2022

STUDY ON INTERNAL AUDIT AS AIM TO EFFECTIVE INTERNAL

SYSTEM

Master Thesis Research Project submitted to Jain (Deemed-to-be University)

in partial fulfillment of the requirements for the award of

Master of Business Administration

Submitted by

Niranjan.K.S

21JMBAR035

under the guidance of

Prof. Shruti Agarwal

Professor
Jain (Deemed-to-be University)
Bangalore
 2022

STUDY ON INTERNAL AUDIT AS AIM TO EFFECTIVE INTERNAL

SYSTEM

Master Thesis Research Project submitted to Jain (Deemed-to-be University)

in partial fulfillment of the requirements for the award of

Master of Business Administration

Submitted by

Niranjan.K.S

21JMBAR035

under the guidance of

Prof. Shruti Agarwal

Professor
Jain (Deemed-to-be University)
Bangalore
Prof. Shruti Agarwal
Professor
Jain (Deemed-to-be University)

CERTIFICATE

I certify that this research entitled “A study on internal Audit as a Aim to effective internal

system” submitted to Jain (Deemed-to-be University) in partial fulfillment of the

requirements for the award of MBA, is a record of independent work carried out by Mr.

Niranjan K S under my supervision and guidance.

Bangalore Prof. Shruti Agarwal

Date: Faculty Mentor

3
 DECLARATION

I hereby declare that the Master Thesis Research Project, “A study on internal Audit as

a Aim to effective internal system” undertaken by me under the guidance of Prof. Shruti

Agarwal, Jain (Deemed-to-be University), Bangalore is an independent work. This work

has not formed the basis for the award of any Degree and has not been submitted

previously to any other College/University.

The report is towards the partial fulfillment of the Master of Business Administration

course of Jain (Deemed-to-be University), Bangalore for the batch of 2021-23.

Bangalore
Date: Niranjan K S

4
 CONTENTS

Page No.
List of Tables i
List of Figures ii
Abstract iii

Chapter I Introduction and Review of Literature 8-14

1.1 Rationale for the Study and Motivation 8-11

1.2 Statement of the Research Problem 11
1.3 Review of Literature 12-13
1.4 Identification of Research Gaps 14

Chapter II Research Methodology 15-25

2.1 Scope of the Study 16

2.2 Research Objectives 17-18
2.3 Framing of Research Hypotheses 19
2.4 Research Design 20
2.5 Methods for Data Collection & Variables of the study 21
Chapter
Data Analysis and Interpretation 23-33
III
3.1 Techniques for Data Analysis 23-25
3.2 Hypotheses Testing and Methods 25
3.3 Data Interpretation 26-33
Chapter
Findings and Recommendations 35 – 39
IV
4.1 Research Outcome and Findings 35-36
4.2 Recommendations 37
4.3 Limitations of the Study 38
4.4 Conclusions 39
4.5 Scope for Future Research 39
Annexures
• Bibliography
• Appendices

6
CHAPTER 1

7
 CHAPTER 1

Introduction and Review of Literature

1.1. Rationale for the study and Motivation

The word "audit" originates from the Latin word "audit are," which means "to listen";
nevertheless, people as far back as the Assyrians, Egyptians, and the reigns of Charles the Great
and Edward I of England had been discussing audits.

According to expert Jacques Reynard, internal and external auditing both emerged as a result
of the 1929 economic crisis in the United States, when firms were hit hard by the Great
Depression. To that end, all employer accounts that "may" have had taxing or fee-generating
transactions "have been rigorously reviewed to discover the potential of decreasing the taxable
supply or transactions for which fees were paid unlawfully," the authors write.

As was said earlier in the text, we are aware of the vast time difference between now and 1929,
and yet, we are all similarly impacted by the present crisis. Numerous terminology, including
inspection, control, revision, checking, auditing, and supervision, attest to the extensive history
of audit practice. Each of these concepts entails a comparison between the current state and an
ideal state, the identification and evaluation of any discrepancies or threats, and the suggestion
or advice of steps that might help the organization reach its goals or deliver accurate
information.
The reports made accessible to individuals who are interested provide a summary and
organization of the auditor's findings. The revised definition expands the prospects for internal
audit, expanding the scope of work to include risk management, and control governance
processes. (Chapman & Anderson, 2002), explained the main changes in the concept of internal
audit, as a result of the reformulation of internal audit defined by the Institute of Internal
Auditors IIA (1999) In the following important points:

1) An internal audit is an objective activity that can be provided both internally and externally.
This revised definition allows organizations to obtain quality services for internal auditing
through outsourcing.

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2) By emphasizing that the scope of internal audit includes ensuring advisory activities, new
projects of internal audit as an activity definition, focusing on the key issues involved in
monitoring and risk management.
3) The internal audit aims to add value to the organization and improve the Organization's
operations, said the new definition emphasizes the importance of the contribution of an
effective internal audit in any organization.
4) The revised definition makes the internal audit wide-ranging in the review of the entire
organization, to assist the organization to achieve its overall objectives.
5) The revised definition broadens the scope of the internal audit, extending its scope to include
risk management and oversight of governance processes.
6) The revised definition clarifies that the internal audit profession is based on professional
standards and internal audit standards and is presented on the basis of a systematic, documented
and disciplined process that emphasizes the quality of internal audit performance.

