ASSESSMENT OF INTERNAL AUDITING PRACTICE IN DASHEN

BANK JIMMA BRANCH

SAMARA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING

Research proposal submitted to department of accounting and finance in

partial fulfillment of the requirement for B.A degree in accounting and
finance

Prepared by: Tegene Mohammed

Advisor: Mr. Lamesgin
Id no:1302239

MARCH, 2024
SAMARIA,

ETHIOPIA
 Abstract
The main purpose of this study is to assess the internal audit practice: the case of dashin
bank jimma branch Management support, management’s perception of internal audit
values, organizationalindependence of internal auditors, placement of adequate and
competent internal audit staff, and the presence of approved internal audit charter were
the identified factors to assess the practices of the internal audit. The study adopted
qualitative research methods and the internal audit staffs of the dashin bank jimma
branch are the primary source of data. Data will collected through questionnaires which
is developed through review of the related literatures, journals, research articles, and
websites used to gather data for the study. The collected data from the questionnaires
will be coded, they will entered into the Statistical Package for Social Sciences (SPSS)
version 20 computer package for analysis. Purposive sampling technique was used to
conduct the research of which the internal audit staffs are primary source of data
collected. The top management support to internal audit and management’s
perception of internal audit value is good that it is facilitating the practice of internal
auditing. Dashin bank should provide adequate support and encouragement for training
and development of the internal audit staff. Furthermore, the management should
acknowledge on the internal audit recommendations as a tool which contributes to the
improvement of risk management, control and governance using a systematic and
disciplined approach in the bank.

Keywords: Internal Audit, management Support and Perception, independence,

competence
 TABLES OF CONTENTS
Contents page

Abstract.............................................................................................................................................I

TABLES OF CONTENTS..............................................................................................................II

LIST OF TABLES.........................................................................................................................IV

ABBREVIETION AND ACRONYMES.......................................................................................V

CHAPTER ONE..............................................................................................................................1

INTRODUCTIONS.........................................................................................................................1

1.1. Background of the study.......................................................................................................1

1.2. Statement of the problem......................................................................................................2

1.3. Research questions................................................................................................................3

1.4. Objective of the study...........................................................................................................3

1.4.1. General Objective...........................................................................................................3

1.4.2. Specific objective...........................................................................................................3

1.5. Significance of the study.......................................................................................................3

1.6. Scope of the study.................................................................................................................3

1.7. Organization of the paper......................................................................................................4

CHAPTER TWO.............................................................................................................................5

REVIEW OF RELATED LITERATURE.......................................................................................5

2.1. Definition and Nature of internal Audit Activity (theoretical review)..................................5

2.2. Evaluation of Auditing..........................................................................................................6

2.3. Definition of internal Auditor...............................................................................................6

2.4. Phases of an internal auditing...............................................................................................6

 2.4.1. Planning..........................................................................................................................6

2.4.2.Entrance conference........................................................................................................7

2.4.3. Preliminary survey..........................................................................................................7

2.4.4. Planning memorandum...................................................................................................7

2.5. Objective of internal Auditing...............................................................................................7

2.6. empirical review....................................................................................................................8

CHAPTER THREE.......................................................................................................................10

RESEARCH METHODOLOGY...................................................................................................10

3.1. Description of the study area...............................................................................................10

3.2. Research design and research approach..............................................................................10

3.2.1. Research design............................................................................................................10

3.2.2. Research approach........................................................................................................10

3.3. Source of data and method of data collection.....................................................................10

3.3.1. Source of data...............................................................................................................10

3.3.2. Method of data collection.............................................................................................11

3.4. Target population, sampling techniques and sample size...................................................11

3.4.1. Target population..........................................................................................................11

3.4.2. Sampling techniques.....................................................................................................11

3.4.3. Sample size...................................................................................................................11

3.5. Method of data analysis and interpretation.........................................................................11

3.6. Budget and time break down...............................................................................................12

TABLE 3.1. Time Budget.........................................................................................12

TABLE 3.2. Cost Budget expectation......................................................................12

REFERENCE.................................................................................................................................14
 LIST OF TABLES

TABLE 3.1. Time Budget --------------------------------17

TABLLE 3.2. Cost Budget Expectation ----------------19

V
 ABBREVIETION AND ACRONYMES
GAAP: Generally Accepted Accounting Principle
CIA: Certified Internal Auditor
ACCA: Association of Chartered Certified Accountants
CPA: Certified Public Accountant
IA: Internal Audit
IAS: Internal Audit Sector

