INTRODUCTION

1.1 Back ground of the study

Auditing is an objective examination performed by professionally person. Auditing is rather a

generic term meaning which involves reports of attestation. The common definition of auditing is a
systematic process of objectively obtaining and evaluating evidence regarding assertion about
economic action and events to ascertain the degree of correspondence between assertions established
criteria and communication results to interested user (Konrath, 1999.)Auditing can simply classified
as internal and external auditing.

The practice of internal auditing has a defined set of standard to ensure that objective, relevant, and
sufficient evidence is gathered and evaluate to add1ress whatever activity is being investigated.
Internal auditing, like external auditing, starts with a broad understanding of the organization, its
objective, and its risk. The task of the internal auditor is to assimilate the information in a systematic
and disciplined fashion that results in an audit program to identified risk, gather evidence, evaluate
finding, and suggest improvements (Rittenberg&Schwieger, 2005)

Internal auditing refers to an independent appraisal of the activity within the organization for the
review of financial accounting and operating activities by staff of auditors function as part of the
management and reporting to it and not to shareholders. According to institute of internal auditors,
USA internal auditing is an independent appraisal function established within an organization to
examine and evaluate its activities as a service to the organization (Basus.K, 2006).

The starting place of internal audit theory is the definition of internal audit. The divergence of
interpretation of the internal audit role is explored in terms of the way we may in practice move away
from the standard definition. Internal auditing is performed in variety of ways, each with its own
approach and style. The institute of internal auditors (IIA) definition, internal auditing is an
independent, objective assurance and consulting activity designed to add value and improve an
organization operation. It helps an organization to accomplish its objective by bringing of systematic
of risk management, control and governance process (Spencer, 2010)

To finance this internal audit practice are necessary to the internal control system. To help that obtain
reasonable assurance about whether the financial statement as a whole are free from material
misstatement, whether due to fraud or errors. In other words there is a correct financial statement in
the organization at the end of the period during the audit report for the client. It is necessary to
evaluate the quality of work performance in the organization, and to use a strong internal control.
Generally, there is internal audit practice for finance and economic development office, it's efficiency
and effectiveness of the institution, otherwise if there is no internal audit practice in finance and
economic development office to occur unqualified work position (Arens etal, 2012).

The main purpose of to selecte this research title is to initiate the future plan. That means to get one's
institution to work audit properly the financial statement of that institution as an auditor’s
responsibility. In addition to the researchers want to know about the internal audit practice what type

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of activities and what types audit used in the finance and economic development office in finote
selam town.

1.2 Statement of the problem

Internal auditing is an independent, objective assurance and consulting activity designed to add value
and improve an organizational operation. It helps an organization accomplish its objective by
bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk
management, control, and governance process. Internal audit activities are performed in diverse legal
and cultural environment; within organization that vary in purpose, size, and structure; and by
persons within or outside the organization. These differences may affect the practice of internal
auditing in each environment. However, compliance with the standards for the professional practice
of internal auditing (standards) is essential if the responsibilities of internal auditors are to be met
(Altamonte Springs, Florida 32701-4201).

Bekalu et al (2007), conducted this study at finance and economic development office in Gondar
branch and investigated about the factor which affect the efficiency and effectiveness of internal
audit practice such as lack of strong internal control, there was no proper follow up procedures, no
better use of new technology, ineffectiveness of internal audit quality service, untimely audit
planning and unqualified work position of internal auditors. As the study is limited at finance and
economic development office in Gondar branch, the researcher will try to assess the internal audit
practice of finance and economic development office in finot eselam town.

The study is interested to overcome some problems that hinder the operating performance of the
institution in difference to past researchers do they. The previous researchers had been some
weakness, such weakness are untimely audit planning, lack of follow up proper procedures,
deficiency of utilizing new technology, lack of strong internal control and the unqualified of work
position. In addition to the above gaps the study will be also examines internal control systems that
enable the institution to protect corruption. Even if, this research had been done by other researchers;
we will more emphasis to the past researchers ideologies and applying efficient and effective internal
audit practice in case of finance and economic development office in finote selam town.

Thus in this study the researchers will try to answer the following research questions;

1. What is the assess of internal audit quality service in the organization?

2. Is the internal control system in the organization effective?

3. Does the internal audit office prepare audit planning?

4. Does the internal auditors are independent in the organization?

1.3 Objective of the study

1.3.1 General objective

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The general objective of the study is to assess the internal audit practice in case of finance and
economic development office in finote selam town.

1.3.2 Specific objective

The study will try to achieve predetermined specific objective, which states concisely and clearly
listed as follows:

1. To assess the internal audit quality service in the organization

2. To assess whether the internal control system in the organization effective or not

3. To examine the internal audit plan of the organization

4. To examine the professional independency of internal auditors in the organization

1.4 Significance of the study

This research will intended to assess the effectiveness and efficiency of internal audit practice in
finote selamtown. The results of this study will have the following importance; help the finote selam
town to know its effectiveness of internal audit office, will provide suggestion which is constructive
to finote selam town about its practice of internal audit, enable the researchers to be familiar with
practice aspects of internal auditing, and serves as a source of reference in undertaking related
research works.