Internal audit's future is brightened by the amended definition, which broadens the field to
include risk management and control governance activities. (Chapman & Anderson, 2002)
outlined the primary modifications to the definition of internal audit brought about by the IIA's
reworking of that term (1999)

The following are some key considerations:

1) An internal audit is a neutral service that may be delivered by an organization's own
personnel or by an independent third party. With this updated definition, businesses may
outsource to reliable firms for conduct of internal audits.
2) By highlighting the fact that advisory activities are within the purview of internal audit and
by defining internal audit as an activity centered on monitoring and risk management, new
projects of internal audit are being given more attention.
The new definition stresses the significance of the contribution of a good internal audit in any
business, since the internal audit's goals are to bring value to the organization and enhance the
organization's operations.
4) The new definition expands the scope of the internal audit to include an examination of the
whole company and how it operates to better support the achievement of its overall goals.
5) The new definition of internal audit includes more procedures, such as monitoring of risk
management and governance, expanding its applicability.

9
6) The new definition makes clear that the field of internal auditing is founded on both external
and internal auditing standards, and that it is presented in accordance with a methodical,
documented, and disciplined procedure that places an emphasis on the integrity of the audit
itself.

Internal audit findings are efficient enough to reduce errors and improve organization work,
we decided to condense our efforts in this area of research to well indicate the internal audit
findings roll on improving organization work. In Public Authority for Social Insurance
(hereafter PASI) as a public sector in the Sultanate of Oman, there is a lack in;
(i) Internal auditors who are working regarding auditing scope;
(ii) Experienced auditing staff; and
(iii) Senior management’s response. This study is built to examine whether or not these factors
influence the internal audit effectiveness. The study addresses whether internal audit scope,
internal auditors’ experience and senior management’s response influence the internal audit
effectiveness. Our study’s objectives are to examine the influence of the mentioned factors on
the internal audit effectiveness. Our study differs from others in;
(I) providing empirical evidence regarding the influence of management response on the
internal audit effectiveness which has not been well researched before in public sector
organizations as referred by Gadara and Said in (2013);
(ii) Presenting an argument on the influence of the mentioned factors on the internal audit
effectiveness based on two respondents’ samples; and
(iii) Being the first that examines this influence in a public sector in the Sultanate of Oman.
To fill the gap in this area of literature in the Sultanate of Oman, our study provides an
important evidence regarding the influence of mentioned factors on the effectiveness of internal
audit. Our results present the role of these factor in improving and enhancing the internal audit
performance. Our study continues as follows: Section two builds the research framework after
reviewing the topic literature. Information about PASI is presented in section three. Our
research hypotheses and methods are presented in section four. Section five implies our
findings. Findings discussion, conclusions and contributions are presented in last section.

10
By bringing a systematic, disciplined approach to evaluating and improving the efficacy of risk
management, control, and governance processes, an organization can more effectively achieve
its goals through the internal audit activity.

1.2 Statement of the Research Problem

Financial and economic aspects of any company may be controlled by auditing, which acts as
a check on the organization's administrative and financial processes. There is a focus on the
issues with governance, government accounts, and auditing processes, in addition to an
explanation of what auditing is and how it works.

Keeping waste, pilferage, and misappropriation at bay, as well as securing assets, is of

paramount importance to the Nigerian economy, so much so that the need of a well-maintained
internal audit system cannot be overstated.

 Public sector management and the internal auditing department's role are frequently
seen as incompatible, rather than as two sides of the same coin.
 Because of intervention and excessive influence from upper management, the internal
audit department, which is designed to guarantee compliance with management policy,
may fail to accomplish its primary goal.
 To ensure that the internal audit has sufficient resources.
 For maximum productivity, hire the best and brightest experts available.

11
1.3 Review of Literature

For the research, a few empirical findings were chosen. The focus of the study was on public
sector organisations. Additionally, it was determined that the qualities of internal auditors are
crucial for measuring internal audit effectiveness and that the interactions between internal
and external auditors, chief audit executives, and senior management are crucial for internal
audit effectiveness. It is advised that research on internal audit effectiveness include
empirical studies in private sector organisations, a comparison of private and public sector
organisations, a core measurement of internal auditor attributes, and a relationship or
causality between management support and internal audit effectiveness. Relationships
between internal auditors and other parties, such as external auditors, chief audit executives,
and senior management, should also be.
Internal audit is crucial to ensuring resource efficiency, preventing theft, and combating fraud
and improper use of a company's resources (Badara & Saidin, 2014). In order to ensure
efficiency in a company's growth and development, which results in sustainable financial
conditions, internal auditing applies principles within an organisation. According to Alzeban
and Gwilliam (2014), internal audit practises that have not been properly implemented might
lead to an organization's failure. The measuring of internal audit effectiveness has drawn
academic investigations due to the widespread acceptance of internal auditing in corporate
governance. Therefore, doing a thorough examination of the literature on internal audit
effectiveness is essential.
In addition to adding value to the growing body of literature on internal auditing, this will
also highlight any theoretical or knowledge gaps and lay the groundwork for future studies in
the area.

