CHAPTER ONE

1. INTRODUCTION
1.1 Back ground of the study

Audit is the examination or inspection of various books of book of account by an

auditor followed by physical checking inventory to make sure that all department
are following documented system of recording transaction. It is done to ascertain
the accuracy of financial statement provided by the organization.

Audit can be done internally employee or head of particular department and

externally by an outside firm or an independent auditor. The idea is to check and
verify the account by an independent authority to ensure that all books of
account are done in fair manner and there is no misrepresentation or fraud that is
being conducted.

All the public listed firms have to get their accounts audited by an independent
auditor before they declare their result for any quarter.

There are four main steps in the audit process. The first one is to define the
auditors role and the term of engagement which is usually in the form of the
letter which is duly signed by the client. The second step is to plan the audit which
would include details of deadlines and the department the auditor would cover. Is
it single department or whole organization which is the auditor would be
covering. The audit could last a day or even a week depending upon the nature of
the audit.

The next important step is compiling the information from the audit. When an
auditor audit the account or inspection key financial statement of company, the
finding are usually put out in a report or compiled in a systematic manner. The
last and most important element of an audit is reporting the result. The result are
documented in the auditors report.

Internal auditing is an independent, objective assurance and consulting activity

designed to add value and improve an organization operation. It helps an

1
organization accomplish its objective by bringing a systematic, disciplined
approach to evaluate and improve effectiveness of risk management, control and
governance processes.

Internal auditing practice appraise the effectiveness of internal auditing and

which also includes an appraisal of the actions by management to correct
situations, which are at variance with planned outcomes.

1.2 back ground of the organization

The state bank of Ethiopia was established in 1942 with on objective the duties of
both commercial and central bank is 1960 established as a share company to take
over the commercial banking activities of the state bank of Ethiopia. In the 1974
revolution, commercial bank of Ethiopia got its strength by emerging with
privately own addis ababa bank. Since that it has been playing significant role in
the development end over the country.

The Commercial Bank of Ethiopia which is striving to embark in to world class

commercial bank hindering the state of the art and reliable service to its
millions of customers both locally and abroad. The business strategy of the bank
focuses in the stake holders its services.

On April 30, year 2011 the number of branches reached 364 stretches a cross the
length breadth of the country. CBE combines a wide capital base with more than
9700 talented and committed employees. In 2011 whom it regard as its key asset
for employees. In 2011 whom it regard as its key asses for banking development.
The state owned commercial bank of Ethiopia still dominates the market in terms
of asset capital and customer base and Branch Network, deposit the growing
competition from Private Bank over the last 15 years. Currently CBE has more
than 22million account holders and the number of mobile and internet banking
users also reached more than 2.5 million as of June 30 th 2019 active ATM card
holders reached more than 8million. This makes it one of the most reliable and

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strong commercial Bank in the country and the region. Its strong capital base
above 67 years of rich experience in the market and large branch network
through the country enable the bank to accommodate large demand for banking
service, Bank from private and public companies and to increase its over all
revenue on sustainable base the fundamental component of our mission
statement includes customers. These are the most important asset we
continuously revise our attitude to wards the customers with the view to
securing.

Maximum customers satisfaction in order to optimally meet the need of our

customers and efficiently manage our business we are committed to enhancing
long term share holder have, the other is to get quality customers employees are
very important Quality customers service is possibility only through motivated
and skilled employees to this end the bank is highly concerned for the well being
of its employees. It tries to develop a work force that enjoy working for and prides
itself is associated with bank and we believe that our success always emanates
from the effort we continuously expert on securing reliability and public
confidence from the community a large.

1.3 statement of the problem

Audit is an important term used is accounting the examination and verification a

company financial records it is also insured that financial information is
represented fairly and accurately.

Internal audit are used to improve decision making within a company or

organization. These audit are not distributed outside the company instead they
are prepared for the use of management and other internal stack holders.
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With out and internal audit function are missing a key element of good
corporation governance. The often lack complete and objective insight into the
effectiveness of their risk management internal control and governance processes
as well as evaluation and improvement

So, a periodic internal control audit is required to monitor the banks system of
internal control and procedure. good internal audit process help the management
in the effective discharge of its responsibilities. It gives them the assurance of the
risk and operation performance of the bank.

Internal audit serves and acts as an effective tool that court be used to bridge the
gap between top management and the operators in or to assure that the policies
and all the control system laid down are adhered to there fore with out internal
audit procedures and problems in banking institution there will be the high level
of fraud and misappropriation of fund in bank.

- What are techniques used for auditing

- How is commercial bank of Ethiopia internal auditing practice
- Does the bank follow auditing procedure

1.4 objective of the study

General objective

The general objective of the study will focus on internal auditing practice of
commercial bank of Ethiopia in head office.

