assets, personnel and
premises, and its authority to obtain such information as it considers necessary to
fulfill its responsibilities

5.17.2 Scope of work

a) Internal Audit Department fulfill its responsibilities by systematic review and evaluation
of risk management, control and governance which comprises the policies, procedures
and operations in place to:
 Establish, and monitor the achievement of DABs objectives
 Identify, access and manage the risks in achieving the DAB's objectives
 Ensure the economical, effective and efficient use of resources

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  Ensure compliance with established policies, procedures, laws and regulations
 Safeguard DAB’s assets and interests from losses of all kinds, including those
arising from fraud, irregularity and corruption
 Ensure the integrity and reliability of information, accounts and data, including
internal and external reporting and accountability processes

b) Internal Audit devotes particular attention to any aspects of the risk management, control
and governance affected by material changes to the DAB's risk environment.
c) If the Comptroller General or the Audit Committee consider that the level of audit
resources or the terms of reference in any way limit the scope of internal audit, or
prejudice the ability of internal audit to deliver a service consistent with the definition of
internal auditing, they should formally advise the DAB’s Governor emphasizing, the
consequent limitations to the scope and value of the Comptroller General’s opinion and
the risks which may arise as a result. If the Governor decides to accept any such
limitation, this should be recorded formally.
d)
5.18.Fraud
Internal Audit Department has responsibility for the detection of fraud. However internal
auditors should be alert in all their work to risks and exposures that could allow fraud.
Managing the risk of fraud is the responsibility of DAB related departments. In the new
organizational Chart of Comptroller General Office a new section of Inspection is
established, while fraud is observed by any internal audit teams this should be formally
reported to CG where CG will assign Inspection team for further inspection accordingly.

5.19 Organizational independence

 Internal audit is primarily a service to various departments and report directly to
DAB’s top management and also to the Audit Committee.
 The Audit Committee advises executive board of DAB about the responsibilities
of the internal audit department and authorizes the internal audit department to
have direct access to the different department.
 The budget section/CFO department makes appropriate arrangements for the
routine provision and management of the budget and resources of the internal
audit department as per advice of CG.

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5.20 Status of the Comptroller General
The comptroller general of internal audit has independent authority and his
responsibilities have been defined under article 21 of Da Afghanistan Bank Law 2004.
Under DAB Law he is a member of executive board of the bank and is graded with
sufficient status to facilitate the effective discussion and negotiation of the results of the
internal audit work with senior management and different departmental heads of DAB.
Evaluation tools used to grade the post give due weight to the influence of the CG of
internal audit on the risk management, control and governance of the DAB.

5.21 Declaration of conflict of interest

 Individual auditors declare any conflicts of interest arising from audit work
assigned to them by the CG. Such potential conflicts of interest include previous
executive responsibilities and personal relationships with staff with current
executive responsibilities.
 Internal audit plan the allocation of audit work to minimize the risk of conflicts of
interest whenever possible.

5.22 Audit Committee :

A qualified and independent audit committee setup:
1- Audit committee consists of three members from DAB supreme council
independent members.
2- All members of audit committee financially literate and one member have
accounting or related financial management expertise.
 Explanation 1: The term “financially literate” means the ability to read and
understand basic financial statements i.e. balance sheet, profit and loss account,
and statement of cash flows.
 Explanation 2: A member will be considered to have accounting or related
financial management expertise if he or she possesses experience in finance or
accounting, or requisite professional certification in accounting, or any other
comparable experience or background which results in the individual’s financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight responsibilities.
3- Appointments to the committee for a period of up to five years, which may be
extended for one further five year period. Any vacancy on the Audit Committee
arising on account of reasons stipulated in Article 12 and Article 13 of Da
Afghanistan Bank Law 2004, or otherwise filled up by the appointment of a new
member by the Supreme Council in accordance with guidelines provided under
clauses I and II supra.
4- Remuneration payable to committee members decided by the Supreme Council.
5- Supreme Council appoints the committee chairman who is an independent non-
executive member. In the absence of the committee chairman and/or an appointed
deputy, the remaining members present elect one of themselves to chair the
meeting.

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 6- The Chairman of the Audit Committee present during meetings of Supreme
Council convened for the purpose of discussions and adoption of audited
financial statements;
7- The Audit Committee may invite such of the executives, as it considers
appropriate (and particularly the head of the finance function) to present at the
meetings of the committee, but on occasions it also meet without the presence of
any executives of the DAB. The Comptroller General, Chief Financial Officer
and a representative of the statutory auditor present as invitees for the meetings of
the Audit Committee;
8- The Comptroller General or his nominee act as the secretary to the committee.

5.22.1 Meetings of Audit Committee:

A. The audit committee meets at least four times in a year and not more than four
months elapse between two meetings. The quorum either two members or one
third of the members of the audit committee whichever is greater.
B. Unless otherwise agreed, notice of each meeting confirming the venue, time and
date together with an agenda of items to discussed, forwarded to each member of
the committee, any other person required to attend not later than ten working days
before the date of meeting. Supporting papers sent to committee members and to
other attendees as appropriate, at the same time.

5.22.2Powers of Audit Committee

 The audit committee have powers, which should include the following:
 Seek any information it requires from an employee of the bank in order to
perform its duties.
 Obtain at DAB’s expense, outside legal or other professional advice on any
matter within its terms of reference.
 Call any employee to be questioned at a meeting of the committee as and when
required.