Internal audit effectiveness has developed into a lucrative issue during the past ten years,
according to Badara & Saidin (2014). This is due to the crucial roles internal auditors play in
the success and survival of organisations. They claimed that the majority of businesses, both
public and private, have internal audit departments in place in order to take advantage of the
advantages associated with the internal audit service. Numerous empirical research identify
factors that influence internal audit effectiveness. These investigations revealed a plethora of
variations in the methods and metrics used to determine internal audit effectiveness.
Researchers' theoretical approaches to studying internal audit effectiveness vary, and there
doesn't seem to be agreement on how to measure internal audit effectiveness.

12
Others researchers created their own models for the measurement of variables (Mihret &
Yismaw, 2007; Arena & Azzone, 2009), while some studies adopted the International
Standards for Professional Practice of Internal Auditing (ISPPIA) as the framework for
measuring internal audit effectiveness (Al-Twaijry, Brierley, & Gwilliam, 2003). Endaga &
Hanefah (2013) claimed that the agency theory, institutional theory, and communication
theory could be used as the approach to build a theoretical framework of internal auditing.
They were making a contribution to measures to address the lack of consensus on the
theoretical framework of internal auditing.
The major goal of this study is to identify the metrics for measuring the efficiency of internal
audits. Reviewing pertinent literature and analysing and discussing research results on the
metrics for gauging internal audit effectiveness are part of the study.

13
1.4 Identification of Research Gaps

This is often referred to as an Evaluation Process, while it may also be dubbed a Pre-Audit. In
order to compare the existing state of affairs with the list of criteria that must be met in order
to implement each standard, a gap analysis is often performed at the outset of the certification
process. Simply said, a gap is an assessment of how well your company meets the criteria of a
certain specification or standard. In order to do a gap analysis, it is necessary to analyze relevant
documents or engage in a "show me the evidence" exercise, with the evidence often being in
the form of written records. There has to be a pattern of top management and internal audit
aiding each other.in carrying out their duties effectively. The primary goal of an internal audit,
as defined by the IIA's 1999 definition revision, is to

Internal auditing is a methodical approach to assessing and enhancing the efficacy of risk
management, control, and governance inside a business, with the goals of providing value and
improving operations. Improvements in senior management effectiveness may be attributed to
internal audit's ability to identify and address flaws in the internal control system and corporate
governance. Senior management's buy-in for internal auditing is crucial for effective IIA audit
management.
See paragraph 1110 of the IIA Audit Standards for a discussion of the importance of auditors'
support for senior management's efforts to maintain the independence of their company in
deciding the scope of the internal audit and in carrying out the work and delivering the findings
of that audit. Sufficient aid for internal audit in operational procedures Reference is made to
IIA Standard 1110.

14
CHAPTER 2

15
Chapter 2
Research Methodology
2.1 Scope of the study
 Examine the methods used to identify, measure, and categorize financial and
operational data, as well as their accuracy and consistency.
 Evaluate systems based on assuring compliance with these policies, plans, procedures,
rules, and regulations, which may have a major effect on processes and reports and
whether or not the firm is compliant.
 Thirdly, evaluate and examine whether or not resources are being used effectively and
economically.
 Examining procedures and programs to see whether they were carried out as planned
and if outcomes were in line with expectations.
 Instances when the Auditor Management Committee has requested a detailed
examination of a certain business practice.
 Always keep an eye on the Organization's risk management system and see how well
it's working.
 assessing the effectiveness of the external auditors, in conjunction with the internal
auditing department.
 Go through the executive summary of the audit's internal audit statement to see what
they think of the audit's opinion and how it was planned.

16
2.2 Research objective:
The internal audit charter serves as the primary definition of the department of internal audit's
objectives. It is important to remember that the internal audit's scope is fairly broad.

As the name implies, an internal audit takes place within a corporation. As a result, the
funding, accounting, and operational operations of the organization will be examined by an
independent auditor or team of auditors who are in fact employed by the organization.
Actually, it is a part of the company's internal control framework.
 Identifying Fraud

The detection of fraud is one of the goals of internal audits. If the business has an internal
audit in place, fraud detection is significantly simpler. This is as a result of an annual audit of
the staff.
In reality, an employee is less likely to try to commit fraud when an internal auditor is
present. He won't have time to cover up the fraud between when it happens and when it is
discovered. As a result, employees will be deterred from committing fraud.
 Proper Control

The thorough control of all organizational activities is also one of the fundamental objectives
of an internal audit. The management requires confirmation that the financial records are
accurate and that the business is run effectively. In order to establish both, an internal audit is
helpful.
 Asset Defense

Internal auditing always involves valuing and verifying assets. The ownership and possession
of the asset are also physically confirmed.
The authorization is additionally audited in an internal audit when dealing with unique
transactions like the sale, purchase, or reappraisal of assets. The assets are therefore entirely
secure.
 Perfect Accounting System

The accounting system of an organisation is carefully inspected through an internal audit.

