AssJ, Vol 1:1 March (2016) 11– 19.

Contents lists available at www.innovativejournal.in SOCIAL SCIENCE

LEARNING EDUCATION
SOCIAL SCIENCE LEARNING EDUCATION JOURNAL
JOURNAL
Journal homepage: http://innovativejournal.in/sslej/index.php/sslej ISSN : APPLIED

ISSUES AND CHALLENGES FACED BY INTERNAL AUDITORS OF PRIVATE SECTOR

ORGANIZATIONS
LIMITED COMPANIES AUDITORS ANALYSIS

Nisar Ahmad Bazmi¹, Muqqadas Rehman², Chaudhary Abdul Rehmanᶾ

Superior University, Lahore-Pakistan

Lecturer, Hailey College of Commerce, Punjab University, Lahore
Professor, Business School, Superior University, Lahore-Pakistan

ARTICLE INFO ABSTRACT

Corresponding Author: The purpose of this research article is gathered the views and
Nisar Ahmad Bazmi, perceptions of internal auditors working in private sector limited
Ph. D. Scholar companies of Lahore city. An interview was conducted conveniently among
Superior University, Lahore-Pakistan 20 internal auditors of selected private sector companies of Lahore city.
nisarbazmi73@yahoo.com Data analysed thematically and in narrative form. Internal auditors
narrated that they face a number of issues and challenges in their
organizations. Results determine that due to lack of coordination of
accounts staff, lack of management interest, Staff shortage, Ignoring rules
and regulations while processing income and expenditures bills, staff union
support to fraudsters and lack of awareness and training.

Key words: Internal Auditors; Challenges and Issues; Accounts Fraudsters;

Audit process in Pakistan; Private sector.
INTRODUCTION OF THE STUDY:
Overview and Background
It is generally agreed that finance is the main stay
of any economy, be it private or public sector. It is equally
true that no meaningful development could be achieved
without finance and proper management, as a result of this,
many organizations establishes difference systems of
control or ensure smooth running of their business of
which internal auditing is an integral part. Basically,
internal auditing ensures that all activities of the
organization are carried out by employees according to laid
down procedures.
The introduction of new technologies are The
invention of computerized audit system which posed
challenges to the internal audit staff and their work, the
update of their knowledge to meet with these challenges in
the face of manipulation of these to perpetrate fraud is
desirable. More, the requirement of new auditing standards
will make the staff of internal audit to update their
knowledge and adjust to the current practice.
Auditing as a key factor in controlling every kind of
organization with financial and economic aspect serves as a
sort of checks and balances in the financial and
administrative procedure of any organizational setup.
Apart from explaining the concept of auditing and
operations, emphasized is laid on the problem areas in the
account of governance, accounts maintained by the
government and procedures involved in auditing
government accounts. The need for maintaining and
adequate, effective and efficient internal audit system,
therefore, cannot be over emphasized especially in days
like these when Pakistan economy is with effort in
ensuring that wastage, pilferage, misappropriation and
checked or avoided and to ensure that asset are being
secured.
STATEMENT OF THE PROBLEM:
1. Often management of private sector and internal audit
department function are seen as Contradictory rather than
complementary.
2. Internal audit department which is set up to ensure
adherence to management policy
May not achieve their main objective because of
interference and undue influence by top Management.
I. That the internal audit adequately equipped with.
II. That better and well-trained professional should
be employed for efficiency and effectiveness.
OBJECTIVES OF THE STUDY:
1. To identify the problems in internal audit
department of private sectors.
2. Finding ways of improving on the internal audit of
private sector.
I. To explain the meaning and significance of internal
audit as an aid to private sector.
II. Assist other researcher to obtain useful
information that will serve as input for further
research work.
RESEARCH HYPOTHESIS: considering the problem
definition of this study and objectives. The following
hypotheses are developed to be tested in this project.
H1: Internal audit is of importance to aid management of
private sector performances.
Ho: Internal audit is not importance to aid management of
private sector performances.