VI
 CHAPTER ONE

INTRODUCTIONS

1.1. Background of the study

Auditing is an objective, systematic and independent examinations of accounts which is
conducted by professionally qualified person. (Arens, 1997)
Auditing can be simply classified as internal and external auditing. The common definition of
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 communicating the result to interested users. (Konra,
1999)
Prior to 1941, internal auditing was essentially a clerical function because much of record
keeping at that time was performed manually. auditors were needed to the accounts of records
after it were completed in order to locate errors, the old concept of internal audit can be
compared with a form of insurance that the major objectives of it was discovering fraud. (Spener,
2010)
Internal auditing is essentially an appraisal activity within the organization for the review of
accounting operation method and procedure, financial and other operations of the organization
by measuring and evaluating efficiency and effectiveness of the organization. Auditing is an
import ant managerial control device (Doug, 2010).
The starting place for internal audit theory is the definition of internal audit. The divergence and
interpretation of the audit role is explored, in terms of the way we may practice more average
from the standard its own approach and style. The institution of internal auditors (IIA) definition
internal auditing is an independence objective assurance, and consulting activity designed to add
value and Importance to an organization’s operation. It helps an organization to accomplish its
objectives by bringing a systematic way of risk management, control and governance process.
(Spencer, 2010)
Internal auditing refers to an independent appraisal of the activity within the organization for the
review of accounting, financial and other operations and activities by stuff of auditors function as

1
 1.3. Research questions
After completing the study the following basic research question will be get answers.
 Does the bank have internal auditing practice?
 Does the principle of internal auditing applied in the organization?
 What factors affecting internal auditing practice of Dashen Bank of jimma branch (area)
 What are the major draw back of Auditing practice of Dashen Bank Jimma Branch.
1.4. Objective of the study
1.4.1. General Objective
The general objective of this study is to examine internal auditing practice of Dashen bank in
Jimma branch.

1.4.2. Specific objective

 To find the application of internal auditing practice.
 To identify the principle of auditing that applied in the bank
 To compare and contrast the theoretical aspect of internal auditing practice to the actual
practice.
 To forward the possible solution based on the study.

1.5. Significance of the study

The major benefits of this study will be the following.
It will enable the manager to aware of the importance and use of internal audit in achieving
intended objectives. It will be help the auditor in the bank know application of internal auditing
principles. I will be use as an additional reference to the existing literatures and can be use as
spring boards for other researcher who wish to conduct a research in the same area.

1.6. Scope of the study

Because of time and cost limitation the researcher enforced to limit the study area in assessing
internal auditing practice of Dashen bank Jimma branch. This study will mainly focus to identify
factors which affect the internal auditing practice, the challenges, and the strategies uses to
alleviate the problems in the bank.

3
 1.7. Organization of the paper
This research includes five chapters. The first chapter present the introduction part which
reflecting the background, statement of the problem objective of the study, significance of the
study, scope of the study, limitation of the study and organization of the paper. The second
chapter deals with literature review. The third chapter deals with methodology of the study. The
fourth chapter deals with data analysis and interpretation and the fifth chapter consists of
conclusion & recommendation.

4
 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1. Definition and Nature of internal Audit Activity (theoretical review)

Auditing is the process by which a competent independent person accumulates and evaluates
evidence about financial information related to specific economic entity for the purpose of
determining and reporting on the degree of correspondence between the financial information
and established criteria. (Kamal.G 1996)
Auditing was a process through which frauds and error discovered. There were a few who
through that auditing was concerned with checking with their accounting records and bad been
kept properly and up to date and that is only created problems for efficient managers who might
not have bothered to keep their records up to date. The auditor examines the information under
audit and express his opinion on the same by way of written report. (Kamal G.1996)
Internal auditor activity. A department division consultants or the practitioner that provides in
dependent objective assurance and consulting services designed to add value and improve an
organizations operation. The internal audit activity helps an organization to accomplish its
objectives by bringing a systematic disciplined approach to evaluate and improve the
effectiveness risk management control and governance processes. (Kamal G.1996)
The internal auditing activities evaluates the adequacy and effectiveness of controls
encompassing the organizations governance operations and internal system. Internal audit
reviews includes the reliability and integrity of financial and operational information,
effectiveness and efficiency of operations, safeguarding of assets and compliance with laws
regulations and contracts. These reviews also a creation the extent to which operating and
program goals and objectives have been established and conform to those of the organization, as
well as the extent of which results are constant with established goals and objectives and whether
operations and programs are being implanted or performed as intended. (Konrath, 1999)