5.22.3 Role of Audit Committee

The role of the audit committee include the following:
 Oversight of DAB’s financial reporting process and the disclosure of its financial
information to ensure that the financial statements are correct, sufficient and
credible.
 Recommending to the Supreme Council, the appointment, re-appointment and, if
required, the replacement or removal of the statutory auditor and the fixation of
audit fees.
 Approval of payment to statutory auditors for any other services rendered by the
statutory auditors.
 Reviewing, with the management, the annual financial statements before
submission to the Supreme Council for approval, with particular reference to:

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  Proposed changes, if any, in accounting policies and practices and reasons for the
same
 Major accounting entries involving estimates based on the exercise of judgment
by management.
 Significant adjustments made in the financial statements arising out of audit
findings
 Compliance with any legal requirements relating to financial statements
 Qualifications in the draft audit report.
 Reviewing, with the management, the quarterly financial statements before
submission to the Supreme Council for approval.
 Reviewing, with the management, performance of statutory and internal auditors
and adequacy of the internal control systems.
 Reviewing the adequacy of internal audit function, including the structure of the
internal audit department, staffing and seniority of the official heading the
department, reporting structure coverage and frequency of internal audit.
 Discussion with Comptroller General any significant findings and follow up there
on.
 Reviewing the findings of any internal investigations by the internal auditors into
matters where there is suspected fraud or irregularity or a failure of internal
control systems of a material nature and reporting the matter to the Supreme
Council.
 Discussion with statutory auditors before the audit commences, about the nature
and scope of audit as well as post-audit discussion to ascertain any area of
concern.
 To review the functioning of the Whistle Blower mechanism, in case the same is
existing.
 Carrying out any other function as is mentioned in the terms of reference of the
Audit Committee.
5.22.3 Review of Information by Audit Committee:
The Audit Committee mandatorily review the following information:
I. Management discussion and analysis of financial condition and results of
operations.
II. Management letters / letters of internal control weaknesses issued by the
statutory auditors.
III. Internal audit reports relating to internal control weaknesses; and
IV. The appointment, removal and terms of remuneration of the Comptroller
General based upon recommendations by the Audit Committee.

5.22.4 Members of Aduti committee:

A. Dr. Shah Mohammad Mehrabi Chairman. (Independent Director)
B. Dr. Abdul Ghani Ghawasi Member (Independent Director)
C. Drs. Narges Nehan Member (Independent Director)

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5.22.5 Consultations with the Audit Committee
The Supreme council of DAB ask the Audit Committee to advise them on the following:
 The skill, experience and competency requirements for the post of the
Comptroller General.
 The terms of reference for internal audit.
 The effectiveness of the internal audit strategy and periodic plan in addressing the
organization’s risks.
 The resourcing of internal audit.
 The periodic work plans of internal audit, material changes to these plans, the
annual and interim audit reports, and any implications arising from their findings
and opinion..
 The arrangements for and the results of quality assurance processes.
 The adequacy of management response to internal audit advice and
recommendations.
 The arrangements made for cooperation between internal audit, external audit and
other review bodies.

5.22.6 Relationship of CG with Audit Committee

 The CG attends Audit Committee meetings; unless the Audit Committee decides
he excluded from either the whole meeting or particular agenda items. The reason
for any such exclusion made known to Supreme Council of DAB.
 The CG of internal audit has a right of access to the Chairman of the Audit
Committee to discuss any issues he wishes to raise.
 CG or his nominee normally acts as secretary to audit committee.

5.22.7 RELATIONSHIPS OF CG WITH MANAGEMENT / OTHER AUDITOR

5.22.7.1 Principles of good relationships
 The CG of Internal Audit co-ordinate internal audit plans and activities with
external auditors and other review agencies to ensure that most effective audit
coverage is achieved and duplication of effort is minimized.

5.22.7.2 Relationships with management:

 Internal audit provides a service to management. Its strategy, planning and
delivery aim to maximize the value added for management without jeopardizing
internal audit’s responsibilities.
 Management and staff at all levels of the organization have complete confidence
in the integrity, independence and capability of internal audit. The relationship
between internal auditors and managers in different departments is a privileged
one and information gained in the course of audit work remains confidential to
those with a legitimate interest within the departments.
 Co-operative relationship with management enhances the ability of internal audit
to achieve its objectives effectively. Audit work planned in conjunction with

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 management as far as possible, particularly in respect of the timing of audit work
(except where unannounced visits are essential to the achievement of audit
objectives)
 When fraud is suspected or detected, decisions to involve other agencies such as
the Attorney General or police taken by the management. If internal auditor does
not agree with the decision taken by the management in this respect, the same
reported to the Audit Committee.

5.22.7.3Relationships with external auditors

 The CG of Internal Audit seek meet regularly with the external auditor to consult
on audit plans, discuss matters of mutual interest, discuss common understanding
of audit techniques, methods and terminology, and to seek opportunities for
cooperation in the conduct of audit work. In particular, CG of Internal Audit offer
the external auditor the opportunity to rely on their work where appropriate
provided this does not prejudice Internal Audit’s independence.
 In any case of conflict with the external auditor, the CG should consult with, or
refer the matter to the Audit Committee.

5.22.7.3 Relationships with other review bodies

 Where other review bodies such as IMF supervision team, External Auditors,
management or compliance teams are in place, internal audit look for
opportunities to gain assurance from, and place reliance on their work. If it is
intended to place formal reliance on work done by such bodies, an appropriate
audit or quality assurance exercise carried out to ensure that each body’s work is
carried out to a suitable standard to enable reliance.