Author(s) agree that this article remain permanently open access under the terms of the
Creative Commons Attribution License 4.0 International License Page 15
 Bazmi et.al/Issues and Challenges faced by internal auditors of Private Sector Organizations
RESEARCH QUESTIONS:
The following research questions are used as a guide to
collect information.
1. What are issues and challenges faced by internal
auditors of private sector?
2. What are the procedures involved in caring out
audit of an organization?
3. What are the problems being encountered by the
auditors in audit process?
4. Is there any laws binding the auditing of accounts
of private sector organization?
SIGNIFICANCE OF THE STUDY:
The significance of this study is to enable the researcher
to know:
1. If internal audit within an organization is effective
for internal control system.
2. Whether internal audit in private sector
organization complies with sector management
policies, law and regulation.
3. If internal audit in private sector organization will
help to defect minimization fraud in an
organization.
4. Some procedures, techniques add principles
involve in auditor government parastatals.
DEFINITION OF TERMS:
In the course of writing this project, there are
some technical terms used that needs to be understood
very well before a project can have a good meaning to the
reader, these terms include the followings:
AUDIT Is the independent examination of the financial
statement of an enterprise and the expression of an opinion
of such financial statement by an appointed auditors as to
whether it shows true and fair view of the state of affairs of
the enterprises in accordance with the terms of his
agreement, the observation of statutory regulation and
professional requirement.
AUDIT REPORT: Generally refers to any written report by
an auditor in accordance with the term of his appointment.
It is a medium through which are auditor expresses his
opinion.
INTERNAL CONTROL SYSTEM: A system within an
organization designed to provide reasonable checks
regarding the achievement of the organizational objective.
IRREGULARITY: Is the intentional distortion of financial
records and report for whatever purpose.
FRAUD: The use of deception to obtain an unjust or illegal
financial advantage.
ERROR: Unintentional misstatement in or omissions of
amounts or disclosures from an entity accounting records
or financial statements.
ILLEGAL ACTS: Refers to any act that is contrary to law.
PRIVATE SECTOR: Is all organization, which is established,
being operated and controlled by the government on behalf
of the private.
Internal auditors, the post- implementation review
Harsh well documented along with the operations of an
organization that is looking to become involved in almost
every aspect roles " bean counters " and " Number
Crunchers" traditional roles ( is seen to be moving away
1989; Allott, 1996; ANAO, 1998).Through its own, internal
auditors for the purposes of making a decision to increase
the quality of information that contribute to a more
effective internal control structure is seen to. By providing
a value-added approach, internal auditors assist
management in discharging its responsibilities for the rest
of the state are accepted in a more proactive approach.
Duties and objectives of an organization's internal auditors
are providing services that focus on business objectives,
which can be seen to be assessed under the financial
control, extends beyond this. (; Allott, 1996 Montondon and
Koogler, 1994) or the value of the improvements that
strengthen the organization by identifying problems and
proposing to manage risk more effectively will assist
business units.
The new face of internal audit:
In 1947, Internal Audit Responsibilities Statement,
(Trotman, 1983) an " investigation and as a service to the
organization to evaluate its activities on an independent
appraisal function established within the organization as"
defined internal auditing. Initially, the purpose of the
effective discharge of his responsibilities was to help the
members of the organization. The emphasis of the role of
financial transactions had to guess right. The problem with
using the definition of the internal auditing profession
(Parkinson, 1999) was not a reflection of what is
happening. Audit efforts marketplacefor decision makers
themselves (AICPA, 1996) and competition to keep up with
the demands of the changing needs of the organization by
matching seen to be redirected.
Auditing profession no longer is a source of their
income is dependent on the audit of financial reports. Elite
Report (AICPA, 1996) for the audit of the financial report
recognizes that demand is declining; the traditional role
and professional potential to diversify its product will be
required. This significantly expands the repertoire of
professional quality assurance services will embrace the
new opportunities by developing a new area of services
that can be recommended, is described. USA, UK and
Canadian value-added services in the auditing profession
(Schelluch and Gay, 1997) have embraced this new vision.
Pakistan recognized auditing profession and the probe is
facing major changes and opportunities.Efficiency and
effectiveness of the organization, rather than dealing with
the accuracy of the recording,operates. Instead of auditing
the phrase assurance services is to make use ofRationale
for business purposes to assist in providing advice to the
administration, review what can be achieved through.
Institute of Internal Auditor emphasis is likely to be the
most knowledgeable in the control and management with
sound advice is able to provide.
This change in practice the efficiency and
effectiveness of the actions you need to deal with the
change in definition (Parkinson,1999) is required; control
is not the only focus. That needs to be achieved much more.
Today, though mainly focused on internal auditing controls.
Today’s organizations, risk management, governance and
control processes are thinking about, and redefine these
areas (Parkinson, 1999) are emphasized
within.Furthermore, the internal auditors are familiar with
the United States, Canada, Britain's Cadbury Report, cocoa
and King South Africa Report (McNamee and Selim, 1999)
COSO (Treadway Commission) report evidence from is. In -
depth research in the past (; Clikeman, 1999; Collins , 1999;
Everest Hill and Young , 1999; McNamee and Selim , 1999
Bachman 's , 1999 ) failed , risk management , control and
governance areas , there are new fields .
Internal auditing is an interesting career, now a
branch of the accounting profession or a branch of
information technology. It is a profession with its own
status and became repertoire. For the greater part of the
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 Bazmi et.al/Issues and Challenges faced by internal auditors of Private Sector Organizations
internal audit work, expert knowledge in accounting and
information systems is not necessary. Internal auditors
