RIFT VALLEY UNIVERSITY

CHIRO CAMPUS
DEPARTMENT OF ACCOUNTING
Research Report on:
The Impact of internal Auditing on Financial
Statement
(The Case of Chiro Town, administration office)

BY: ID

1. BELAY GURMESSA ID.NO.0015/17

2. BAYU AMANU ID.NO. 0014/17
3. TARIKE FERDISA ID.NO. 0063/17
4. TESFAYE ABERA ID.NO. 0065/17

Advisor: NESIRU

Research Report Submitted to the Department of Accounting and Finance in Partial

Fulfillment for the Requirement of Bachelor of Arts (BA) Degree in Accounting and
Finance

July, 2020
Chiro, Ethiopia
 APPROVAL
The undersigned certify that they have read and hereby recommend to the Rift Valley
University to accept the research submitted on entitled “The Impact of internal

Auditing on Financial Statement (The Case of Chiro Town, administration office )”

in Partial Fulfillment for the Requirement of Bachelor of Arts (BA) Degree in
Accounting and Finance

Name of Advisor……………………… Signature…………… Date ………

Name of Internal Examiner ………………Signature……….…Date ………

Name of External Examiner ………………Signature…………... Date ……….

Name of Head of Department ……………………… Signature……… Date …………

I1
 ABSTRACT
The major goal of providing forms and financial statements or reports is providing useful
information about financial position in decision making. Several factors influence on
financial statement provided by organization. One of these factors can be audit reports.
Therefore, the purpose of this research study is to examine the impact of internal
Auditing on the financial statements and Its Implications on public sector of Chiro Town.
The research conducted on 60 representatives who have knowledge and information
concerning the subject using purposive and stratified random sampling techniques and it
was used both analytical and descriptive research methods. The data primary data was
collected through questionnaire. The sample selection used purposive and stratified
random sampling method. The data processed using percentage data analysis method.
The study identified that, the major impact of internal auditing on financial statement in
the town were Auditors objectively performed their roles and adhered to the accepted
professional standards and practices and financial statement of the organization audited
regularly to affect performance of organization and to minimize potential corruption, but
practically it did not improve the quality of financial statement.
Similarly, Audit in the town is not independent of both the personnel and operational
activities and the achievement of the function and objective of internal audit became less
effective. Major factors influence audit practice on financial statement the internal
auditors in implementation of system were politics, Experience of auditing team,
reputation of the external auditing office, structure of auditing, Independence of the
auditor, Regulatory environment, Commitment to the generally accepted professional
criterion, the size of the office of external audit and Company size.
Controlling on the auditing quality, supporting the independence of auditing and
placing criteria for controlling auditing quality were recommended as the best Methods
to improve internal audit impact on financial statement.

II
 ACKNOWLEDGMENTS

First and for most would like to express our heartfelt thanks to our Almighty God and St.
Marry for giving me the courage and strength all through the course of our studies and
writing this paper. Next, greatly feel gratitude to our advisor Mr. Nesiru , for his
constructively critical and valuable comments that I immensely considered it through the
study.
We are also indebted to Rift Valley University Chiro Campus Accounting Department
staffs for their assistance in creating a good learning environment during the last three
years of the program.
We would also like to extend our acknowledgement to the Chiro Town Administration
offices for their participation in the study.

Finally, we would like thanks to all our family members for their special support in
providing we with reference materials.

III
 TABLE OF CONTENTS

CONTENTS PAGE
APPROVAL…………………………………………………………………………………………………I
ABSTRACT……………………………………………………………………………...………….………II
ACKNOWLEDGEMENTS…………………………………………………………………...……………III
TABLE OF CONTENTS……………………………………………………………………………...……IV
LIST OF TABLES……………….…………………………………………………………...……………. V
LIST OF FIGURES……………….………………….……………………………………...…………….VI
LIST OF ACRONYMS…….……………………….……………………………………...……………. VII
CHAPTER ONE...............................................................................................................................................1
1. INTRODUCTION........................................................................................................................................1
1.1 BACKGROUND TO THE STUDY............................................................................................................1
1.2 STATEMENTS OF THE PROBLEM..........................................................................................................2
1.3 OBJECTIVE OF THE STUDY.................................................................................................................3
1.3.1 General objective...........................................................................................................................3
1.3.2 Specific objectives..........................................................................................................................3
1.4 RESEARCH QUESTIONS..................................................................................................................3
1.5 SIGNIFICANCE OF THE STUDY.......................................................................................................3
1.6 SCOPE OF THE STUDY....................................................................................................................4
1.7 LIMITATION OF THE STUDY....................................................................................................................4
1.8 DEFINITION OF TERMS...........................................................................................................................4
1.9 STRUCTURE OF THE RESEARCH..............................................................................................................4
CHAPTER TWO..............................................................................................................................................6
LITERATURE REVIEW.................................................................................................................................6
2.0 INTRODUCTION.................................................................................................................................6
2.1 CONCEPT OF AUDITING..........................................................................................................................6
2.1.1 The Importance of the Audit..........................................................................................................6
2.1.2 Audit environment........................................................................................................................7
2.2 TYPES OF AUDIT....................................................................................................................................8
2.2.1 External Audit................................................................................................................................8
2.2.2 Internal audit.................................................................................................................................9
2.3 FINANCIAL STATEMENT........................................................................................................................11
2.3.1 Purpose of Financial Statement Audit.........................................................................................11
2.3.2 Types of Financial Statements.....................................................................................................12
2.4 AUDIT AND LEGAL IMPLICATION.........................................................................................................14
2.5 FACTORS AFFECTING AUDITING QUALITY........................................................................................15
2.6 METHODS FOR IMPROVING THE PROCESS OF AUDITING QUALITY....................................................15
3. RESEARCH METHODOLOGY...............................................................................................................16
3.1. BACKGROUND OF THE STUDY AREA....................................................................................................16
3.2 STUDY DESIGN.....................................................................................................................................17
3.3 SOURCES OF DATA...............................................................................................................................18
3.4. SAMPLING TECHNIQUES AND SAMPLE SIZE........................................................................................18
3.5. DATA COLLECTION INSTRUMENTS AND PROCEDURES........................................................................18
3.6. DATA ANALYSIS.................................................................................................................................19
4. DATA ANALYSIS AND INTERPRETATION........................................................................................20
5 CONCLUSION AND RECOMMENDATION..........................................................................................26
5.1 CONCLUSION........................................................................................................................................26
5.2 RECOMMENDATION..............................................................................................................................27
REFERENCES...............................................................................................................................................28
Annexes : Questionnaire.................................................................................................................................31