5.23. Staffing, Training, Development:

5.23.1 Principles of staffing, training and development
 Internal audit appropriately staffed in terms of numbers, grades, qualification
levels and experience, having regarded to its objectives and to these standards.
Internal auditors properly trained to fulfill their responsibilities and maintain their
professional competence through an appropriate ongoing development program.

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 5.23. 2 Staffing the Internal Audit Department:
 The CG of Internal Audit is responsible for ensuring that the staff has access to
the full range of knowledge, skills, qualifications and experience to meet
department’s objectives and these standards. In addition to internal audit skills,
the CG specifies any other professional skills required by the auditors. He also
makes provision for appropriate support staff.
 The CG of internal audit is responsible for recruiting staff with the appropriate
intellectual qualities, personal attributes and qualifications (or perceived ability to
undertake professional training).
 The CG can appoint other persons as internal auditors when he believes that such
appointee’s specialist knowledge, training and experience enhances the
organization’s overall audit capability, and does not jeopardize its compliance
with these standards.
5.24 Reporting:
5.24.1 Principles of reporting
 The CG determines the way in which audit findings will be reported, subject to
the provisions of these standards.
 The CG set local standards for all reports
 All audit findings promptly reported to the concerned
 Written reports issued to the department/ DAB management, at the close of each
individual audit assignment.
 The CG entitles to report any risk management, control or governance issue
directly to DAB’s Governor.

Contents of report are as under:

 5.24.1.1Executive summary
 Clear language
 Briefly include all matters given in the main detailed report - audit activities, audit
findings, recommendations, suggestions etc.
 Is not more than three pages.

 5.24.1.2Contents of Audit Report

 The audit activities performed, Audit approach, Objectives
 Names and designation of the audit team members
 Audit observations, defects and deficiencies, response received from auditee,
suggestions for improvement and follow up actions
 The report is short, and clear in its language.
 Avoided long sentences and there is no spelling or grammatical mistakes in the
report
 Obtain the signatures of the audit team leader and other members and submit to
the CG/Deputy CG.

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 5.24.2Review of draft report by team leader
 Ensure that the findings are based on facts and figures and supported by evidence
and the result is of good quality audit work.
 Ensure that all mistakes, deficiencies and exceptional issues are mentioned in the
report in a proper manner in order to bring attention of senior officials in the
auditee department.
 Ensure that proper guidelines for corrective action have been given in all the areas
where weak points have been noticed,.
 Ensure that in case of difference of opinion, the comment / disagreement of the
auditee have been given in the report
 The language of the audit report is not aggressive but polite.

 5.24.3 Deadline for presenting audit report

 The audit team submits the audit report within three working days of completion
of audit to Quality Assurance Section and copy to Deputy CG.
 The Quality Assurance Section completes its review within next three working
days of receipt of report and forward to Deputy CG.
 The Deputy CG finalizes the report within two working days and submits it for
CG signature.
 CG sign the audit report within one week and send it to executive board of DAB
and ensure that the signed audit report is sent to auditee department so that the
auditee department take required steps to implement the given recommendations.

• Remarks of auditee – Auditor explain why the response is not acceptable and
ask the auditee for revision of its remarks in case of non-satisfactory remarks by
the auditee.
• Follow up - The IAD follows up with the auditee in order to get the response on
the audit report and especially to ensure that its recommendations have been
implemented
• Responsibility - All members of the auditing team have equal responsibility for
the accuracy of the contents of the audit report. In case of inaccuracy in the report,
all the members of the audit team held accountable by the CG.

5.24.5Reporting an engagement:
 For each audit engagement a report produced. The purpose of the report is to
communicate the information by the focus of the review as determined by the internal
auditor.
 The draft internal audit report reviews for accuracy and completeness before it is
issued to the Auditee Department for comment.
 Internal audit reporting include specific reference to the risks associated with the
process under review and the relevance of internal audit findings to that risk profile.

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 The model structure for an internal audit report is as follows:

Title Page
- DAB Logo
- Comptroller General Office
- Internal Audit Report
- Name of Auditee Department
- Name of Assigned Team
- Date Audit Commenced
- Audit Completion Date
- Exist Conference Date
- Checked by
- Approved by
- Date final Report issued
- Confidentiality sentence
-
Main Body

- Scope and Purpose of Internal Audit

- Methodology of Internal Audit
- Summary of finding
- Observation , expected Risk and Recommendation
- Signature of Comptroller General

5.25 Follow Up
1. Audit follow up means the follow up of progress of any action to be taken by the head of the
Auditee Department in response to audit findings and recommendations.
2. The purpose of audit follow-up is to gather information about:
 Any policy changes or procedural modifications prescribed in response to the audit:
 The action or planned action of the clients in response to the audit or any policy
procedural modifications
 The result of the actions arising from the audit
3. After every three months, the CG of internal audit must ensure that all internal
Audit findings for which remedial action is not complete are followed up.
4. A follow up report should be submitted by the CG to the Audit Committee. The
Follow up report will have two parts.
i. In the event that the head of the Auditee Department has taken no action in
response to the internal audit report, the follow up report should include;
- Audit finding and recommendation for which the Auditee Department has
taken no action
- The management response of the Auditee Department at the time the
internal audit report was issued
- The reason why the Auditee Department has not taken any action

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 - The auditor’s comment in the event that the auditor still considers that
remedial action is necessary.

ii. In the event that the Auditee Department has taken action, the follow-up report should
Include;
- the audit finding / recommendation that has been followed up
- the management comment from Auditee Department at the time the internal
audit report was issued
- objective of the follow-up – to monitor progress or to review result

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 Chapter 6

Task Undertaken

6.1Assignments Undertaken During Period.