Everything is verified, from transaction authority to sufficient precision and vouchers. Cross-
checks are performed on all entries against records and other proofs. The possibility of
mistakes or fraud is greatly diminished.

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  Analysis of Business

A company's financial and operational features should be closely monitored as part of an

internal audit. Internal audit can identify the business's errors, weak spots, and strengths
while the current fiscal year is still in progress. This will enable an ongoing review rather
than waiting until the end of the year.
 Keeps a Check on Errors

The final internal audit goal is for the auditor to be able to identify any financial record
mistakes during a financial audit. This only happens at the conclusion of the fiscal year,
though.
The mistakes are then fixed. However, in the event of an internal audit, problems are found
and fixed right away.

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2.3 Framing of Research Hypotheses
Chi-Square Analysis of Gender and Knowledge of study on internal audit as aim to effective
internal system

No correlation exists between gender and knowledge of study on internal audit as aim to
effective internal system. So H0 is accepted as the true hypothesis.

Second-Best Hypothesis (H1): People of different genders have different levels of

understanding of study on internal audit as aim to effective internal system

(6-7)2 (6-5)2
χ²= + =0.343
7 5
P-value = 1 - p (χ² (1) ≤ 0.343).

k 2 Number of categories

n 12 Sample size

χ² 0.342857 Chi square test statistic

DF 1 df = k-m-1 =2-0-1 = 1

Phi effect (Φ) 0.169031 Φ=√(χ2/n)

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2.4 Research Design:

The quick and revolutionary changes in the corporate environment have had far-reaching
effects on businesses throughout the globe. Improved quality and risk management initiatives,
reengineered structures and processes, and increased accountability are all examples of
management responses to intense global competition that necessitate more timely, reliable, and
relevant information for decision-making. Many businesses are likewise rushing to improve
their governance systems and procedures. In this setting, it is not surprising that the internal
audit function is looked to as the best resource for monitoring the controls over and assessing
the operational efficacy of these management strategies and initiatives, as well as for aiding in
the experimentation of better governance. However, internal auditors need a significantly
augmented repertoire of skills, attributes, and competencies, as well as a commensurately
elevated organizational status and profile, in order to take advantage of this tremendous surge
in the demand for their services.

Professional Practices Framework (IIA, 2002a) codifies the new definition of internal auditing
as a complete framework for understanding the relationship between the internal auditing body
of knowledge and the relevant guidelines. Standards and Ethics9 (required guidance), Practice
Advisories (strongly recommended), and Development & Practice Aids (useful reference
materials developed by or endorsed by The IIA) are the three types of guidance that make up
the Professional Practices Framework. The Framework compiles all applicable standards and
best practices in a format that is user-friendly and up-to-date for internal audit professionals.
Over time, it will presumably become more mature and flexible to meet the needs of internal
audit professionals. Access to the Professional Practices Framework and the IIA Standards is
provided.

20
2.5 Methods for Data Collection & Variables of the study

Mainly data is collected by primary and secondary sources

 Primary Data
Primary source of data was collected by questionnaire.
 Secondary Data
Secondary source of data was collected from
- Books
- Journals
- Magazines
- Websites

Sampling
The sample technique utilized for data gathering is convenient sampling. The convenience
sampling method is a non-probability strategy.

Sampling size
It indicates the numbers of people to be surveyed. Though large samples give more reliable
results than small samples but due to constraint of time and money.
Plan of analysis
Diagrammatic representation through graphs and charts Suitable inferences will be made after
applying necessary statistical tools. Findings & suggestions will be given to make the study
more useful.

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CHAPTER 3

22
CHAPTER 3
Data Analysis and Interpretation

3.1 Techniques for Data Analysis:

Internal auditing can greatly benefit from data analytics. However, it is possible to use
analytics excessively and become overly zealous, which would result in more effort than was
required. A huge multinational manufacturing company I formerly worked with, for instance,
had a specialised data analytics team whose job it was to create queries based on specific
audit scenarios and then identify transactions in the financial system. While this might be
useful in identifying fraud scenarios, management insisted that it be scaled, which resulted to
an overabundance of false positives that internal audit had to manually sort through. Internal
audit eventually had to start over in order to come up with a more workable approach.
Although data analytics can improve internal audit processes, your audit team may get
overburdened with unneeded work if you don't have a strategic approach for utilising
analytics.