IV
 LISTS OF TABLES

Table 4.1: Background of the respondents ……………………………………………20

Table 4.2: auditing practice on financial statement……………………………………21
Table 4.3: persons prepares the financial statement……………………………………22
Table 4.4: Internal Audit Standards Statements…………………….…………………22
Table 4.5: Independence of internal audit………………………………………………23
Table 4.6: Problems Confronting the Internal Auditors………………………………...24
Table 4.7: Methods to improve audit impact on financial statement …….……………25

V
 LISTS OF FIGURES
List of Figures
Figure 1: Audit importance ……………………………………7
Figure 2: Map of Chiro town ……………………………………16

VI
 LISTS OF ACRONYMS
CBA Collective Bargaining Agreements
CEO Chief Executive Officer 
CFO Chief Financial Officer 
IPSAS International Public Sector Accounting Standards
UK United Kingdom

VI
I
 CHAPTER ONE

1. INTRODUCTION
1.1 Background to the study
In recent times, auditors have been put under pressure to ensure that their reports constitute
assurance to investors that their funds are put into good use and properly accounted for. In
Ethiopia, every incorporated company is required to appoint an external auditor, who is required
to render an independent opinion on the financial statements; whether or not they show a true and
fair view. The Jovanova, B., & Josheski, D. (2011) states that every auditor of a company shall
have a right of access, at all times, to the books, accounts and vouchers of the company and to
such information and explanations as may be necessary in the course of an audit. The auditor shall
make a report to the members of the company on the accounts examined by them. The auditor in
performing his duties is expected to exercise all care, diligence and skills as is reasonably
necessary in each particular circumstance.
Audit report is the medium through which the auditor expresses his opinion on the financial
statement examined by him. Due to familiarity, threat of replacement of an auditor, provision of
book-keeping services by the auditor and many other factors, the auditor may want to issue an
unqualified audit report even when the situation on ground proved otherwise. This situation raises
doubt about the independence of an auditor. Independence is the cornerstone of accountability.
The challenge is that corporate management hires, fires, and pays both their internal and external
auditors. Auditors, therefore, develop good relationships with management to keep the job of the
client. They may not, therefore, be independent of the corporate management. In the United States
of America, the Hall (2011) prevents auditors from providing non-audit services to their clients.
Nevertheless, auditors will understandably, want to keep their clients for as long as possible
(Lotfii, A. (2005).
In Ethiopia, there have been a number of audit failures, some leading to the restatement of figures
in the financial statements. For example, METEC just to mention a few important ones. Although,
it has not been proved by any detailed investigation that these audit failures were due to
impairment of auditor’s independence it could reasonably be suspected to be a contributing factor
Gellinas (2005). Many researchers in the developed nations have investigated the extent of audit
independence, DiGabriele, J. A., & Ojo, M. (2014). All these studies were conceptualized and

1
executed from the perspectives of developed nations. However, in Ethiopia, there is a paucity of
empirical studies in the same direction. The foregoing perspectives, therefore, make it desirable to
investigate the impact of audit independence on corporate financial reporting in Ethiopia.
Audit quality practices are procedures established by auditors to ensure that financial reports
communicate relevant and reliable information to members of an organization and the public.
These practices vary from one audit organization to the other depending on their sizes, nature of
activities and applicable legislations. Literature documents differences in opinion as to what
constitutes appropriate definition of audit quality. Saleh and Azary (2008:65 -77) view audit
quality as how well an audit detects and reports material misstatements, reduces information
asymmetry between management and stockholders and thus assist protect the interest of
stockholders. From the reasoning of audit quality is the probability that financial statements
contain no material misstatements. Also, Youssef, (2013) define audit quality as a function of the
auditor’s ability to detect and eliminate material misstatements and manipulations in reported net
income. While Spencer, Picket (2010) reports audit quality as the market assessed joint
probability that a given auditor will both discover a breach in the client’s accounting system and
report the breach. These definitions, no matter how divergent, emphasis compliance with relevant
audit procedures and standards (Al-Bawab, A. (2012). Users of financial statements demand
nothing less than a report that conveys accurate and reliable information relevant for decision
making. This is made possible by auditors through the provision of quality services. Ojo, M.
(2006) investigated the effect of audit quality on accrual reliability of listed companies and found
existence of more accrual stability coefficient in audit firms with higher audit quality than those
with lower audit quality. Similarly, Al-Bawab, A. (2012) did a work on the factors affecting the
quality of auditing, drawing data from Jordanian commercial Banks. Results indicate a positive
and significant association between audit quality and audit efficiency, the reputation of auditing
office, auditing fees, the size of audit firm and the proficiency of the auditor.

1.2 Statements of the Problem

Today shareholders can use audited fi nancial statements as an important tool to notice how to
operate their assets and ensure the accuracy of managers’ performance.
Nowadays due to the policy of the changing government and also due to the competition in the
globalize era, the financial statement of the town administration is not appreciable. There is no or
less proper instruction from the authorities, the possibility of bad intention in setting and

2
preparation of the statements by the administration, led to the need for the audit profession and
individuals called auditor to be felt. Further there is considerable delay in implementing the
auditing system because of more formalities to change the existing system. The financial
performance of the town should be analyzed well to increase the efficiency in utilization of its
budget and make the organization to compete with others doing similar activities. There is also
the inadequate performance of the auditors is mainly due to the lack of knowledge, lack of
experience and lack of independence of the auditor

1.3 Objective of the Study

1.3.1 General objective
The general objective of the study is to assess the impact of internal auditing on financial
statement in Chiro town Administration office.

1.3.2 Specific objectives

The specific objectives of the study are to find out the following:
 To examine the impact of internal auditing on financial statement in Chiro Town
Administration.
 To examine whether the internal Auditing process has improved the quality of
financial statement in Chiro town Administration.
 To find out the problems confronting the internal auditors in Chiro Town
Administration in implementation of system.
 To make useful recommendations based on the findings of the study.

1.4 Research Questions

 What are the impacts of internal auditing on financial statement in Chiro town
Administration?

 Does internal Auditing in Chiro town Administration improve the quality of financial
statement?

 Is there any problems confronting the internal auditors in Chiro town Administration in
enhancing quality financial statement?

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1.5 Significance of The Study
The ultimate goal of every industry or organization is to quality financial statement (statement)
information is issued to public. This goal can be achieved in the public sector for effective
financial reporting. This study is necessary because it would enable the Chiro town
Administration and other public sectors to improve on their implementation of the auditing
standards. Finally, it would serve as a reference source to students or others researchers who
might want to carry their research on similar topic.