Assignment: Auditing 2 branches in the Kabul city and procurement department within DAB to
evaluating internal controls, accounting processes, operations and overall performance of
department and branches. Ensuring compliance with laws and regulations and help to maintain
accurate and timely financial reporting and data collection.

The Purpose of My Assignment Was to:

 Performing audit on sampling basis, including identifying and defining issues, developing
criteria, reviewing and analyzing evidence.
 Identify and evaluate DAB’s risk areas and provide key input to the development of audit
plan.
 Conduct interviews, review documents, administers surveys, compose memos and prepare
working papers.
 Identify, develop, and document audit issues and recommendations using independent
judgment concerning areas to be reviewed.
 Communicate or assist in communicating the audit results via written reports and oral
presentations to management.
 Collating, checking and analyzing spreadsheet data.
 Examining branches accounts and financial control systems.
 Preparing reports, commentaries and financial statements.
 Liaising with managerial staff and presenting findings and recommendations.
 Ensuring procedures, policies, legislation and regulations are correctly followed and
complied with DAB.
 Develop and maintain productive auditee relationships through individual contacts and group
meetings.
 Perform other related tasks assigned by Audit Team Leader.

6.2 Procedure for the Assignment:

1- Planning: During the planning portion of the audit, the team notifies the departments and
branches of the audit, discusses the scope and objectives of the examination in a formal
meeting with Comptroller General, gathers information on important processes, evaluates
existing controls, and plans the remaining audit steps.
2- Announcement Letter: The departments and branches are informed of the audit through
an announcement or engagement letter from the Internal Audit Director. This letter
communicates the scope and objectives of the audit, the auditors assigned to the project
and other relevant information.

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3- Initial Meeting: During this opening conference meeting, the departments and branches
describe the unit or system to be reviewed, the organization, available resources
(personnel, facilities, equipment, funds), and other relevant information. The internal
auditor meets with the senior officer directly responsible for the unit under review and
any staff members s/he wishes to include. It is important that the departments and
branches identify issues or areas of special concern that should be addressed.
4- Preliminary Survey: In this phase the audit team gathers relevant information about the
unit in order to obtain a general overview of operations. Team talks with key personnel
and reviews reports, files, and other sources of information.
5- Internal Control Review: The team will review the unit's internal control structure, a
process which is usually time-consuming. In doing this, the auditor uses a variety of tools
and techniques to gather and analyze information about the operation. The review of
internal controls helps the team determine the areas of highest risk and design tests to be
performed in the fieldwork section.
6- Audit Program: Preparation of the audit program concludes the preliminary review
phase. This program outlines the fieldwork necessary to achieve the audit objectives.
7- Fieldwork: The fieldwork concentrates on transaction testing and informal
communications. It is during this phase that the team determines whether the controls
identified during the preliminary review are operating properly and in the manner
described by the departments and branches. The fieldwork stage concludes with a list of
significant findings from which the auditor will prepare a draft of the audit report.
8- Transaction Testing: After completing the preliminary review, the auditor performs the
procedures in the audit program. These procedures usually test the major internal controls
and the accuracy and propriety of the transactions. Various techniques including
sampling are used during the fieldwork phase.
9- Advice & Informal Communications: As the fieldwork progresses, the team discusses
any significant findings with the branches and department. Hopefully they can offer
insights and work with the team to determine the best method of resolving the finding.
Usually these communications are oral. However, in more complex situations, memos
and/or E-mails are written in order to ensure full understanding by the branches,
departments and the team.
10- Audit Summary: Upon completion of the fieldwork, the team summarizes the audit
findings, conclusions, and recommendations necessary for the audit report discussion
draft.
11- Working Papers: Working papers are a vital tool of the audit profession. They are the
support of the audit opinion. They connect the departments and branches accounting
records and financials to the team opinion. They are comprehensive and serve many
functions.
11- Audit Report: Our principal product is the final report in which we express our
opinions, present the audit findings, and discuss recommendations for improvements. To
facilitate communication and ensure that the recommendations presented in the final
report are practical, Internal Audit discusses the rough draft with the departments and
branches prior to issuing the final report.

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 12- Discussion Draft: At the conclusion of fieldwork, the team drafts the report and reviews
the audit working papers and the discussion draft before it is presented to the departments
and branches for comment. This discussion draft is prepared for branches and department
review before the exit conference.
13- Exit Conference: Internal Audit meets with the unit's management team to discuss the
findings, recommendations, and text of the draft. At this meeting, the departments and
branches comment on the draft and the group work to reach an agreement on the audit
findings.
14- Formal Draft: The team then prepares a formal draft, taking into account any revisions
resulting from the exit conference and other discussions. When the changes have been
reviewed by quality assurance, the final report is issued.
15- Final Report: Internal Audit prints and distributes the final report after signing of team
leader, auditors, comptroller general and approval of the audit committee, board of
directors.
16- Audit Follow-Up: Within approximately one year of the final report, Internal Audit will
perform a follow-up review to verify the resolution of the report findings.