must have the ability to adapt and be flexible in their
approach when managing behavior and to accept the new
character is replaced by a value-added approach is
possible. All internal auditors now need to be capable of
logical thinking skills and knowledge framework relating to
the business owner, it is important to research potential
and flexibility.Furthermore, internal auditors need specific
technical skills and changing business practices and to keep
up to date with the value-added service providers in their
audit approach to be able to undertake continuous
professional development to be seen is required.
Control self‐assessment:
Control Self Assessment (CSA) focuses on learning
and a shared vision within an organization audit of the new
definition rather than command and control traditional
audit approach is known which adopt a new technology for
internal auditors . Internal auditing CSA often learn new
insights developed organizational model (Collins, 1999) is
connected to a common approach to achieving business
objectives.CSA for introducing internal auditors and
management, as well as to develop is likely to Direct users
to model their commitment to meet the needs and values of
all employees in addressing the organization focuses on
working with management. This after a certain point in the
business process is shared by the entire organization. In
support of the decisions made as the main focus within this
model, hence the Command routine in many organizations,
consumer value chain of the organization's commitment to
strengthen and direct all decisions made are connected, the
model is finished. Furthermore, the organization's goals
and objectives of the organization's overall strategy are
seen to have played a role.
Team learning also a group of people where I work
as a whole is important model, is part of. The business
goals (Collins, 1999) to support each other in meeting, so
that people within the organization, are associated with a
shared vision.Develop new work as internal audit, control
command predictions for the future of business practices
resulting in disintegration more modern; interactive
learning based models (Collins, 1999) will be a
development.
This new style of work under review to enhance
understanding of each participant in the process , the
organization assists people through the process of analysis
, changes to facilities that will serve as internal auditors in
the traditional audit approach is different . Group identifies
opportunities for improvement and develops action plans.
CSA shared vision of the internal auditor organization will
be involved in contributing to the development of a
partnership under which the process (Collins, 1999;
McNamee and Selim , 1999 ) .
Literature Review:
Examples of internal auditors of the main research
areas to provide new audit has been undertaken over the
years. A few are worth noting. Glenn (1973) concerning the
internal control planning stage any recommendations can
be taken into account in the proposed system or method
that internal auditors make a preliminary review found
that it is necessary. Furthermore,Glenn (1973)
development and installation of new systems and
procedures involved in both industry and government
departments found a number of internal auditors.Through
this research,Glenn (1973) internal auditors of a number of
services were extended,though, that both in fact and in
appearance that could compromise their independence
stated. However, the study by the internal auditors
independence is compromised the value-added approach
that had not been clearly identified.Whole, (1973) Glenn
found that internal auditCooper(1983) profession fined a
number of issues that were of concern. In addition to the
audit domain was covered entities appeared to be a
misunderstanding. Furthermore, a high level of education,
human resources, and internal auditors considered to be
needed in order to be accessed. The diversity of skills,
professional bodies, universities and management
represented a major educational challenge.Samples of chief
executives from the private and public sector. Following a
positive response to the issues and provided strong
support. First, (1983), Cooper internal audit organization
and the level of support afforded to the top position in
terms of its function as a high profile that had been
described. Second, according to Cooper, top-level
executives offer long-term career prospects as seen
internal audit. Institute of Internal Auditors conducted
trainers in a recent symposium (1999) Southcorp, Qantas
Country Australia and Australian companies including
KPMG, internal audit managers.
Research Methodology:
Audit and audit related services of auditing
standards governing the equivalent of Australia released in
August 1992 Auditing Standard 106 (AUS 106) are The
auditors of the quality framework, financial reports and
other information systems audit and the audit recognizes
that provide the services, and the quality associated with
the traditional financial report Appendix opinion audit.The
positive form is quick to remind anyone that offers mainly
internal audit check and improve management
performance as a basis for the evaluation of the efficiency
and effectiveness of management control In order to design
an administrative control.Paragraphs 28 and 29 of 106 of
Australia’s claims supports organizational freedom. These
services include organizational areas being audited
management are carried out without direct effect on the
independence requirements of auditing pronouncements ,
generally provided by an internal auditor for audit and
audit system in connection with the services .
He is responsible for the management level to
achieve a high level of independence in relation to the
organizational status of the internal auditor, is very
important. Lack of organizational independence arising
from any potential conflicts caused by the quality of a
proposal by an internal auditor will contribute to the
achievement of organizational independence that a
properly appointed and qualified audit Committee.
Such a role would be to demonstrate the audit
committee or audit and audit related services in connection
with the performance standard. In paragraphs describe
how internal auditors, in all cases, the objective to carry out
their role are required to state thatthe scope of their duties
to a high level of judgment involved and where their
reports or decisions adopted by management may have a
direct impact on the course of action which may include
areas assessed. The internal audit function is required, and
the purpose of being directly involved in the decision-
making process, seen. The power of an internal audit
department usually it gained independence from
management level and operating responsibilities with
respect is determined. Based services to ensure the
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 Bazmi et.al/Issues and Challenges faced by internal auditors of Private Sector Organizations