 Data analytics and infrastructure coordination

Your programme is less likely to be successful without proper cross-functional teamwork,

just like many other things in internal audit. Your team must think about what the
organisation is already doing with analytics when you start creating a data analytics
programme for internal audit. Avoid reinventing anything that currently exists in the
infrastructure of your firm. For instance, PowerBI Pro is available for data analytics
development and dissemination under your Microsoft licence if your business has the E5
License of Microsoft 365, so you might already have a data analytics programme in place.
Make sure internal audit, IT, and procurement are in sync as you design your data analytics
solution.
In my opinion, the more collaboration there is while developing a data analytics programme,
the better. For instance, when I collaborated with a US-based retailer's internal audit team, we
built the data analytics software on top of their already-existing Business Intelligence (BI)
programme. Together with the finance team, we were able to construct a central analytics
engine and visualization tool that could generate reports for audit using the infrastructure that
already existed.

23
  Understand the Potential and Limits of Your Data

There are more opportunities to learn important lessons from data analytics if your company
uses numerous enterprise resource planning (ERP) systems, but there is also a larger chance
of data quality problems, difficulties with data extraction, and a wide range of
privacy/regulatory concerns. Someone on staff who is technically knowledgeable about ETL
(Extract-Transform-Load) operations is essential. Data integration techniques like ETL
aggregate information from various sources into one central location. ETL is essential to data
integration plans because it enables the collaboration of many data kinds.
Overall, the key to launching a successful data analytics programme is to be aware of the
volume of data required as well as the workload and skills of your staff. Establish reasonable
expectations among your teams and ensure that there is a common understanding across the
organisation of what data can and cannot do in terms of internal audit.
Collaboration with your IT team is required to fully utilise data analytics. For instance, I
collaborated with a dedicated data analytics team while working with an internal audit team
for a large medical equipment company. The financial audit team's dashboards were
supported by the data analytics team's work with the IT department to build and provide the
prescribed analytics.
 Hire, Train, and Collaborate

No matter how well internal audit works with other departments, you won't be successful if
your team has the necessary data handling skills. You must first find workers who are
equipped to handle data before you start any programme development. If your team lacks the
necessary abilities, start looking for recruits who do, or think about upskilling and educating
your existing staff.
In addition to technological expertise, data management, statistical understanding, and
creative thinking abilities are necessary for creating and utilising data analytics. In addition to
hiring, your company should make sure that current employees are knowledgeable on
analytics tools and processes.

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  Put Internal Controls in Place

The most crucial thing to remember when it comes to data analytics is internal controls. Data
analytics should be governed effectively, with policies and procedures, access controls for
tools and systems, formal reviews of deliverables for completeness and accuracy, backups of
working files, record retention compliance, and metrics that capture and track continual
improvement all being part of this.
 Establish Metrics to Track Your Program

The effectiveness of any data analytics programme depends on your capacity for
measurement.

3.2 Hypotheses Testing and Methods:

Taking into account the study's aims and the way the issue has been defined. For the purpose
of this investigation, the following hypotheses have been constructed.

H1: When it comes to managing the successes of the public sector, an internal audit is a crucial
tool.
H0: There is no evidence to suggest that conducting an internal audit will improve the
effectiveness with which public sector performance is managed.

The research hypotheses are as follows, and they are grounded on the study's theoretical
framework, problem statement, research questions, and study goals.
It's been hypothesized that H1: The breadth of an internal audit has an impact on how well it
performs.
A competent internal audit depends on the expertise level of the auditor, as stated in H2.
H3: The efficacy of internal audits is affected by the reaction of upper management.

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3.3 Data Interpretation
Table 1. Descriptive statistics for employees’ sample

Gender Age Education Experience Sector

N Valid 163 163 163 163 163

Missing 0 0 0 0 0

Mean 1.4110 1.6503 2.1963 2.2638 1.6871

Median 1.0000 2.0000 2.0000 2.0000 1.0000
Std. Deviation .49354 .70740 1.83202 1.16443 .91302
Skewness .365 .830 8.012 .634 1.304
Std. Error of Skewness .190 .190 .190 .190 .190
Kurtosis -1.890 .240 84.778 -.445 .860
Std. Error of Kurtosis .378 .378 .378 .378 .378
Minimum 1.00 1.00 1.00 1.00 1.00
Maximum 2.00 4.00 6.00 6.00 4.00

There are 45 records for each of the aforementioned factors in Table 2's descriptive statistics
for the managers' sample. While the median and mean values for experience are the highest,
they are the lowest for the gender factor. Because the standard deviations are all under 3, we
know there are no outliers in the data. The normal distribution is guaranteed by the fact that all
factors have skewness and kurtosis values that are less than or equal to 2. Table 2 shows that
no violation from regression assumptions

26
Table 2. Descriptive statistics for managers’ sample

Gender Age Educatio Experienc Sector

n e

N Valid 45 45 45 45 45
Missing 0 0 0 0 0

Mean 1.1818 2.2727 2.8182 3.5682 1.8182

Median 1.0000 2.0000 2.5000 4.0000 1.0000
Std. Deviation .39015 .75832 1.12628 1.28312 1.16684
Variance .152 .575 1.268 1.646 1.362
Skewness 1.709 -.175 .989 -.435 1.107
Std. Error of Skewness .357 .357 .357 .357 .357
Kurtosis .961 -.623 1.022 -.212 -.382
Std. Error of Kurtosis .702 .702 .702 .702 .702
Minimum 1.00 1.00 1.00 1.00 1.00

Examining for Correlations

Table 3 shows that the correlations between the managers' sample's internal audit scope and
the internal auditors' experience with internal audit effectiveness are weak and very weak,
respectively.
Table 4 displays statistically significant correlations between audit scope and employees' prior
experiences with the efficiency of internal audits.