1.6 Scope of the Study

The study only delimited to or concerns about the impact of internal auditing on financial
statements with a particular reference to Chiro town Administration. The information in this
research was largely focus on limited areas and the finding may be more important to the locality
where this research has been already carried out.

1.7 Limitation of the study

This study has faced in different challenges such as lack of sufficient and well-organized data,
lack of documented materials, financial constraint were problems faced the researcher.

1.8 Definition of Terms

ACCOUNTING: users of the information define this as the process of identifying, measuring,
and communicating economic information to permit informed judgments and decisions
AUDITING: is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence between
those assertions and established criteria and communicate the results to interested users
FINANCIAL STATEMENT: Financial statements are a collection of reports about an
organization’s financial results, conditions and cash flows.
INCOME STATEMENT: Income statement is a financial statement that measures a company’s
financial performance over a specified period
STATEMENT OF CASH FLOW: Statement of cash flow is a financial statement that shows
changes in the balance sheet (financial position) accounts and income affects cash and cash
equivalents and breaks the analysis down to operating, investing, and financing activities

4
1.9 Structure of the research
The research is organized and structured five chapters. Chapter one deals about the introduction
part of the study, statement of the problem, objective of the study, research questions of the study,
limitation of the study, scope of the study, significance of the study, and structure of study.
Chapter two dealt with review literature. Chapter three dealt about the methodology of the study,
description of the study site, sampling technique and target population, data source and data
analysis and presentation. Chapter four focuses with results and discussion of data collected from
the respondents and chapter five deals with the research conclusion and recommendation.

5
 CHAPTER TWO

LITERATURE REVIEW
2.0 Introduction

2.1 Concept of auditing

The word “audit” is derived from the Latin word “audire” which means the act of listening. The
concept of auditing might be explained as a systematic process of objectively obtaining and
evaluating evidence regarding assertions about economic actions and events to ascertain the
degree of correspondence between those assertions and established criteria and communicate the
results to interested users (Eilifsen and McKee 2006). In the audit process, there are two parties;
auditee and auditor.
An auditor is a professional whose task is to perform the audit by verifying the accounting and the
decision-making by the management of an auditee and final report in an auditor report. This is
necessitated by laws.

Auditors have been responsible for detecting fraud in many stages. Initially, auditors were
responsible for detecting fraud, as one of the main objectives of the review process. However,
nowadays the auditors’ responsibility is limited to examining the financial statements and giving
reasonable assurance, not at all, about the extent to which the financial statements are free of
fraud and that they reflect honestly and fairly the financial position of the company (Alarbeed,
Alothman, & Assee, 2014).

2.1.1 The Importance of the Audit

The importance of auditing is determined by providing service for multiple parties who used the
audited financial statements in making decisions, and examples of these parties are as follows
(Al-Bawab, 2012):
(1) Management: The auditor’s report illustrates the impact of effective management, where it
depends upon the development plans, monitoring and evaluation of the performance of the
management;
(2) Investors: The auditors’ report to investors represents a safety tool for their money, where
the investors depend on the financial statements certified by an auditor who is independent

6
 and impartial when they think about making any decision related to their savings and their
investments in order to gain the highest return possible;
(3) Lenders: In general, banks prefer to rely on financial statements audited when examining
the financial centers of the projects that apply for credit facilities and loans from them;
(4) Government bodies: Based on the audited financial statements for many purposes,
including planning, control and taxation, pricing, and the report of subsidies to some
industries (Budur, 2008, p. 97).
Several studies have indicated that the credibility and fairness of the published financial
statements of the companies depend on the existence of audit committees emanating from the
boards of directors of these companies, where the audit committees increase the effectiveness of
the supervision of the preparation of financial statements and reduce disputes between
management and external auditor (Ahmed, 2011).

Auditors are generally and ultimately appointed by the shareholders and report to them
directly or via the audit committee (or its equivalent) and others charged with governance.

However, many companies’ audited financial statements, and particularly public companies,
are on public record. For large public companies, other parties may also use them for varying
purposes (see the chart below).

Fig 1. Audit importance

2.1.2 Audit environment

The changing economic and legal environment has significant implications for a company’s
operations and financial reporting, and changes in the business, economy and laws and
regulations generally increase the level of risks affecting the business and require adequate
response and disclosure in the financial statements. This also affects the way an audit is

7
conducted, since the auditor’s work needs to be scaled to address increased risks of material
misstatement of the financial statements. Gellinas (2005)
In the current environment, auditors have to take into account various evolving factors that may
result in additional challenges (see the chart below). When a company is comprised of multiple
entities there are additional complexities that need to be addressed. These considerations are
likely to complicate matters further when the company has locations in different countries and
therefore may span different regulatory requirements

2.2 Types of Audit

2.2.1 External Audit

External audit is considered as one of the most important processes contributing to the
achievement of reliable accounting information, which produces accurate and reliable information
through using controls tools for different activities in the organization (Youssef, 2013).

The external audit is a:

Review of the financial statements of an organization by independent legal authorized
auditors. The main objective of the external audit is to provide an opinion on the financial
statements. The word audit originates from the Latin word (audire) to listen. The auditor is
defined as a listener: one who reviews the statements (Jovanova & Josheski, 2011, p. 2)

The external audit represents the audits operations for the parties outside of the entity under
auditing, by experts specialized independent of entity under auditing, or its staff or officers, called
the external auditors. These auditors are qualified and independent, and the external auditor
performs the audit in accordance with the international auditing standards (Lotfii, 2005).

Kassem and Higson (2016) conducted a study aiming to determine the role of external auditors in
corporate corruption, besides determining the implications for external audit regulators.
external auditors are responsible for detecting material misstatements arising from corruption
that would have a material impact on the financial statements.
DiGabriele and Ojo (2014) highlighted the dual roles of external auditors and its impact on the
objectivity and independence, in addition to examining whether it is suitable for the external
auditors to incorporate internal auditor’s responsibility or not.

8
2.2.1.1 The Role of External Auditor
Kassem and Higson (2016) illustrated that the auditor’s responsibility to detect and report
misstatements resulting from illegal acts having a direct and material effect on the determination
of financial statement amounts is the same as that for misstatements caused by error or fraud.
While Ojo (2006) showed that the role of the external auditor in the supervisory process requires
standards such as independence, objectivity and integrity to be achieved.
If we compare the regulator and external auditor’s performance, we can find that both of them
have the same functions regarding the verification of financial statements, and they serve
particular interests, where the regulator works towards safeguarding financial stability and
investor interests, while the external auditor serves the private interests of the shareholders of a
company.