6.21.Outcome of the assignment:

The outcome of the assignment was a suitable job description which would be useful in coming
days of my professional life. During my association in developed and learn the following
competencies and qualification within me:

 Ability to work and coordinate in team.

 Enhancement in my interpersonal skill.
 Understand the procedures and IIA standards.
 Enhancement in my communication skills.
 Update myself with the various policies, rules and regulations of the bank.
 Ability to work under pressure as well as make depth analysis.
 Develop professionalism required to perform various task.
 Understand what internal audit is and how to apply that.
 Understand How to collect data from different branches and department according to IIA
standards.
 Understand what audit report is and how to write that.

45
 Chapter 7

Literature Review

Review of literature comprises upon the existing literature and research related to the present
study with a view to find out what had already been studied. According to Wolf & Pant “The
purpose of the reviewing the literature is to develop some expertise in One’s area, to see what
new contribution can be made and to review some idea for Developing research design”
(Pant and Wolf; 1996:31-44).

7.1 Some Study Related to Topic:

 Internal Auditing in Middle East and North Africa:

The Institute of Internal Auditors (IIA) has conducted several surveys to understand the
development of the internal auditing (IA) profession worldwide. In its latest survey, the
Middle East and North Africa (MENA) region was expected to experience the most
significant changes in the regulation of internal auditing (IIA, 2010). This study reviews
the MENA region literature dealing with recent regulatory reforms in internal auditing,
focusing on independence and objectivity, assurance versus consulting services, and the
IA role in consulting activities. We find that while the majority of the region has
introduced reforms to the IA function, more needs to be done to (1) insure independence
and objectivity; and (2) involve IA in consulting services, particularly with respect to risk
management, control and governance. This review and its findings are timely given the
vast advances the IA profession is witnessing, and has implications for both the IIA and
MENA countries' regulators.

 Factors that enhance the quality of the relationships between internal auditors and
auditees: Evidence from Italian companies:
This study examines the relationships between internal auditors and auditees in an
attempt to identify the factors that influence the abilities of internal auditors (IAs) to build
high-quality relationships with auditees. The analysis is based on the responses of 78
Italian Chief Audit Executives who took part in a survey in 2014. The results indicate two
factors that are positively and significantly associated with high-quality IA–auditee
relationships: (1) the integration of senior management's inputs in the setting up of audit
plans; and (2) the use of the internal auditing function (IAF) as a management training
ground. The results also show a positive but marginally significant relationship between
the regular revision of audit methodologies and high-quality IA–auditee relationships.
Surprisingly, the results indicate a negative and significant association between the
diversification of an IAF's activities and an IAF's ability to create positive collaboration
with auditees.

46
  The association between firm characteristics and the quality characteristics of the
internal audit function in the UK: An agency perspective:
This study investigates firm characteristics that may affect the IAF's quality
characteristics: size, independence, methodology, and competence. Its motivation is that a
firm's agency and economic costs can affect its way to invest in the IAF quality. In this
study, a postal questionnaire survey was sent to the head of internal audit (HIA) in 213
UK non-financial companies with in-source IAF, and archival data were collected from
the respondent companies' annual reports. The study found that a firm's size and the
proportion of cash flows from its operations are positively associated with the IAF's
quality characteristics, a suggestion that a high quality IAF is an important way of
compensating for the direct loss of control and of managing internal agency risks. In
addition, it found evidence that having a high quality IAF is a costly process; the level of
debt had a significant negative association with the IAF's quality characteristics.
Furthermore, the supporting OLS regression revealed a positive significant association
between the effectiveness of the audit committee and the quality characteristics of the
IAF. This study has important implications for both practice and future internal auditing
research and provides a composite measure that can be used to assess IAF quality.

 The Perceived Scope of Internal Audit Function in Libyan Public Enterprises

Purpose – The aim of this exploratory study is to examine the perceptions of stakeholders
regarding the scope of internal audit (IA) work in Libyan state-owned enterprises.
Design/methodology/approach – Data were gathered through semi-structured interviews
with chief executive officers, IA directors, administrative affairs managers, financial
affairs managers and external auditors, which were supplemented with a review of
relevant documentary evidence. Findings – The results of the study show that the scope
of IA in Libyan organizations may not be sufficiently wide ranging to be considered as a
value-adding service. The scope of the IA function may need to be expanded to cover a
broader range of organizational functions if internal auditors are to offer value-adding
services to their stakeholders. Practical implications – The IA profession has received
scant attention in the literature, especially in the context of developing countries such as
Libya. Therefore, such settings offer the potential to enhance the understanding of IA
practices. As a study on a developing economy, it enhances understanding of the IA
profession’s global configuration beyond the predominantly market-driven, industrialized
Western economies. Originality/value – In contrast to most previous studies, this study
covers a broad range of IA stakeholders’ views on the role of internal auditors. This
coverage enabled an in-depth investigation of the factors affecting IA scope and
understanding of stakeholder perceptions on the IA function.

7.2 Research Gap:

In the previous research, there is no clear-cut study of role and function internal audit in the DAB.
The research can help the people who wanted to know about the role and functions of Internal
Audit in Central Bank of Afghanistan.