5
2.2. Evaluation of Auditing
The presents status of the auditor’s report and independent auditing represents the culmination of
a century of development. Initially audits were performed mostly at the request of business
owners who wished assurance that their book keeping had been accurately handled and that all
cash was properly accounted for. With the development of partnership. Audit also become useful
in. The industrial revolution brought with large scale enterprises that needed out side financing to
supplement owners capital. In other to prim it the a acquisition of costly machines that had
become available. It at this point, of course, that the independent audit come and that third
parties displaced business owners at the principal beneficiaries of auditing services. (Fabozzi
1996)
On management that might otherwise find it expedient to endeavor to deceive third party users
by preparation of misleading financial statement. Audit effectiveness also extends beyond the
immediate statements that have been examined to both un audited quarterly reports and
pronouncements about future expectations when it is known that the figures will ultimately have
to integrate with audited figures. (Fabozzi, 1996)

2.3. Definition of internal Auditor

The internal audit is continuous review of operations and records taken with in the business and
is normally done by specially assigned staff. It should operate independently of all the internal
check and no care should divest any one of the responsibilities placed up on him.
The institute of internal auditors, USA had defined internal audit as follows. Internal auditing is
an independent appraise activity within an organization for the review of operations at a service
to management. This a managerial control which functions by measuring and evaluating the
effectiveness of other controls. (Arens 1997)

2.4. Phases of an internal auditing

There are four major phases internal auditing

2.4.1. Planning
In the planning phase the internal auditor establishes clear-cut audit objectives to avoid aimless
investigations into insignificant area. Internal auditing utilizes three steps to complete this phase
of the audit project.

6
2.4.2.Entrance conference
Representatives of the internal audit meet with client management before the audit field work
begins to discuss the audit objectives approximate duration of the audit work space requirements
for the audit team, and the audit report process.
2.4.3. Preliminary survey
This is a general information gathering process used by the internal auditor to obtain an overview
of the client’s operations and policies.

2.4.4. Planning memorandum

The planning memorandum presents the internal auditor’s understanding of the function(s) to be
auditor the objectives of the project the audit procedures to be used to accomplish the objectives
a budget of resources needed, any special aspect to be considered the period to be audited, any
departmental audit contacts. Auditing principles II (Acct – 302)

2.5. Objective of internal Auditing

The objective of internal Auditing is to assist all members of management in the effective
discharge of their responsibilities, by furnishing them with analysis appraisals,
recommendations, and pertinent comments concerning the activities reviewed. The internal
auditor is conserned with any phase of business activity. This involves going beyond the
accounting and financial records to obtain a full understanding of the operations under review.
(Johannes Kinfu FBE, AAU)
Reviewing and appraising the soundness, adequacy and application of accounting, financial and
other operating controls and promoting effective control of reasonable cost.
 Ascertaining the external of compliance with established policies plan and procedures.
 Ascertaining the reliability of management data developed with in the organization.
 Appraising the quality of performance in carrying out assigned responsibilities.
 Recommending organizational functional units to improve their operation.

As a convenient summary of these objectives it might be stated that the internal auditor is
primary concerned with evaluation compliance and verification of operational performance.

7
2.6. empirical review
Omer Ahmed (2020) in his research “assessment of internal audit practice in commercial banks
in Ethiopia: the case of united bank S.C” revealed that the internal Audit process should have
appropriate program for training developing the internal auditors, giving an opportunity for
continuing education and certification in CIA, CISA, CFE and ACCA to produce effective audit.
Additionally, the internal audit process should consider the correction of the audit findings. The
audit findings should be corrected, and corrective action agreements should be made with the
management to conduct effective audit work in the bank.

A study conducted on determinants of internal audit effectiveness in Gurage zone local

administration by Ayitenew (2018) using primary data through random sampling concluded that
the quality of audit work, auditor‟s independence, auditor‟s professional proficiency and
organizational setting have significant impact on the effectiveness of internal audit. He argued
that the scope of the audit work was insignificant for the effectiveness of the internal audit.
Yewubnesh (2018) conducted research on “Determinants of Internal Audit Quality of Economy
Budgetary Public Sectors in Ethiopia” using purposive sampling and questionnaires and
interview, she concluded that experience of internal auditors, and Independence of internal audit
and training were strong and statistically significant effect on the quality of internal audit in
budgetary public sectors in Ethiopia.