2.2.2 Internal audit

Definition of internal audit also noted by Carl Geffken (2004) in the Internal Compliance Audits,
Internal auditing is a sure way to identify key staff responsibilities to assess how procedures are
documented, to confirm how well staff and workers are trained in their assigned tasks, and to
determine where significant control points are needed to assure your product quality by meeting
written specifications. A well designed audit should address all the critical steps and opportunities
for process flow from beginning to end. It should also identify how, where and when necessary
corrections will be made, as well as how any specified and acceptable target conditions are
controlled and documented Budur, J. I. (2008).

2.2.2 .1 Effectiveness of Internal Audit Function

According to Etzioni, et al., (1985: 54-55); Mardiasmo (2002: 134) state that Effectiveness as the
level of success of the organization in an effort to achieve the objectives and goals. Mauzt &
Sharaf (1993) stated about the origin of the word auditing. Auditing is derived from the word
"audire" which means to hear or pay attention, it is heard or considered is the financial
responsibility submitted by the person in charge of financial (management). Auditing is a process
of collecting and evaluating evidence about the information that can be measured, on an economic
entity that is performed by a competent and independent to determine the suitability
of the information and reporting, with the criteria set (Arens et.al, (2010); Boynton (2006)).
Internal auditing is an independent, objective assurance and consulting activity designed to add
value and improve an organization's operations. (Spencer, 2010). It helps an organization

9
accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve
the effectiveness of risk management, control and governance processes. The Internal Auditor
Professional (Moeller, 2010) defines internal auditing as follows: "Internal auditing is an
independent appraisal function established within an organization to examine and evaluate its
activities as a service to the organization". Internal quality audits according to Moeller include:
1) The level of compliance with IIA standards
2) The ability to audit plan
3) Execute audit findings
4) communicate audit findings

2.2.2 .2 Internal audit and roles

Furthermore, Sawyers (2003: 10) defines a broad internal audit and roles as follows:
Internal auditing is a systematic objective appraisal by Internal Auditors of the diverse operation
and controls within an organization to determine whether:
(1) Financial and operating information is accurate and reliable;
(2) Risk to the enterprise are identified and minimized;
(3) External regulations and acceptable internal policies and procedure are followed;
(4) Satisfactory operating criteria are met;
(5) Resources are used efficiently and economically; and
(6) the organization’s objectives are effectively achieved-all for the purpose of assisting
members of the organization in the effective discharge of their responsibilities.

2.3 Financial statement 

A financial statement (or financial report) is a formal record of the financial activities of a
business, person, or other entity. Financial statement is an organized collection of data according
to logical and consisted accounting procedures. Its purpose is to convey an understanding of some
financial aspects of a business form. It may reveal a series of activities over a given period of
time, as in the case of an income statement Arens, etal, (2010).
Relevant financial information is presented in a structured manner and in a form easy to
understand. They typically include basic financial statements, accompanied by a management
discussion and analysis: Al-Bawab, A. (2012).

10
 1. A balance sheet, also referred to as a statement of financial position, reports on a
company's assets, liabilities, and ownership equity at a given point in time.
2. An income statement, also known as a statement of comprehensive income, statement of
revenue & expense,    profit and loss report, reports on a company's income, expenses,
and profits over a period of time. A profit and loss statement provides information on the
operation of the enterprise. These include sales and the various expenses incurred during
the stated period.
3. A statement of cash flows reports on a company's cash flow activities, particularly its
operating, investing and financing activities.

For large corporations, these statements may be complex and may include an extensive set
of notes to the financial statements and management discussion and analysis. The notes typically
describe each item on the balance sheet, income statement and cash flow statement in further
detail. Notes to financial statements are considered an integral part of the financial statements.

2.3.1 Purpose of Financial Statement Audit

"The objective of financial statements is to provide information about the financial position,
performance and changes in financial position of an enterprise that is useful to a wide range of
users in making economic decisions."  Financial statements should be understandable, relevant,
reliable and comparable. Reported assets, liabilities, equity, income and expenses are directly
related to an organization's financial position.

Masmudi, 2003 stated that Financial statements are intended to be understandable by readers
who have "a reasonable knowledge of business and economic activities and accounting and who
are willing to study the information diligently."  Financial statements may be used by users for
different purposes:
 Owners and managers require financial statements to make important business decisions
that affect its continued operations. Financial analysis is then performed on these statements
to provide management with a more detailed understanding of the figures. These statements
are also used as part of management's annual report to the stockholders.
 Employees also need these reports in making collective bargaining agreements (CBA)
with the management, in the case of labor unions or for individuals in discussing their
compensation, promotion and rankings.

11
 Prospective investors make use of financial statements to assess the viability of investing
in a business. Financial analyses are often used by investors and are prepared by professionals
(financial analysts), thus providing them with the basis for making investment decisions.
 Financial institutions (banks and other lending companies) use them to decide whether to
grant a company with fresh working capital or extend debt securities (such as a long-
term bank loan or debentures) to finance expansion and other significant expenditures.

2.3.2 Types of Financial Statements

There are three major Types of Financial Statements. These are consolidated financial
statements, Government financial statements and Personal financial statements

2.3.2 .1 Consolidated Financial Statements

Consolidated financial statements are defined as "Financial statements of a group in which
the assets, liabilities, equity, income, expenses and cash flows of the parent (company) and
its subsidiaries are presented as those of a single economic entity", according to International
Accounting Standard 27 "Consolidated and separate financial statements", and International
Financial Reporting Standard 10 "Consolidated financial statements". Ojo, M. (2006).

2.3.2.2 Government Financial Statements

The rules for the recording, measurement and presentation of government financial
statements may be different from those required for business and even for non-profit
organizations. They may use either of two accounting methods: accrual accounting, or cost
accounting, or a combination of the two Youssef, M. (2013). A complete set of chart of
accounts is also used that is substantially different from the chart of a profit-oriented business.

2.3.2.3 Personal Financial Statements

Personal financial statements may be required from persons applying for a personal
loan or financial aid. Typically, a personal financial statement consists of a single form for
reporting personally held assets and liabilities (debts), or personal sources of income and
expenses, or both. The form to be filled out is determined by the organization supplying the loan
or aid.

12
2.3.3 Quality of Financial Statements Reporting
The definition of quality according to the Office of Government Commerce (2009: 48) is degree
to which a set of inherent characteristics fulfills requirements. Quality is generally defined as the
totality of features and inherent or assigned characteristics of a product, person, process, service
and/or system that bear on its ability to show that it meets expectations or satisfies stated needs,
requirements or specification. According to Hall (2011) in Accounting Information system, the
dimensions of information quality Consist of relevant, timeliness, accuracy, completeness and
summarizing. According Gellinas (2005) in Accounting Information systems mentioned
Dimensions of the quality of information’s are accurate, timely, relative, and completeness.