47
 Chapter 8
Research Methodology

The study is based on survey method. The primary data is collected by personal interviews
through structured questionnaires to knowing the views, comments and confidence regarding the
performance of Internal Audit functions in DAB. For the purpose of the study executives of
different departments were selected and interviewed. The secondary data is collected from the
books, magazines/ journals, websites, bulletin and including DAB Internal Audit Department
office

8.1Objectives of the study:

 To measure the overall performance of Internal Audit Department in DAB.

 To study the functions and roles of Internal Audit Department DAB.

Research Design: Descriptive and Exploratory type of Research.

Sampling Plan: The sample was selected on the basis of Convenience Sampling.

Sample Size: 50

Data Source: Both Primary and Secondary data.

Schedule design: A well-structured schedule comprising of close ended, multiple choice and
dichotomous questions. Sincere efforts were made to make the schedule simple and precise.
Care is being taken to prepare the schedule according to the structure and format. The
schedule is set according to the objective of the study.

Sample Area: The questionnaire was distributed in 20 departments of DAB.

Method of data collection: Primary data were collected by face to face interview with the
help of a well-structured questioner and secondary data were collected from books,
magazines/journals, and websites.

Analysis Technique: The data collected from the respondents were analyzed using standard
statistical methods and techniques. Pie charts and bar diagrams were used to reach at the
conclusion. Findings were made on the basis of analysis. Recommendations were made on
the basis of findings drawn from various data collected.

48
Limitation

 The survey was limited to few departments in the organization.

 Unavailability of executives in their cabins as they were engaged in field work at
that time.
 Sampling error might have occurred because no sample in perfect
representation of a give population unless the sample size equals the population.
 There is a possibility of occurrence of false judgment due to the biased responses
by some of the executive’s staff while giving answers.
 Since the report is based on the primary data and personal interview,
occurrence of personal biased cannot be ruled out.

49
 Chapter 9
Analysis, Interpretation, Findings and Conclusions

9.1 Analysis of Questionnaires

Q.1. Have you ever requested specific services of the Internal Audit function?

Option No. of Respondent Percentage of respondent

Yes 5 15.625 %
No 27 84.375%
Total 32 100%

Percentage of Respondent

15.63%

Yes

No
84.38 %

INTERPRETATION

Nearly 85% respondents said No

Only 15% respondent request service of IA function.

50
Q.2. How will you judge DAB present Internal Audit activities towards improving the
performance of the organization?

Option No. of Respondent Percentage of respondent

Good 8 25%
Average 21 65.625%
Poor 2 6.25%
Does not 1 3.125%
Comment
Total 32 100%

Percentage of Respondents

Good
80%
65.63% Average
60%

40% Poor
25%
20%
Does not
6.25%
0% 3.13% Comment
Good Respondents
Ave rage Poor
Does not
Comment

INTERPRETATION

Only 25% of respondent response as

Good Nearly 66% said Average
Only 6% response comes as Poor
Rest 3% did not comment anything

51
Q.3. Taking into consideration the scope/objectives/structure and
responsibilities of the internal Audit functions, to what extent do you feel that
Internal Audit meets expectations?
Option No. of Respondent Percentage of respondent
Meet Expectations 23 71.875%
Does not meet 4 12.5%
expectations
Does not comment 5 15.625%
Total 32 100%

Percentage of Respondents

Meet
80.00% 71.88%
Expectations
70.00%
60.00%
Does not meet
50.00%
Expectations
40.00%
30.00%
15.63% Does not
20.00% 12.50%
Comment
10.00%

0.00%
Meet Does not meet Does not
Expectations expectations comment

52
INTERPRETATION

72% respondents said that IA Meet Expectations

Only 12% said that IA does not Meet Expectations the rest of
16% did not comment anything.

Q.4. How confident are you relying on the conclusions reached or

recommendations made by the Internal Audit function?

Option No. of Respondent Percentage of respondent

Completely Confident 0 0%
Somewhat confident 31 96.875%
Not at all confident 0 0%
Does not comment 1 3.125%
Total 32 100%

Percentage of Respondent

9 6.88%
100% Completely
Confident
80%

60% Somewhat
confident
40%

20% 0% Not at all

0% 0% 3.13% confident

Does not
Comment

INTERPRETATION

97% respondents were somewhat confident.

Rest 3% respondents did not comment anything.

53
Q.5. To what extent do you believe that the work of internal Audit
improves the overall internal control of the organization?

Option No. of Respondent Percentage of respondent

Greatly improves 0 0
Somewhat improves 21 65.625%
Does not improve 2 6.25%
Don’t know/ not 9 28.125%
sure
Total 32 100%

Percentage of Respondents
65.63% Greatly
70%
improves
60% Somewhat
50% improves
Does not
40%
28.13% improve
30% Don’t know/
20% not sure
6.25%
10%
0%
0%
Greatly Somewhat Does not Don’t know/
improves improves improve not sure

INTERPRETATION

No one comment as Greatly Improve on above statement.

66% respondent comment as somewhat improves.
Only 6% of them comment as Does not improve the
rest 28% respondent s have no idea or not sure.

54
Q.6.Do you believe that the work of Internal Audit helps in identifying and
improving the overall risk of the organization?

Option No. of Respondent Percentage of respondent

Agree 11 34.375%
Neutral 14 43.75%
Disagree 7 21.875%
Total 32 100%

Percentage of Respondents

Agree
21.88%
34.38%

Neutral

Disagree

43.75%

INTERPRETATION

34% respondents Agreed with the above statement.