1.5 Scope of the study

This study might be more attractive and important if it is conducted on a country level. However,
because of existing time and finance constraints this study will mainly confined to the Amhara region
in West Gojjam zone particularly in finote selam town of finance and economic development office.
And again this study might be more fruitful if it is conducted including all finance and economic
development office. However, because of the constraint specified before this study will focus on
finance and economic development office in finote selam town.

1.6 RESEARCH METHODOLOGY ANDREW RESEARCH DESIGN

1.6.1 Research Design

Research design is usually a plan or blue print which specifies how data relating to a given problem
should be collected and analyzed. It provides the procedural outlines for the conduct of any
investigation.

The researches will use descriptive type of research. Because it clearly describes the characteristics
of particular events by answers the questions who, what, when, and how and it ensures the
maximization of the reliability of data. In order to achieve the objective of the study and answer the
research question; researchers will use both quantitative and qualitative (mixed) research approaches.

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The advantage of using such a mixed approach is that data could not be obtained by using single
methods, and will be obtained by both alternate.

1.6.2Type and source of data

To accomplish the objective of the study, all necessary and relevant data will obtain from both
primary and secondary data .Thus Primary data will obtain through questionnaire, this will give
specific response to our research questions; and secondary data will collect from different manuals
and books related to internal auditing.

1.6.3 Data collection method

In case of data collection, primary data will collect via distributing open ended and close ended
questionnaire to the employee of the organization and secondary data will gather from different
manuals and book related to internal auditing.

1.6.4 Sampling technique and sample size

In order to determine the sample from total population the researchers will use a judgmental
sampling of non probabilistic techniques. The reason for selecting these techniques is; it enables the
researchers to select professionals that considering the respondents individuals that fits the given
questions. As a result the total of 27 employees the researchers will select 15 employees as a sample.
These are; finance, loan officer, auditors, credit department, manager and 2 auditors.

1.7 Method of data analysis

Once the data will have been captured from the two intended sources, the researchers will analyze the
collected data using descriptive type of data analysis. The data will collect from primary source will
be analyzed and will express by ratio, percentage, and table and will interpret with appropriate
explanation.

1.8 work plan

Here the work plan helps for researchers to do the work in programmed and planned manner and this
work plan or time budget directs the researchers to do each research work sequentially on their
appropriate order. This work plan for this research is scheduled from September up to June as
follows.

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 No. Activities Sep Oct Nov Dec Jun Feb Mar Apr May Jun
1 Title
selection
2 Proposal
writing
3 Strengthen
the proposal
4 Preparing
review
literature
5 Construction
of
instrument
6 Data
collection
7
Data
analysis
8 Submitting
report “1”

9 Editing
preparing
final report

10 Typing

11 Paper
submitting
and
presentatio
n

1.9 Cost Breakdown

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This cost budget helps the researchers to know on the necessary research materials inputs and to
buy these in the appropriate time. It also helps to control the cost of the materials. Because it is
already specified on the paper each material price.

No. Item Unit of Quantity in Cost (unit in Total cost in

measurement number birr) birr
1 paper ream 1 120 120
2 Pen Piece 8 10 80
3 Binding Piece 4 10 40
4 Exercise book Piece 1 15 15
5 Ruler Piece 1 15 15
6 calculator Piece 1 180 180
7 typing Birr 1 90 90
8 Printing Birr 3 70 210
9 Transportation Birr 3 60 180
10 Mobile card Birr 10 10 100
11 Flash disc Birr 1 150 150
12 Photo copy Birr 45 0.75 33.75
Total 1213.75

References

Andrew C. (1992) Internal Auditing, 3 rdedition;United Kingdom

Ann Sawyer (1995), Internal Auditing,4 thedition, India

Arens et al (2012), Auditing and assurance services,14 th edition, United state

Bekalu et al (2007), Assessment of internal audit practice, Gondar university

Dhumbe et al(2004),Cost auditing and management, 3 rd edition, India

Giselle Bouraad(2000), Management auditing journal, volume 15, India

Heramason and Rittenberg (2003), Thepoteg, 3rd edition, India

Johannes kinfu and Engida Bayou (2009), Auditing introduction to principles

and practice, Ethiopia

K.HSpencer(2010), Internal auditinLarryE.RittenbergandBrodelyJ.Schwieger

(2005), Auditing concept for a changing environment, 5 thedition,USA

Larry F.Konrath (1999), Auditing concepts and application,4 th edition, China

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N.Ricchiute and David (2003), Auditing and assurance service, 7 thedition,New
York

Rick Hayes et al(1999), Principle of auditing, 3 rd edition, United Kingdom

S.K Basu (2006), Managerial auditing, 2nd edition, New York