The financial statements are a statement in the reporting entity's financial statements components,
is a form of financial management accountability country / region over a period. The financial
statements of the public sector is basically a form of government accountable to the people for the
management of public funds either from taxes, fees or other transaction. (Masmudi, 2003). There
are two public sector financial reporting purposes, the general and specific objectives. Common
purpose to provide useful information and meet the needs of the user. Specific objectives to
identify resources obtained and provide information on resource allocation, financing,
commitments and liabilities, financial condition, and changes in public sector organizations, the
information to evaluate the performance of public sector organizations. (Public Sector Committee
- International Federation of Accounting Committee, 2010).

The components of the public sector report in the International Public Sector Accounting
Standards (IPSAS,2010) consists of: Statement of Financial Position, Statement of Financial
Performance, Statement of Changes in Equity, Cash Flow Statement, Accounting Policies and
Notes to Financial Statements that consist of Budget Realization Report, Balance Sheet, Cash
Flows and Notes to the Financial Statement.
Statement of Financial Accounting sets of qualitative characteristics of accounting information
as follows: Relevance, Timeliness, Reliable, Consistency. According to Geffken (2004: 40),
quality information must have the characteristics of
(1) Accurate. It means that information must reflect the actual situation.
(2) Timely. It means that information must be available or exist on when the information is
required.

13
 (3) Relevant. It means the information-provided must be in accordance with the required
one.
(4) Completeness. this assertion implies that there are no unrecorded assets, liabilities or
transactions.

2.4 Audit and Legal Implication

Although laws differ from country to country, an audit of the financial statements of a public
company is usually required for investment, financing, and tax purposes. These are usually
performed by independent accountants or auditing firms Scheiner, (2003). Results of the audit are
summarized in an audit report that either provide an unqualified opinion on the financial
statements or qualifications as to its fairness and accuracy. The audit opinion on the financial
statements is usually included in the annual report.
There has been much legal debate over who an auditor is liable to. Since audit reports tend to be
addressed to the current shareholders, it is commonly thought that they owe a legal duty of care to
them. But this may not be the case as determined by common law precedent. In Canada, auditors
are liable only to investors using a prospectus to buy shares in the primary market. In the United
Kingdom, they have been held liable to potential investors when the auditor was aware of the
potential investor and how they would use the information in the financial statements. Nowadays
auditors tend to include in their report liability restricting language, discouraging anyone other
than the addressees of their report from relying on it. Liability is an important issue: in the UK,
for example, auditors have unlimited liability Mauzt & Sharaf (1993).
In the United States, especially in the post-Enron era there has been substantial concern about the
accuracy of financial statements. Corporate officers (the chief executive officer (CEO) and chief
financial officer (CFO)) are personally responsible for fair financial reporting allowing those
reading the report to have a good sense of the organization (Masmudi, 2003)

2.5 Factors Affecting Auditing Quality

AL Tuwaijri & AL Nafabi, 2008 and Hassanein & Kotp, 2003) stated that factors affecting the
auditing quality which are linked by
 political, economic and social environment.
 regulatory environment for the profession of external audit
 the regulatory environment for the Office of External Audit:

14
  The size of the office of external audit
 The reputation of the external auditing office
 Commitment to the generally accepted professional criterion
 Fees the process of auditing
 Independence of the auditor
 Experience of auditing team
 Company size
 The structure of auditing

2.6 Methods for Improving the Process of Auditing Quality

There are much of the studies and professional practices by professional organizations proposed
work on a set of methods, Eldhraoei, (2002) stated ways of improving the auditing quality as
follows:
 Scientific and practical development and qualification for the auditor.
 Placing criteria for controlling auditing quality.
 Putting methods of control on the auditing quality, including: peer review and style of the
Supervisory Board on the offices of external auditing.
 Supporting the independence of auditing through the formation of the Audit Committee or
the mandatory change for external auditor.

15
 CHAPTER THREE
3. RESEARCH METHODOLOGY

3.1. Background of the study area

Oromia is one of the nine regions in Ethiopia which constitute about 35% of total population and
40% of urban population of the country. Chiro is among many Oromia regional state towns
which is located at about 312km south east of Addis Ababa along the main road from Addis to
Harar and Dire Dawa. The total area of the town is 32 km2 and topographically it is plain. The
town was established in 1915 during emperor regime. Currently according to Oromia
proclamation Number 65/2003 urban grading, it is recognized as reformed city and found at 2nd
rank (Megeleta Oromia, 2003). The town has both municipal and state function. It is the capital
of western Hararghe zone. According to CSA (2014) projection the current total population is
83,643 of which male constitute 48,092 and female 45,551, among these, economically active
population estimated around 70%. In General, the town characterized by weak governance, poor
social service delivery and infrastructure provisions, high unemployment, and mismatch
between population growth and economic development. (Chiro Town Local Government, 2012)
Figure 3: Map of Chiro town

Source: Oromia Regional State Planning Institute (2009)

16
A. Economic activities.
In Chiro the major economic activities are mainly tertiary such as trade and shopping goods
which are displayed at market, hotel, restaurant and bar; selling and buying agricultural products,
retail trade of consumable goods like Chat and coffee and products of small scale industry like
wood and metal works.
B, Social services
Education: In the town currently, there are 10 elementary schools, 2 high school, and one
preparatory school, two Universities, one technical and vocational training college and. The
educational coverage of the town is 77.8%. The approximate primary school converge of the
town, is about 94.3% (Chiro Town Local Government, 2012).
Health: Concerning health situation of the town, there are 8 private clinics, 15 pharmacies that
are owned privately, one family Health Guidance clinic and one health post, and one hospital. The
total health coverage of the town is 81%. This increment is from 69% in 2004/05 to 81%in
2007/08.
The child and maternal death decrease as infant mortality are given due attention by the city
administration, even if there is no data at a time.
Housing: generally, the housing condition of the town is in poor condition except some private
residential houses.
Road: Generally speaking, the network of the road in the town is poor before four years.
However, after the town is reformed efforts have been made to construct roads. Hence currently
12 km of gravel and 3km couble stone road is constructed and 5 km of road become asphalted.
This is one way or another contributes to socio economic development to the town (Chiro Town
Local Government, 2017).
Banking and Insurance: the town has two governments and four private bank and three
insurance corporations.

3.2 Study Design

It is obvious that, based on the target group, nature and purpose of the study, different types of
studies require various research methods. Since the purpose of this study is to assess the impact of
internal auditing on financial statement, the researcher employed descriptive and analytical survey

17
research methods. The study also use primary and secondary data sources that collected through
in-depth interview, survey questionnaires and reviewing of different articles and books.