44% respondents remain s neutral
22% respondents Disagreed

55
Q.7. Do you appreciate that internal audit team is proactive?

Option No. of Respondent Percentage of respondent

Agree 1 3.125%
Neutral 25 78.125%
Disagree 4 12.5%
Did not respond 2 6.25%
Total 32 100%

Response

Agree
78.1 3%
80.00%
Neutral
60.00%

40.00% Disagree
20.00%
3.13% 12.50% Did not
0.00% 6.25% respond
Agree Response
Neutral
Disagree
Did not
respond

INTERPRETATION

Only 3% respondent Agreed with the statement

78% respondent remains Neutral
13% respondent disagreed
Rest 6% did not comment anything.

56
Q.8. Do you feel that Audit report issued by Internal Audit department
help the department to improve the work of department?

Option No. of Respondent Percentage of respondent

Agree 6 21.875%
Neutral 17 53.125%
Disagree 8 25%
Not respond 1 3.125%
Total 32 100%

Percentage of Respondents
60.00% 53.13% Disagree
Not Respond
50.00% Agree
Neutral
40.00%

25%
30.00% 21.88%

20.00%

3.13%
10.00%

0.00% Agree Neutral Disagree Not respond

INTERPRETATION
Only 22% respondent agreed the statement
53% respondents remain s neutral
25% respondents Disagreed
3% respondents did not comment anything

57
Q.9. How do you rate the quality of Internal Audit report issued by
Internal Audit Department?

Option No. of Respondent Percentage of respondent

Excellent 0 0%
Good 10 31.25%
Average 20 62.5%
Poor 2 6.25%
Very Poor 0 0%
Total 32 100%

INTERPRETATION

No one comment as Excellent

31% respondents comment as Good
63% respondents said Average
The rest 6% respondent said Poor

58
Q.10.Do you think that Internal Audit have the right reporting structure?

Option No. of Respondent Percentage of respondent

Agree 5 15.625%
Neutral 21 65.625%
Disagree 5 15.625%
Not respond 1 3.125%
Total 32 100%

INTERPRETATION

16% respondents agreed

65% respondent remains Neutral
16% respondents Disagreed
Rest 3% did not comment anything

59
Q.11.Do you appreciate that audit work was efficiently performed
according to planning period?

Option No. of Respondent Percentage of respondent

Agree 3 9.375%
Neutral 23 71.875%
Disagree 5 15.625%
Not respond 1 3.125%
Total 32 100%

INTERPRETATION
Only 9% Agreed
72% respondent remains Neutral
16% respondents Disagreed
Remaining 3% did not comment anything

60
Q.12.Do you consider that internal audit report was issued in a useful time?

Option No. of Respondent Percentage of respondent

Neutral 20 62.5%
Disagree 10 31.25%
Not respond 2 6.25%
Total 32 100%

INTERPRETATION

63% respondents remain s Neutral

31% respondents Disagreed
6% did not comment anything.

61
Q.13. Do you appreciate that internal Audit department is maintaining the
appropriate auditing standards?

Option No. of Respondent Percentage of respondent

Agree 2 6.25%
Neutral 24 75%
Disagree 2 6.25%
Not respond 4 12.5%
Total 32 100%

INTERPRETATION
Only 6% Agreed
75% remains Neutral
6% Disagreed
Remaining 13% did not comment anything

62
Q.14.Do the Auditors motivate you to improve on your performance
with their suggestions?

Option No. of Respondent Percentage of respondent

Agree 2 6.25%
Neutral 15 46.875%
Disagree 15 46.875%
Total 32 100%

INTERPRETATION
Only 6% respondent agrees that Auditors motivate them in improving their performance.
Nearly 47% respondent remains neutral with the statement.
Rest 47% disagree the statement.

63
Q.15. Does IA function has appropriate status in DAB?

Option No. of Respondent Percentage of respondent

Agree 11 34.375%
Neutral 15 46.875%
Disagree 6 18.75%
Total 32 100%

INTERPRETATION
Only 34% of the respondents Agree that IA functions have appropriate
status in DAB
Nearly 47% of the respondents remain Neutral
18% respondent don’t believe that IA functions has appropriate status in
DAB

64
Details of respondents-

SEX No. of Respondent Percentage of respondent

Male 29 90.625%
Female 3 9.375%
Total 32 100%

INTERPRETATION

More than 90% of the total respondents were Male

65
 Length of Service No. of Respondent Percentage of respondent
in DAB
More than 10 years 1 3.125%
5-10 years 2 6.25%
1-5 years 29 90.625%
Total 32 100%

Service length of Respondents in DAB

3.13% 6.25%

More than 10 years

5-10 years
90.63%

1-5 years

INTERPRETATION

More than 90% of the total respondents have an experience of more than 1-5 years
of service in DAB.

66
9.2 Findings
Major findings based on primary data collected from the respondents are stated as follows:

 Internal Audit Department is an independent department.

 An internal Audit activity averagely improves the performance of the organization the
expectations of the internal customers were meet by the internal audit functions.

 Respondents are not fully confident to rely on the conclusions reached or

recommendations made by the Internal Audit function

 Few employees are certified in Internal Audit (Course).

 Few employees are certified in accounting.

 The overall internal control of the organization is improves to some extent by work of
Internal Audit the report issued by IA department helps in improving the performances of
the departments.

 Lack of internal audit software management and tools.

 The quality of IA report can be rated as average.

 The executives of different departments have only few knowledge on the functions of
Internal Audit Department

 Lack of security when audit team travel to different provinces.