Specific objective

- To identify techniques of internal auditing

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 - To asses the banks auditing practice
- To identify and asses auditing
- To compare theoretical aspects of internal auditing with in actual practice
of commercial bank of Ethiopia

1.5 significant of the study

# the study may use to identifying and describe advantage of internal auditing
and suggesting possible recommendation.

# it may help to create awareness to the managers in order to carefully use

auditing practice

# it may reflect the researcher internal audit practice with its limitation and
weakness and give possible commentive idea or solution as to how the internal
auditor of the bank should do auditing practice

# the study will be uses as partially as policy and manual making guideline for the
auditing sector

1.6 scope of the study

Here the researcher knows that the study includes the whole banks internal
auditing practice but the time and financial constrains the researcher will force to
focus on the internal auditing practice of commercial bank of Ethiopia addis
abeba head office.

After this study the community will expect to compare the internal auditing and if
is internal auditing problem give possible solution or advices.

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1.7 limitation of the study

During conducting the study the researchers has been faced the following
problems.

- Lack of time to gather data

- Lack of internet access
- Unwilling of respondents
- Lack of sufficient info from the bank and shortage of available written
document as well as references

1.8 organization of the paper

The study will consist of five chapter. The first chapter deals with general
introduction, this chapter includes background of the study, scope of the study,
statement of the problem, objective of the study, significant of the study,
limitation of the study and organization paper. Chapter two deals with literature
review. Chapter three is about methodology and design. Chapter four contain
data analysis presentation. Chapter five also contain conclusion and
recommendation.

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 CHAPTER TWO

LITERATURE REVIEW

Definition of audit:-audit is examination or inspection of various books of account

by an auditor followed by physical checking inventory to make sure that all
department are following documented system of recording transaction. It is done
to ascertain the accuracy of financial statement provided by the organization.

Audit can be done internally employee or head of particular department and

externally by an outside firm or an independent auditor. The idea is to check and
verify the account by an independent authority to ensure that all books of
account are done in fair manner and there is no misrepresentation or fraud that is
being conducted.

All the public listed firms have to get their accounts audited by an independent
auditor before they declare their result for any quarter.

There are four main steps in the audit process. The first one is to define the
auditors role and the term of engagement which is usually in the form of the
letter which is duly signed by the client. The second step is to plan the audit which
would include details of deadlines and the department the auditor would cover. Is
it single department or whole organization which is the auditor would be
covering. The audit could last a day or even a week depending upon the nature of
the audit.

The next important step is compiling the information from the audit. When an
auditor audit the account or inspection key financial statement of company, the
finding are usually put out in a report or compiled in a systematic manner. The
last and most important element of an audit is reporting the result. The result are
documented in the auditors report.

Types of auditing

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Among the various types of audits, financial audit are the most popular followed
by operational and strategic audit.

- Internal auditing and

- External auditing

Definition of Internal auditing:- is an independent, objective assurance and

consulting activity designed to add value and improve an organization operation.
It helps an organization accomplish its objective by bringing a systematic,
disciplined approach to evaluate and improve effectiveness of risk management,
control and governance processes.

Definition of Internal auditing practice:- appraise the effectiveness of internal

auditing and which also includes an appraisal of the actions by management to
correct situations, which are at variance with planned outcomes.

Scope of internal audit

- Evaluating the effectiveness of the internal control systems and monitor

this application.
- Checking the efficiency of routine operations of the bank.
- Ensuring the adequacy of procedures to safeguard the banks asset.
- Ensure that the procedures comply with the legal and regulatory
requirement.

General function internal audit

Audit plan:- internal audit function begins with the audit plan includes the timing
and frequency of the internal audit work to be carried on and its based on control
risk assessment. The plan should cover the resources required for carrying out the
audit.

Audit procedures:- the objectives firmed in the audit plan are achieved through a
detailed audit program which lists down the procedure to be carried out for each
specific audit area

- Cash transactions:- the deposit and withdrawals made, need to be tracked

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 - Loan:- loans and cash credits need to be customers.
- Documentation:- ensuring the sufficiency of supporting documents is
important.
- Tax:- all the required with holdings and other deductions have to be
executed promptly.
- Other services:- other banking commercial services such as swift money
transfers the line of credit followed and much more should be ensured to
be in place.

Benefits of internal auditing

A periodic internal audit is required to monitor the bank’s system of internal
control and procedures. Good internal audit process helps the management in
the effective discharge of its responsibilities.it gives them the assurance of the risk
and operational performance of the bank. based on the volume and value of its
transaction’s every bank should conduct an internal audit to fulfil its
responsibilities and to achieve its objective.

-overall operational and control environment of the bank is improved

- regular internal audit system increases the accountability of employees

- constant monitoring of the policies and procedures helps in reducing
financial risks
- regular internal audit at banks gives better comfort and assurance to the
statutory auditors too.