3.3 Sources of Data

The researcher used both Primary and secondary data sources. Primary sources were collected
through in depth interview and survey questionnaire. The researcher also reviewed secondary
sources from different scholars’ books, project documents, action plan, periodic report, previous
research papers, relevant articles, magazines, reports were analyzed. In addition, internet sources
were used as source of data.

3.4. Sampling Techniques and Sample Size

This study was conducted in Chiro town which is found in Oromia National regional state. The
town selected purposely because of no former research which has done on impact of internal
auditing on financial statement in this area. The finial reason is to inform the government the fact
that not taking action on audited financial statements is badly affecting the town administration
system and search for possible solution to respective problems resulted from financial statement
in the town.
The total number of employees in Revenue Authority, Finance cooperation and Economic
development, mayor office and city council of the town are 130. Among these employees only 60
staffs (39 males and 21 females) have the knowledge and information concerning the subject of
the study. The researcher selected all 60 representatives who have knowledge and information
concerning the subject using purposive and stratified random sampling techniques.
In addition, all heads and main process owners from town administration particularly mayor
office, Revenue Authority, Finance cooperation and Economic development, and city council
selected as sample of study through purposive sampling because they are the key informants and
able to provide detail information about issues.
3.5. Data Collection Instruments and procedures
To produce valuable data conclusions, the researcher collected the data through questionnaire.
Data collection instruments were prepared in English and translated into the local language Afan
Oromo to avoid language barriers. The Primary data gathered using questionnaires. The
questionnaire used to collect data from staffs. Secondary data used to collect data from Revenue

18
Authority, Finance cooperation and Economic development, mayor office and city council of
chiro town Administration office. Documents review made from different books, proclamations
and relevant data sources particularly on audited financial statements issues and both hard print
and electronic forms were used.
3.6. Data Analysis
The data to be collected for this study comprised both quantitative and qualitative data. The
qualitative data organized and presented in the form of statements, the quantitative data analyzed
using descriptive statistics, and it presented in tables and percentages. The qualitative data used
to make arguments and to describe quantitative data.

19
 CHAPTER FOUR
4. DATA ANALYSIS AND INTERPRETATION
The main issues of this chapter focused on the data analysis and discussion of the finding of the
study.
Table 4.1: Background of the respondents
Male 39 65
1 Sex Female 21 35
Total 60 100
Single 25 41.67
2 Marital Status Married 35 58.33
Total 60 100
20-25yrs 5 8.33
26-30yrs 28 46.67
3 Age 31-35yrs 20 33.33
36 and above 7 11.67
Total 60 100
a) 1-10yrs 33 55.00
(b) 11-20yrs 20 33.33
How long have you been worked in the
4 (c) 20-30yrs 5 8.33
company?
(d) 31 and above 2 3.33
Total 60 100.00
(a)Certificate / L.IV 3 5.00
(b) Degree 57 95.00
What is the level of your academic (c) MA/M.Sc. 0 0.00
5
qualification? (d)Ph.D. 0 0.00
(e) others 0 0.00
Total 60 100.00
(a) Management 5 8.33
(b) Auditor 6 10.00
What position do you occupy in the (c) Accountant 21 35.00
6
company/ organization? (d)process owner 15 25.00
(e) others 13 21.67
Total 60 100.00
Source: Own survey 2020
Table 4.1 depicts that 65 % of the respondents are Male and 35 % are Female. And more than
80% are in the age rank of 26- 35yrs. Of these respondents 83.33 workers have work experience
ranks between 1 -20yrs with the academic qualification of Degree (95%) and no MSc. or PhD

20
employees in the areas. Their working position indicates 8.33% Management, 10% Auditor, 35%
Accountant and 25 % are process owner.
Table 4.2: auditing practice on financial statement
Not
Auditing practice on financial statement  Yes
Response No Sure Total
Does auditing aid quality of financial statement in No 30 25 5 60
Chiro town Administration? % 50.00 41.67 8.33 100
No 46 12 2 60
Does auditing Financial statement play any
significant role in Chiro town Administration? % 76.67 20 3.33 100
Does auditing in Chiro town Administration No 6 48 6 60
improve the quality of financial statement in Chiro
town Administration? % 10.00 80.00 10.00 100
Has there been effective implementation and No 21 39  0 60
adoption of auditing practice in Chiro town
Administration? % 35.00 65 0.00 100
Is there any problem confronting the staff of No 50 4 6 60
Chiro town Administration in enhancing quality
financial statement? % 83.33 6.67 10.00 100
Has the financial statement of your organization be No 41 18 1 60
audited regularly? % 68.33 30 1.67 100
Source: Own survey 2020
Table 4.2 above shows that 50% and 76.67% of the respondents believed auditing aid quality of
financial statement and auditing financial statement play any significant role in Chiro town
respectively. But 80% and 65% of said that auditing practice did not improve the quality of
financial statement and not effectively implemented and adopted as required consecutively.
Similarly, 83.33% of the staffs confronted problems in enhancing quality financial statement.
Correspondingly 68.33% of respondents said the financial statement of their organization audited
regularly.

21
 Table 4.3: persons prepares the financial statement
Manager 0 0.00
Accountant 37 61.67
Who prepares the financial statement of your company?
Auditor 23 38.33
TOTAL 60 100.00
Source: Own survey 2020
As Table 4.3 above demonstrates 61% of preparing the financial statement Chiro town is the role
accountant while 38.33% considered as the role of auditors.
Table 4.4: Internal Audit Standards Statements
Items Strongly Disagree Neither Agree Strongly
Internal Audit Standards Response Disagree Agree
Statements in Total
standards for audits and audit- No 3 1 4 31 21 60
related services did affect
performance in our organization % 5.00 1.67 6.67 51.67 35.00 100.00
Effectiveness of auditing was as a
result of performing auditing work No 3 3 0 40 14 60
according to the set audit
standards % 5.00 5.00 0.00 66.67 23.33 100.00
The auditors in our organization
No 0 0 0 34 26 60
objectively performed their roles
and adhered to the accepted
professional standards and
practices. % 0.00 0.00 0.00 56.67 43.33 100.00
Source: Own survey 2020
As stated in table 4.4, 86.67 %of the respondents replied that standards for audits and audit-
related services did affect performance in our organization. In the similar way 90% respondents
said that effectiveness of auditing was as a result of performing auditing work according to the set
audit standards and Auditors objectively performed their roles and adhered to the accepted
professional standards and practices.