27
Table 3. Correlation test between Internal audit effectiveness, Audit scope, Experience and
Management response for managers’ sample

Internal Audit Pearson Correlation 1

Effectivenes Sig. (2-tailed)
s
N 45
Scope Pearson .067 1
Correlation
Sig. (2-tailed) .665
N 45 45
Experience Pearson -.204 .088 1
Correlation
Sig. (2-tailed) .184 .570
N 45 45 45
Managemen Pearson -.046 .357* .090 1
t Correlation
response Sig. (2-tailed) .765 .017 .563
N 45 45 45 45
* Correlation is significant at 0.05 level or better.

28
Table 4. Correlation test between Internal audit effectiveness, Audit scope, Experience and
Management response for employees’ sample

Interna Audit Pearson 1

l Correlation
Effectiveness Sig. (2-tailed)

N 163
Scope Pearson .357** 1

Correlation
Sig. (2-tailed) .000
N 163 163
Experi Pearson .419** .282** 1
ence Correlation
Sig. (2-tailed) .000 .000
N 163 163 163

**. Correlation is significant at 0.01 level (2-tailed).

Regression Results for Employees’ Sample

Hypotheses 1 and 2 state that internal audit scope and its internal auditor’s experience
influence the internal audit effectiveness, while Hypothesis 3 states that the senior
management's response influences the internal audit effectiveness. The significant F statistic
shown in Table 5 indicates that the model as a whole is significant to be adopted for
employees’ sample but not for managers' sample.

29
Table 5. Comparison between the regression results.

Model / Coefficients Employe Manager

variable es s
R .488 .230
R Square .238 .053
Adjusted R .228 - .018
Square
F 24.949 .744
Sig. .000 .533
Beta .259 .109
Audit t-test 3.607 .661
Scope Sig. .000 .512
Beta .346 - .208
Staff t-test 4.811 - 1.342
Experience Sig. .000 .187
Beta - .067
Management t-test /// - .404
Response Sig. .688

Internal audit effectiveness was found to be significantly influenced by audit scope (= 0.259,
t-test = 3.607, P 0.00) according to a survey of the company's employees. There is a statistically
significant and positive relationship between auditor experience and the quality of the internal
audit (= 0.346, t-test = 4.811, P = 0.00).
The betas coefficients and t-test for managers' sample results show insignificant association for
audit scope, auditors' experience, and senior management's response with internal audit
effectiveness ( = 0.109 and t-test = 0.661), ( = - 0.208 and t-test = -1.342), and ( = - 0.067and
t-test = -0.404).

30
Out of 45 respondents 53% of them responded as excellent

Out of 45 respondents 40% responded as average on Communicating of audit process.

31
Out of 45 respondents 26.7% of the people Responded equally of Above average and Below
Average in this survey.

Out of 45 respondents 26.7% of the people Responded as demonstrating a reasonable understanding

of the area .

32
Out of 45 respondents 35.6% of the people responded as average per the survey question .

Out of 45 respondents 35.6% of the people Responded as Above Average as per the survey .

33
CHAPTER 4

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CHAPTER 4
Findings and Recommendations
4.1 Research Outcome and Findings

Multiple study topics arise from the discussion of the evolution of internal auditing and the
current state of the function, including what is expected of it and the duties and responsibilities
it is expected to play inside an organization.
You'll find a list of potential research questions in the Appendix, separated into sections with
titles like "historical/archival/policy-oriented research," "contemporary practice: state of the art
of internal auditing," "theory/common body of knowledge/education," "prospects," and
"miscellaneous." We believe that serious consideration of the recommended research topics
and the avenues of inquiry they offer for future research examination would be beneficial for
interested academics. (Note: The list of research questions in the Appendix is meant to be
illustrative and is by no means exhaustive.)

Findings:
With respect to H0:1, the sample of workers' responses is in line with previous research (Van
Peruse, 2004; Mired and Yasmin, 2007; Intakhan and Ussahawanitchakit, 2010) and is
supported by the IIA's (1999) definition of internal auditing and Moeller's (2009) association
of internal audit effectiveness with the outcomes of major business activities, developments,
and large and varied transactions. Workers embrace H1 but bosses reject it. Our research
showed that the size of an internal audit's scope had a favourable impact on its efficacy among
workers, but not among managers.
The Efficiency of the Internal Audit and the Background of Its Auditors
Employee sample results are consistent with IIA standard 1210, as tested by using Hypothesis
(2). The internal auditors should have the knowledge, abilities, and other competences outlined
in this standard (IIA, 2011). Also, our finding is consistent with other research suggesting that
auditors' assessments may be enhanced by prior experience with a particular kind of
assignment, and that knowledge plays a crucial role in internal auditing for government
agencies
Our finding that there is a positive and statistically significant relationship between the amounts
of experience an auditor has and the quality of their audits is consistent with previous research
that has found that auditors must draw on their experience to be effective (Intakhan and
Ussahawanitchakit, 2010). (Wright and Wright, 1997).