Internal auditors
Internal auditors are specialist called a bank auditor which is run as an
employee of the financial institution. assess the company’s risks and the
efficacy of its risk management efforts .ensure that the organization is
complying with relevant laws and statutes. and also responsible for the
examination and review of the policies and activities. In addition an internal
auditor is responsible to ascertain that the proper authority is given for the
purchase and disposal of banks asset and that there in an insurance cover for

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 each of the asset is provided. He must also be satisfied that assets are used
effectively for the banks benefit so as to keep wastage to the nearest
minimum. And see that the assets of the bank are effectively safeguarded.

-Monitoring, analysing and assessing the risks and controls of the

organization

- reviewing the organization’s compliance with state and federal policies and
laws

-making reassurances and recommendations to the organization or company’s

owners or governing boards

CHAPTER THREE
3. Research methodology and design

3.1 Area of the study

The study will conduct on the internal auditing practice of commercial bank of
Ethiopia Addis abeba head office

3.2 The Research design The Research Design

For this study descriptive design type of research, will going to be use. Because,
the aim of the study will describe the actual internal auditing practice of
commercial bank of Ethiopia Addis Abeba head office

3.3 Data Type and Source

For this study, the researchers will use both quantitative and qualitative data type
especially the later one. The researchers also use both primary and secondary
source of data.

3.4 Method of Data Collection

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For primary method of data collection, observation and unstructured interview
will use rather than other method of data collection because in order to
understand the real internal auditing practice need to observe the activities. The
secondary data will collect by reviewing the company published and unpublished
journals, magazines and reports.

3.5 Sample Size and Sampling Technique.

From a total population employees of CBE Addis Abeba at head office 30% will be
select a sample size by using judgmental sampling techniques .

3.6 Data Analysis and Presentation

After necessary data will collect from the primary source and secondary sources
the data will processing and Analyzing data processing is an activity which
involves interpretation data to make the data appropriate for analysis. Data
analysis will be done both by using qualitative and quantitative data processing
from the data get the data presenting will be descriptive data presentation by
using tables and others.

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 TIME AND COST BUDGET
TIME BUDGET

We estimated that we will use this time schedule until the final paper

TI
ME PERIOD

NO Activities May June July

1 Title selection 15days

2 Proposal writing 5 days

3 Proposal 10 days
submission
4 Data collection 10 days
5 Data processing 7 days
and analyzing
6 Report writing and 15 days
presentation

COST BUDGET

We Estimate the following minimum cost per item

Activities unit Unit cost/birr total cost/birr

Transportation 5 50 250.00

For proposal
writing
Pays of 5 100 500
researchers

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For taxi and food
paper 2 pad 170.00 340.00
Printing cost
Internet cost 5 15 75
Sub total 775
Contingency (15%) 116.25
Total cost 891.25

REFERENCE

 Arens. Lobeck. 2001. Auditing integral Approach 9th . Edition

 Dav’s, Dukes,Dychkam. 1995. Intermediate accounting 3rd edition.

 Kieso. Weygadite war filde. 2001. Principle of auditing 9th edition

 www.investopedia.com

 Commercial bank of Ethiopia profile 2014/2015

 Economictimes.com

APPENDIX

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 SELECT BUSINESS AND TECHNOLOGY COLLEGE

DEAR RESPONDENT

The purpose of this questionnaire will to collect data for requirement for partial

fulfillment of bachelor degree in accounting and finance your genuine response

for the following questions is extremely important for the successful completion

of this paper the information provide used for purpose indicated and will be kept

highly confident I would like to thank you in advance for your cooperation and

scarification of your time.

Part one:- General Information

How to answer this questionnaire

I. General
 Would you be kind enough to answer and making (√) mark the box
provided
 If you have any personal opinion for a questionnaire, kindly
comment on the space provided
 No need to write your name

II. Back ground

1. Personal

Your approximate age

25 years or below

26-30 years

36-45 years

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 45 years or above

Your sex

Female Male

2. Education

Diploma

Degree

2nd degree

3. Work experience

Below 5 years 11-15 years

5-10 Years Above 15 years

Part Two questions

1. How do you define the implementation of internal auditing practice of the

commercial bank of ethiopia?

Excellent  Good  Average 

2. Does it meet the requirements of the standard or specification?

Yes  No 

3. How does management concern to review the internal auditing practice?

Excellent Good Average

4. What is your responsibility in the bank?

Accountant Secretary Other

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 Casher Manager

5. Has the auditor derived an overall audit plan identifying areas of risk?

Yes  No 

6. when the internal auditor meet with the directors at least to discuss written

reports of audit?

Monthly  semi annually 

Quarterly  annually 

7. In the operation of the bank how do you rate the internal audit position?

Mostly excessive relatively deficit 

Optimum  mostly deficit 

8. Do you think there is good working relationship between management and

internal auditors in your bank?

Agree  strongly agree  Moderately agree Disagree

9. Did the bank audit documents maintained properly ?

Yes  No 

10.Does the verification of internal auditing practice system in the bank insures

the quality of audit?

Yes No

11. Regular internal audit system increases the accountability of the employee?
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 Agree  Dis agree 

12. What method does the bank use to control internal auditing practice?

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