22
 Table 4.5: Independence of internal audit
Items Response strongly disagree neither agre strongly
Independence of internal audit in disagree e agree Total
The audit team in our town reports No 3 37  0 16 4 60
to the city councils % 5.00 61.67 0.00 26.67 6.67 100
Audit in our town is independent of No 5 45 0 3 8 60
both the personnel and operational
activities within the town % 8.33 75.00 0.00 3.33 13.33 100
The achievement of the function
No 48 0 0 4 8 60
and objective of internal audit has
resulted to effectiveness in our town % 80.00 0.00 0.00 6.67 13.33 100
Internal audit recommendations No 28 21 3 6 2 60
touching on significant risk areas
are implemented immediately % 46.67 35.00 5.00 10.00 3.33 100
The internal control system is No 3 3 0 40 14 60
effective in minimizing potential
corruption in the town % 5.00 5.00 0.00 66.67 23.33 100
Source: Own survey 2020
Table 4.5 depicts that 66.67% of respondents disagreed that audit team of the town provide
reports to the city councils the remaining 32.23% agree on provision of audit reports to the city
councils. Likewise, 83.33% and 80% of the respondents replied Audit in town is not independent
of both the personnel and operational activities and the achievement of the function and objective
of internal audit became less effective respectively. Similarly, 81.67% of respondents disagree
that the Internal audit recommendations touch on significant risk areas. Finally, 90% the
respondents agree internal control system was effective in minimizing potential corruption in the
town while 10 % did not agree on these ideas.

Table 4.6: Problems Confronting the Internal Auditors

23
 Items
Problems confronting the internal auditors Response Yes
in No Total
Political, economic and social environment No 51 9 60
% 85.00 15.00 100
Regulatory environment for the profession of external No 40 20 60
audit % 66.67 33.33 100
Regulatory environment for the Office of External No 34 26 60
Audit: % 56.67 43.33 100
The size of the office of external audit No 34 26 60
% 56.67 43.33 100
The reputation of the external auditing office No 47 13 60
% 78.33 21.67 100
Commitment to the generally accepted professional No 36 24 60
criterion % 60.00 40.00 100
Fees the process of auditing No 21 39 60
% 35.00 65.00 100
Independence of the auditor No 43 17 60
% 71.67 28.33 100
  Experience of auditing team No 49 11 60
% 81.67 18.33 100
  Company size No 32 28 60
% 53.33 46.67 100
The structure of auditing No 46 14 60
% 76.67 23.33 100
Source: Own survey 2020
Table 4.6 above indicates that 85% ,81.67%, 78.33%, 76.67%, 71.67%, 66.67%, 60 %, 56.67%
and 53.33% of the respondents replied that political, Experience of auditing team, reputation of
the external auditing office, structure of auditing, Independence of the auditor, Regulatory
environment, Commitment to the generally accepted professional criterion, the size of the office
of external audit and Company size are common factors influence audit practice on financial
statement respectively. But 65% respondents said Fees for the process of auditing his not the
problems on auditing practice in the town administration.

Table 4.7: Methods to improve audit impact on financial statement

Items Response Yes No Total

24
Methods to improve audit impact on financial statement
 Scientific and practical development and qualification for No 33 27 60
auditor % 55.00 45.00 100
No 44 16 60
Placing criteria for controlling auditing quality % 73.33 26.67 100
No 52 8 60
Putting methods of control on the auditing quality % 86.67 13.33 100
No 50 10 60
Supporting the independence of auditing % 83.33 16.67 100
Table 4.7Own
Source: above 86.67%
survey 2020of the respondents replied that Putting methods of control on the auditing
quality is the best way to improve audit impact on financial statement. In the same way 83.33%
and 73.33% of the respondents Supporting the independence of auditing and Placing criteria for
controlling auditing quality to improve audit impact respectively. However, 45%of the
respondents sated Scientific and practical development and qualification for auditor not serve as
the means to improve audit impact on financial statement.

25
 CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
Previous chapters introduced problems identifications, reviewed articles of scholars which related
to the topic of the study, research methodologies used, and findings and discussion of the results.
This chapter targeted to conclude major findings in the study and forward recommendation on the
issues require solutions.

5.1 Conclusion
The main aim of the study is to assess the impact of internal auditing on financial statement in
Chiro town Administration.
This study identified that, the major impact of internal auditing on financial statement in the
town 90% of respondents said Auditors objectively performed their roles and adhered to the
accepted professional standards and practices and financial statement of the organization audited
regularly. 86.67 % and 90 % the respondents respectively agreed that standards for audits and
audit-related services did affect performance of organization and the internal control system was
effective in minimizing potential corruption, but practically 80% respondents agreed the practice
did not improve the quality of financial statement.
In examining for the auditing process for the improvement of the quality of financial statement,
83.33% and 80% of the respondents believed Audit in the town is not independent of both the
personnel and operational activities and the achievement of the function and objective of internal
audit became less effective respectively.
The result of the study also showed problems confronting the internal auditors in implementation
of system were politics (85%), Experience of auditing team (81.67%), reputation of the external
auditing office (78.33%), structure of auditing (76.67%), Independence of the auditor (71.67%),
Regulatory environment (66.67%), Commitment to the generally accepted professional criterion
(60 %), the size of the office of external audit (56.67%) and Company size (53.33%) are common
factors influence audit practice on financial statement. Finally, controlling on the auditing quality
(86.67%) Supporting the independence of auditing (83.33%) and 73.33% Placing criteria for
controlling auditing quality are the best methods to improve internal audit impact on financial
statement.

26
5.2 Recommendation
Any development intervention is expected to be in line with the government’s policy guidelines
and the beneficiaries’ basic needs. Else wise, the intervention may not achieve its objectives. To
attain objectives of the organizations regarding the impact of internal auditing on financial
statement projects, the researchers forwarded the following points based on the finding to the
study area:
 There is a need to have clear rules and regulations to properly govern financial statement of
the town. It is therefore suggested that the town Administration shall take in to
consideration the need for implementing rules to address the issue and to autonomies the
internal auditors and strengthening Regulatory environment.
 The town Administration and city council shall make Audit practice independent of both the
personnel, operational activities and free of political intervention
 The town Administration shall make the achievement function and objective of internal
audit become more effective to enhance good government
 Experienced auditing team and reputation of the external auditing office should exist
regularly
 The office of Auditor general should clearly set the structure of auditing and to whom that
the internal auditors responsible for.
 The city/ town council should have to Place criteria for controlling auditing quality