9.3 Suggestions and Conclusions:

1- A Project report on “Internal Audit Functions and its Performance in DAB” is the topic
for my study. It is a brief study of understanding about the IA functions of the
organization.

2- From the report it can be well identified that the organization has adopted a well and
distinguish Internal Audit functions. The IA department working independently and
reporting to the Audit Committee in a regular basis.

3- We have felt that the company has come forward to apply new skills and techniques in
order to improve the Functions of IA.

4- But there is some deficiency in internal audit department, senior management should tries
to provide facilities and remove obstacles like:

5- DAB should buy internal audit management software and tools for better performance
and maintaining of work quality.

67
 6- DAB should allocate budget for CIA, ACCA or related certification course. To maintain
IIA and accounting standards.
7- DAB senior managements should make a comprehensive plan for employees’ safety.

The project work is very beneficial for us and the guidance and support receive from all during
the course of my project was very encourage.

9.4 Key Learning’s

 I have learned what internal audit is and how to apply that.
 Understand How to collect data from different branches and department according to IIA
standards.
 Understand what audit report is and how to write that.
 Understand rules, regulations, policies, procedures of Central Bank of Afghanistan.
 The performance of internal audit in Central Bank of Afghanistan is average.
 I have learned the objectives and scopes of internal audit.

68
 ANEXTURE I

Questioner
Respected Sir/ Madam,

As a part of the or third semester subject (SIP), we the student of Indira

Institute of Management, are in process to carry out a study on the topic “Internal
Audit Functions and its Performance in Central Bank of Afghanistan(DAB)”

So, in this regard, we need your kind cooperation and support with your
valuable views on the topic to do the research. We assure you that the information
provided by you shall be kept strictly confidential and shall be used for academic
purpose only. Your help will go a long way in assisting us to complete our project.

Thanking you

Yours sincerely,

Mohammad Omran Salah

Indira Institute of
Management

69
Please Tick off Only One Answer of the Following Questions.

1. Have you ever requested specific services of the Internal Audit

function?

a) Yes b) No

2. How do you judge DAB’s present Internal Audit activities

towards improving the performance of the organization?
a) Excellent b) Good c) Average

d) Poor e) Very poor

3. Taking into consideration the scope/objectives/structure and

responsibilities of the internal Audit functions, to what extent
do you feel that Internal Audit meets expectations?

a) Exceeds Expectations b) Meets Expectations

c) Does not meet expectations

4. How confident are you relying on the conclusions reached or

recommendations made by the Internal Audit function?

a) Completely confident b) Somewhat Confident

c) Not at all confident

5) To what extent do you believe that the work of internal

Audit improves the overall internal control of the
organization?

a) Greatly Improve b) somewhat improves

c) Does not improves d) Not sure/ don’t know

70
6) Do you believe that the work of Internal Audit helps in identifying and
improving the overall risk of the organization?

a) Strongly agree b) Agree c) Neutral

d) Disagree e) strongly disagree

7. Do you appreciate that internal audit team is proactive?

a) Strongly Agree b) Agree c) Neutral

d) Disagree e) strongly disagree

8. Do you feel that Audit report issued by Internal Audit department help
the department to improve the work of department?

a) Strongly Agree b) Agree c) Neutral

d) Disagree e) strongly disagree

9. How do you rate the quality of Internal Audit report issued by Internal Audit
Department?

a) Excellent b) Good c) Average

d) Poor e) Very Poor

10. Does Internal Audit have the right reporting structure?

a) Strongly Agree b) Agree c) Neutral

d) Disagree e) Strongly Disagree

71
 11. Do you appreciate that audit work was efficiently performed according
to planning period?

a) Strongly Agree b) Agree c) Neutral

d) Disagree e) Strongly disagree

12. Do you consider that internal audit report was issued in a useful time?

a) Strongly Agree b) Agree c) Neutral

d) Disagree e) Strongly disagree

13. Do you appreciate that internal Audit department is maintaining

the appropriate auditing standards?

a) Strongly Agree b) Agree c) Neutral

d) Disagree e) strongly disagree

14.Do the Auditors motivate you to improve on your performance and with
their suggestions?
a) Strongly Agree b) Agree c) Neutral

d) Disagree e) Strongly disagree

15. Does IA function have appropriate status in DAB?

a) Strongly Agree b) Agree c) Neutral

d) Disagree e) Strongly Disagree

16. If any Suggestions:

…………………………………………………………………….............................
.....................................................................................................................................
.....................................................................................................................................

72
 Details of the Respondent:

Name (Optional):________________________________

Sex: a) M b) F

Department: ______________________Designation:______________________

Length of the service in DAB:

a) Less than 1 year.

b) 1-5 years.

c) 5-10 years.

d) More than 10 years

_______________________
Signature of the respondent

Thank you for your time and the honesty of your answers.

73
 Bibliography
Books:

1. Leading the Internal Audit Function, Auerbach Publications, 1st edition, (Lynn Fountain)
2. The Internal Auditing Handbook, 3rd edition (K H Spencer Pickett)
Reports:

1. Da Afghanistan Bank (Central Bank of Afghanistan) Annual Financial Report.

2. International Monetary Fund Report

Websites:

1. https://www.worldbank.org/en/country/afghanistan
2. https://dab.gov.af
3. https://na.theiia.org
4. https://www.accountingtools.com
5. http://www.internalauditor.me

74