35
Experienced auditors are better at applying their knowledge in nuanced ways than
inexperienced auditors (Coho and Trotman, 1991), and more experienced auditors are better at
gathering and considering relevant information than less experienced auditors (Bonner and
Lewis, 1990). (Biers taker and Thibodaux, 2006).
Research that define knowledge as the number of years of audit experience (Wright and Wright,
1997; Prewritten et al., 2008) are compatible with our finding. Likewise, studies that define
knowledge as the correct training environment and years of audit experience are consistent
with our finding (Carpenter et al., 2002),
This finding is consistent with the IIA (1999) definition of internal auditing and the research
of (Moeller, 2009), who links the efficiency of internal auditing to the amount of auditable
activities and the number and variety of business units. Our results showed that auditors'
experience positively affected the internal audit effectiveness in the workers' sample but not
the managers', thus we may accept H2 for the employees' sample but not the managers'.
The Efficiency of Internal Audits and Management's Actions 6.1.3
Testing outcomes According to previous research, managers may disregard internal control
because they see it as a management tool, according to Churyk et al. (2008), and according to
Stewart and Subramaniam (2010), senior management has only a limited impact on internal
auditors.
This finding runs counter to the findings of Churyk et al. (2008) and Gadara and Saidin (2013),
who found that management exerts considerable influence over the internal audit department
and that internal audit provides management with genuine assurance that they have sufficient
controls and that any failures will be investigated and directly remedied. Our results showed
that management reaction had a negligible effect on the efficiency of the internal audit, so H3
was disproved.

36
4.2 Recommendations:

 If a company's internal audit reveals whether or not its own system of controls is
efficient, that system is likely to be deemed effective.
 How well public sector internal audits line up with sector management policies,
legislation, and regulations.
 To what extent do you think internal audits in government agencies will aid in reducing
fraud?
 Auditing government agencies requires following certain methods, methodologies, and
concepts.
 Some audit departments may be lucky enough to have a sizable budget that will allow
them to utilise solutions like TeamMate or activity tracking software. For others, you
are probably using an Excel file to manage your auditing activities.

 We developed an action tracking tool as a result. Even while it may not have all the
bells and whistles of a fancy activity monitoring tool, it is a cheap and efficient choice
that will still produce essentially the same results with a little human work.

 Following up on audit recommendations (also known as action tracking or managing

audit results) is never enjoyable for the Internal Audit team or the recommendation
owners. Every month, the Internal Audit team is required to call several suggestion
owners, hound them for responses, compile the results, and then generate numerous
dashboard reports. It's a laborious, time-consuming activity that always takes longer
than expected to finish.

37
4.3 Limitations of the Study:

Because senior managers place more weight on the findings of other audit parties than on that
of the internal audit department; because of the unique features of the public sector
environment in the Sultanate of Oman; because of the relatively small size of the managers'
sample or period; because of the unique features of, which provides services to a large number
of people who require expedited procedures. The significance and utility of the research are
not in doubt, and its limitations will not diminish its worth. The board of directors has to
evaluate the causes for the study's inconsequential findings if they are unrelated to the small
size of the managers' sample. On the other side, raising knowledge among workers is crucial,
as a recent sample shown that they have a strong beneficial effect on how well internal audit is
used. As a result, the results may pique the attention of boards of directors, controls
departments, and public accountants. The study adds to the growing body of knowledge in this
field by making use of information gathered in the Sultanate of audit. The findings may be
strengthened and broadened if they were consistent with those of previous study that used data
from other parts of the globe. The findings have theoretical and practical relevance for
accounting courses due to the importance of audit and internal audit in particular.
An skilled specialist evaluates a company's financial statements during a financial audit. Any
major inaccuracies that may be present in those statements are to be found through this
method. Financial audits aim to confirm that the financial statements give a true and fair
representation of a company's financial situation.
The field of auditing, or financial audits specifically, has made great strides. In the past,
businesses would only perform external audits after a certain amount of time. However,
internal audits are now often used by businesses. Companies are required to have an internal
audit department in various jurisdictions. The internal control systems of a corporation are
significantly influenced by internal audits.
Although internal audits have many advantages, some people have doubts about them. The
internal audit function's shortcomings are the cause of this doubt. It is critical to comprehend
what internal audit is prior to comprehending what these restrictions are.

38
4.4 Conclusion:
The conclusion reached by the audit leader or team after analyzing audit data is known as the
"audit conclusion." To be successful, internal auditing must reassure the audit committee and
senior management that the organization's procedures and systems are adequate to deal with
the risks that threaten the attainment of the organization's goals. Certification authorities base
their decisions on whether to renew or revoke certification on the results reached during audits.