27
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University of King Abdulaziz, 219.
3. Alarbeed, E., Alothman, M., & Assee, A. (2014). The role of governance rules in
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Services: An Integrated Approach, 13th Edition, Pearson, Prentice Hall Inc.
6. Bangladesh, Managerial Auditing Journal, Vol.20, No. 8, pp. 893-908
7. Boynton William C., Raymon N.Jhonson, Walter G. &, Kell, 2006. Modern Auditing. 8th
Edition. USA. Richard D. Irwin Inc
8. Budur, J. I. (2008). Factors affecting the external auditor’s fees in the Hashemite Kingdom
of Jordan. Arab Journal of Accounting, 11(1), University of Bahrain, Kingdom of Bahrain.
9. Commerce 2009Quality of Financial Reporting: measuring qualitative characteristics
Nijmegen Center for Economics (NiCE). Working Paper 09-108 April
10. DiGabriele, J. A., & Ojo, M. (2014). Objectivity and independence: The dual roles of
external auditors. Journal of Forensic & Investigative Accounting, 6(2), 200-224.
11. Eilifscn, A. and McKee, T. E., 2006. "Current matcriality guidance for auditors": The
Certified Public Accountants Journal.
12. Eldahraoi, K. (2002). Methods research in field of accounting. AL Scandrie University
Publishing House, 99.
13. Etzioni Chowdhury, Riazur R., John Innes, & Reza Kouhy., 1985, The Public Sector Audit
Expectations Gap

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14. Geffken, Carl. 2004, Internal Compliance Audits-A Real Asset Global Cosmetic Industry
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15. Gellinas (2005) Internal Audit Effectiveness: An Expansion of Present Methods
Managerial Auditing Journal, Vol. 16 No. 8
16. Hall (2011) a Study of Effective Implementation of Internal Audit Function to Promote
Good Governance in the Public Sector
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measure quality external audit. Journal of Accounting and Management and Insurance.
College of Business-Cairo-University, 355.
18. International Public Sector Accounting Standard, 2010. Glossary Handbook. IPSAS
19. Jovanova, B., & Josheski, D. (2011). External audit and relationship between internal
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Egypt
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Perspective, Journal of Applied Accounting Research. Volume 9
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the
25. Moeller. Robert R. 2010. Brink’s Modern Internal Auditing, Sixth Edition, John Wiley &
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26. Oromia Regional State Planning Institute (2009): Map of Oromia Regional State
27. Ojo, M. (2006). The role of external auditors and international accounting bodies in
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No. 354, pp. 1-14.
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29. Sawyers,Lawrence B., Mortimer A. Dittenhofer and James H. Scheiner, 2003. Sawyer’s
Internal Auditing, The Practice of Madern internal Auditing. Fifth Edition. Florida; The
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30. Spencer, Picket. 2010. “Internal Auditing Handbook”. Third Edition. Willey & Son
31. Youssef, M. (2013). The effectiveness of external audit in achieving the reliability of
accounting information under the financial accounting system (SCF) (Master thesis,
Qasidi Merbah University, Ouargla, Algeria).

30
Annexes: Questionnaire
The questionnaire aims to collect data from microfinance institutions with the goal of
examining “The Impact of A u d i t i n g On Financial Statements In Chiro Town”. Data
obtained will be held in confidence and the identity of respondents will be kept anonymous.
Your cooperation in this data collection exercise is highly appreciated.
SECTION A
1. Sex: (a) Male (b) Female
2. Marital Status: (a) Married (b) Single
3. Age: (a) 20-25yrs (b) 26-30yrs (c) 31-35yrs (d) 36
and above
4. How long have you been worked in the company?
(a) 1-10yrs (b) 11-20yrs (c) 20-30yrs (d) 31
and above
5. What is the level of your academic qualification?
(a) Certificate / L.IV (b) Degree (c) MBA/M.Sc. (d)Ph.D.
(e) others specify …………
6. What position do you occupy in the company/ organization?
(a) Manager (b) Auditor (c) Accountant (d)process owner (e)Others

Not
Questions   Yes
No Sure
7 Does auditing aid quality of financial statement in Chiro
town Administration?
8 Does auditing Financial statement play any significant role
in Chiro town Administration ?
9 Does auditing in Chiro town Administration improve the
quality of financial statement in Chiro town Administration
?
10 Has there been effective implementation and adoption of
auditing practice in Chiro town Administration?
11 Is there any problem confronting the staff of Chiro town
Administration in enhancing quality financial statement?
12 Has the financial statement of your organization be audited
regularly?

31
13. Who prepares the financial statement of your company?
(a) Manager (b) Accountant (c) Auditor
15. Please comment on the impact of audit on quality of financial statement
………………………………………………………………………………………………
………………………………………………………………

SECTION B: INTERNAL AUDIT STANDARDS

7. Please indicate the extent to which each of the following statements match internal audit
standards in your organization where 1=strongly disagree 2= disagree 3=neither disagree
nor agree 4=agree 5=strongly agree

Items 1 2 3 4 5

Internal Audit Standards Statements

Whether standards for audits and audit-
related services did affect performance in
our organization
Effectiveness of auditing was as a result of
performing auditing work according to the
set audit standards
The auditors in our organisation
objectively performed their roles and
adhered to the accepted professional
standards and practices.

SECTION C: INDEPENDENCE OF INTERNAL AUDIT

8. Kindly indicate the extent to which you agree or disagree with the following statements as
relates to independence of internal audit in your firm where 1=strongly disagree 2=disagree
3=neither disagree nor agree 4=agree 5=strongly agree

Items 1 2 3 4 5

Independence of internal audit

The audit team in our firm reports to the
city councils

32
Audit in our firm is independent of both the
personnel and operational activities within
the firm
The achievement of the function and
objective of internal audit has resulted to
effectiveness in our firm
Internal audit recommendations touching
on significant risk areas are implemented
immediately

The internal control system is effective in

minimizing potential losses in the
microfinance institution

SECTION D: PROBLEMS CONFRONTING THE INTERNAL AUDITORS

9. Kindly indicate the extent to which you agree or disagree with the following statements
as relates to professional competence in your firm where 1=strongly disagree 2=
disagree 3=neither disagree nor agree 4=agree 5=strongly agree

Items 1 2 3 4 5

 Political environment.
 regulatory environment for the profession of external audit

 the regulatory environment for the Office of External

Audit:
 The size of the office of external audit
 The reputation of the external auditing office

 Commitment to the generally accepted professional

criterion
 Fees the process of auditing
 Independence of the auditor
 Experience of auditing team

 Company size

 The structure of auditing

33
 Which one may serve as methods to improve audit impact on financial statement?

Methods to improve audit impact on financial statement Yes No

Scientific and practical development and qualification for

 
auditor

Placing criteria for controlling auditing quality

Putting methods of control on the auditing quality

Supporting the independence of auditing

THANK YOU

34
*GENERAL COMMENT FOR GENERAL CORRECTION
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