involvement of the internal auditor no longer an the opportunity to recommend improvements seems
independent branch of the organization or the control can unreasonable to refuse. Generally, internal control
be seen as an appraiser as the internal auditor's activities are seen as ultimately a management function,
independence , may mean that the risk is Active behavior though, they fall under the audit domain and are likely to
and organizational independence could cause a conflict be audited. When starting the function and independence
between the new auditors. of auditors any questions about eligibility should not be
The benefits derived from value-added approach taken. Auditors and internal auditors denied the right to
to audit the question arise. A functional approach to the make recommendations as to the right to start their work
organizational independence can be achieved without will be lost. This management’s prerogative to accept or
compromising. Internal auditors can play how to play an process should be controlled either to reject the
active role should be a limit. Separately or together with recommendations of the internal auditor remains.
the audit, assurance services on the basis of the internal Regardless of internal auditor may show how influential,
auditor who wants to engage will be undermined freedom nothing internal auditors to implement controls may
to determine in advance whether they need. Limits of interfere with management responsibility.Internal auditor
acceptable behavior (Trueblood, 1965) involved by the only takes on the role of a professional advisor. As with any
internal auditor is required to be set. Internal auditors will other consultant, recommendations are just that Nothing
likely undermine the professionalism involved in the limits not even a recommendation to implement or whatever they
of acceptable behavior and to address the need. Already choose to accept or reject control alters the fact that
auditor as expert in the area of internal control, assess their management is responsible.
organizational independence and because of fear of losing
Data Analysis and results:
Code of Question No.1 (Are you facing Question No.2 (Are you Question No.3 (Issues & problems identified and encountered being
Interviewee problems while internal audit following audit procedures, as auditor.
of your company?) rules and regulations?)
1 Yes Yes Lack of coordination of accounts staff, lack of management interest,
Staff shortage, Ignoring rules and regulations while processing
income and expenditures bills, staff union support to fraudsters and
lack of awareness and training
2 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
3 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
4 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
5 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
6 No Yes N/A
7 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
8 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
9 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
10 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
11 No No N/A
12 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
13 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
14 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
15 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
16 No Yes N/A
17 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
18 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
19 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.
20 Yes Yes Staff is short, Accounts Staff is not cooperative, Management is not
supportive, Lack of awareness and training.

CONCLUSION
Business practices through their increased integrity harm will redirect attention away from the ability
involvement can provide a better service for management, to determine. Almost all the internal auditors said that they
internal auditors appear to realize that a growing number faced problems and issues while auditing process in their
of organizations. Pakistan’s internal auditor’sexperiences, organizations.
knowledge management and education are the most
valuable. This new take on the role of internal auditors are
many benefits derived from. Would undermine the REFERENCES
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