The purpose might be stated in the form of a statement outlining the outcomes you want to
achieve as a direct consequence of conducting the audit. Statements should be worded in a
Favourable light to ensure that the audit leads to changes in procedure. For instance: "To
enhance the quality of treatment for individuals with leg ulcers."

4.5 Scope for Future Research:

The purpose of the preceding section was to define the role of internal auditors inside an
organization; in a nutshell, the buy-in of organizational members is crucial to the success of
the internal audit, and its absence renders the latter ineffective. Internal audit efficiency is
discussed here. There is a need for more research to investigate the impact of other variables
on the efficiency of internal audits. Possible fresh insights into the aspects that may affect its
efficacy may be gained from this.
If this variable is shown to have a moderating impact on the efficiency of internal audits, further
study using bigger samples is advised. More research is needed to determine which
characteristics have the most impact on internal audit effectiveness and to compare these
findings to those of similar studies conducted in other Middle Eastern, Gulf Cooperation
Council, or international settings. From what has been said thus far, it should be obvious that
internal auditing and Combined with the group's members more generally. Strong backing from
upper management there should be no involvement from management.

In internal auditing may compromise the autonomy of the internal auditors. Additionally, an
efficient audit committee protects the impartiality of internal audit and facilitates collaboration
between internal and external auditors.

39
Questionnaire Internal Audit

Your Information

Audited Area*required
Name* [. ]
Email*[. ]
Phone Number [. ]
Survey Questions
(Please select the response that best reflects your rating of the audit in the following areas.)
The audit objectives, purpose and scope were clearly communicated to me.
a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

My business concerns and perspective on key operating areas were adequately considered
during the audit.
a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

The auditor(s) demonstrated technical proficiency in the audit areas.

a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

40
The auditor(s) demonstrated effective communication skills.
a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

The auditor(s) demonstrated courtesy, professionalism, and a constructive and positive

approach.
a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

This disruption of daily activities was minimized as much as possible during the audit.
a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

The audit took an acceptable amount of time (from entrance to exit).

a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

41
Communication of audit status to me during the audit was timely and adequately.
a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

The audit report was clearly written, logically organized and issued timely.
a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

Audit results were accurately reported and appropriate perspective was provided.
a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

The conclusion and opinions of the auditor(s) were logical and well documented.
a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

42
Audit recommendations were constructive and actionable.
a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

The objectives of the audit were met. Overall, the audit was "value added" to the institution.
a. Strongly Agree
b. Agree
c. Neither Agree Nor Disagree
d. Disagree Strongly Disagree
e. No Basis

******

43
BIBILIOGRAPHY
 Reference: Al-Twaijry, A. M., Brierley, J. A., & Gilliam, D. R. (2004). "An
investigation of the link between internal and external audit in the Saudi Arabian
business sector," Managerial Auditing Journal, Vol. 19, No. 7.
 Amado, A. International Research Journal of Finance and Economics, Volume 27,
Number 27 (2009), Euro Journals Publishing, Inc., Niangua, E., "Evaluation of internal
control systems: a case study from Uganda."
 Identifying organizational determinants of internal audit effectiveness. [3] Arena, M.,
& AZ zone, G. (2009). International Journal of Auditing. Vol. 13. Blackwell Publishing
Ltd.
 According to “Internal auditors: fundamental to strong corporate governance" by L. E.
Bokmal (2002) in The Internal Auditor, Vol. 59, this is the case.
 Boston, I. &Grossum, V. (2010), "The importance of internal audit \sin optimization of
corporate governance at the groups \soft firms", Theoretical and Applied Economics,
\sol. XVII (2010), No. 2.
 Blackburn’s. (2003),"Reviewing the efficacy of \sour internal audit
\sfunction"availableonlineat:http://www.wayside.org.uk/d \downloads/Reviewia.pdf.
 According to “Going higher" by G. Cox (The Internal Auditor, Vol. 64, No. 4;
ABI/INFORM Global, pp. 72-77, 2007).
 Source: Car cello, J.V., Herman son, D.R., & Raghunandon, K. (2005), "Factors related
with U.S. public corporations' investment in internal auditing," Accounting Horizons,
Vol. 19, No. 2.
 According to Chapman, C., and Anderson, U., "Implementing the Professional
Practices Framework," Institute of Internal Auditors, Altamonte Springs, FL, 2002.
 Effective working relationships between audit committees and internal audit—the
foundation of corporate governance in local authorities—a Welsh viewpoint. Davies,
M. (2009), Journal of Management and Governance, Vol. 13.
 Managerial Auditing Journal, Vol. 16 (2001) by M. Dittenhofer, "Internal Auditing
Effectiveness: Expanding Current Methods."
 To manage the relationship with external auditors, see Engle, T. J. (1999), "The Internal
Auditor," Vol. 56, No. 4, ABI/INFORM Global.

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45