Research conducted by Arefayne (2019) on the factors affecting internal audit effectiveness in
the case of Ethiopian Insurance companies using both primary and secondary questions, argued
independence of IA is the sole factor determining effectiveness of internal audit in Ethiopian
insurance companies. The researcher mainly recommended; the country's financial regulatory
organ (i.e National bank of Ethiopia) should work more on the ways of ensuring the
organizational independence of internal auditors and should have to develop transparent and
well-organized approaches. According to his study, competence of IA teams, quality of IA were
strong but not significantly effect on the effectiveness of internal audit regarding value adding
role, enhance department performance, and enhance organizational performance.

Negasi G/aregawi (2019) in his study “Determinant of effectiveness of internal audit in

Commercial Banks of Ethiopia: The case study of Wegagen Bank Share Company” reveled that
internal auditors of the bank have knowledge gap on technology-based audit and identification of

8
indicators of fraud techniques. Therefore, the researcher recommends that the bank should
provide sufficient training on technology based and fraud investigation audit techniques. The
study result shows that the support providing by senior management to internal audit of the bank
is not sufficient enough and the researcher advised senior management of the bank to provide the
required assistance and support to the internal audit department by recruitment of sufficient and
quality internal auditors and providing attractive salary and benefit packages.

9
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1. Description of the study area

The study will conduct in jimma Zone Oromia region which found on 445 km from the capital
city of Ethiopia Addis Ababa. The study will conduct on assessment of internal auditing practice
in dashin bank jimma branch.

3.2. Research design and research approach

3.2.1. Research design

The research design (method) to be selected for the study is descriptive in nature, because it
describes and explain the data for the purpose of describing nature of existing condition of
assessment of internal auditing practice in dashin bank jimma branch. The researcher shall be
collect data by census survey.

3.2.2. Research approach

This study is confined to evaluate the internal auditing practice and the researcher will desired to
have undertaking a case study on dashin bank jimma branch. The researcher will use Mixed
research approach for this research that it includes the mixing of qualitative and quantitative
research approach, method and methodologies a research study or set of related studies. One
could argue the mixed methods research is special cause of multi method research. But, the field
of mixed method has only been widely accepted for the last decade, though researchers have
long been using multiple methods, just not calling them. Mixed Methodology research approach
takes advantage of using multiple ways to explore research problem.

3.3. Source of data and method of data collection

3.3.1. Source of data

The researcher will use both primary and secondary sources. To collect primary data the
researcher will use structure interview and questionnaires. Review of the related literatures
especially journals, research articles, and websites was used as a secondary means (for
developing the questionnaire) of data gathering instruments for the study.

10
 3.3.2. Method of data collection
For these studies, the researcher would use primary data and this data would be collected from
target population through close-end questionnaire.

Even though secondary data is used the most important source of data that is relevant to this study, the
primary data which will be collected from individuals, customer and manager of the institution using a
well structured questionnaire for customers and planned interview schedule by oral for manager and
customers.

3.4. Target population, sampling techniques and sample size

3.4.1. Target population

To conduct the study the researcher has focused on customer & manager as the major target
population.The total population size is 32 internal audit staffs.

3.4.2. Sampling techniques

To select the sample the researcher use non-probabilistic judgmental sampling which is based on
the researcher judgment to select the sample technique. Based on this the researcher select is
employees from the bank that have jobs related with finance and audit. The questionnaires
distributed for these employees and the researcher also interviewed the manager.

3.4.3. Sample size

The sample size was employees and managers of dashin bank jimma branch selected. The
number of questionnaire for sample size of employee is depend on engagment on internal
auditing.The researcher selects 10 samples from employees and manager.

3.5. Method of data analysis and interpretation

The data collection through the questionnaires and interview will organized and analyzed. Then
tabulate in the form of tables and interpretation will be made. The data that would gain from the
questionnaires will analyze quantitatively, where as the data that will gain from the interview
also analyze qualitatively and conclusion and recommendation will give. .

11
 3.6. Budget and time break down

TABLE 3.1. Time Budget

No. Activity to be Nov. Dec. Jan. Feb. Mar. Apr. May June
done

1 Title selection *

2 Proposal first *

Draft

3 Proposal final *

Draft
submission

4 Data *
collection
&Data
analysis

5 Final research *

Paper
submission

6 Research *
presentation

TABLE 3.2. Cost Budget expectation

No. Item Amount need Unit cost Total(birr)

1 Pen 4 30 120

2 Paper 60 2 120

12
3 Printing 30 pages 5 150

4 Coping 10 pages 3 30

5 Telephone and internet 50

6 Transportation 300

7 Contingency (5%) -- --

Total cost 770

REFERENCE
Kamal G (1996) “Fundamentals of Auditing” Hill publishing Company.

13