NEW GLOBAL VISION COLLEGE

SHASHEMENE CUMPAS
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTEMENT OF ACCOUNTING

INTERNAL AUDITING PRACTICE

(A Case Study on Berhan International Bank S.C Yela Sawla
Branch)

SUBMITED BY: AREGASH ATUMO

A RESEARCH PAPER SUBMITTED TO DEPARTMENT OF ACCOUNTING IN

PARTIAL FULFILLMENT OF THE REQUIREMENT FOR BACHELOR OF ART (B.A.)
DEGREE IN ACCOUNTING

May, 2011
YELA SAWLA, ETHIOPIA

I
 Abstract
Safety and proper internal auditing practice is a base for preserving the
stability of any company. The overall objective of this study aimed at describing
and analyzing the prudential control directive related to internal auditing
practice, in light of recent development and to see the existence and
applicability of attribute and performance standard in Berhan international
bank, and internal auditor.

The study tries to assess the Factors strength and weakness with regard to
internal audit data are relevant to study the research would collected from both
primary and secondary sources. The primary data are to be collected through
unstructured interview and questionnaires and observation. The secondary
data to be collected from published material and manuals which are available
in the organization library and website. Regarding the sample, judgmental
sampling of non-probability is used.

Finally, on the collected data descriptive analysis had been made their analysis
to supported by tables and percentage used and the analyzed data had been
interpreted using inferential analysis and the conclusion of the study to
deducted from at he analyzed data.

I
 Acknowledgment
In the name of God the most merciful and the most gracious first and for most
great thanks given to almighty God, He has helped me in every aspect of my
life.
Next, I would think to New Global Vision College, college of Business and
Economics which help me for my finding and also I would tanks to express my
sincere gratitude to my father for his patience and valuable comments and
directions. Again thank to my family as a whole, Next to God.

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 Table of Content
Title page

Abstract……………………………………………………………………………………….. I
Abstract...........................................................................................................I
Acknowledgment.............................................................................................II
Table of Content.............................................................................................III
List of table.....................................................................................................V
CHAPTER ONE................................................................................................1
INTRODUCTION..............................................................................................1
1.1. Background of the study..............................................................................................................1
1.2. Statement of the problem...........................................................................................................1
1.3. Objective of the Study......................................................................................................................3
1.3.1. General Objective......................................................................................................................3
1.3.2. Specific Objective.......................................................................................................................3
1.4 Significance of the Study..............................................................................................................3
1.5. Scope of Study..................................................................................................................................3
1.6. Limitation of the Study.....................................................................................................................4
1.7. Organization of Study.......................................................................................................................4
LITERATURE REVIEW.....................................................................................5
2.1. Definition of Internal Auditing..........................................................................................................5
2.2. Historical development of Initial Auditing........................................................................................5
2.3. Internal Auditing in Ethiopia.............................................................................................................6
2.4. Objective of Internal Auditing...........................................................................................................7
2.5. Meaning of internal Auditing............................................................................................................7
2.6. Internal Audit Function.....................................................................................................................7
2.7 Characteristic of Internal Audit..........................................................................................................8
2.8. Internal auditing role in Control........................................................................................................8
2.9 Independence, Objectivity and Compliance......................................................................................9
2.10. Responsibility of Internal Auditor.................................................................................................10
2.11. Applicability of Internal Auditing..................................................................................................10
2.12. Barriers to Successful Audit Result...............................................................................................10
2.13. Audit reports.................................................................................................................................11
2.14. Contents of Report.......................................................................................................................11
2.15. Format of Report.........................................................................................................................11
CHAPTER THREE..........................................................................................13
METHODOLOGY...........................................................................................13
3.1. Study area.......................................................................................................................................13
3.2. Types of data and source................................................................................................................13
3.3. Method of data collection..........................................................................................................13

III
 3.4. The sample design..........................................................................................................................13
3.5. Data analysis and presentation.......................................................................................................13
CHAPTER FOUR............................................................................................15
DATA ANALYSIS AND PRESENTATION..........................................................15
4.1 Result analysis and discussion.........................................................................................................15
4.1.1 The BIB’S YELA SAWLA Branch reliance on internal auditing practice..........................................15
4.1.2 The BIB Yela Sawla Branch internal auditor objectivity................................................................17
4.1.3 Internal auditors competence in BIB Yela Sawla Branch...............................................................18
4.1.4 Internal auditor’s perception toward staffing and safeguarding of asset in BIB, Yela Sawla
Branch...................................................................................................................................................20
4.1.5 The application of internal auditing principle in practice in BIB, Yela Sawla Branch..................21
4.2.1 Division of internal auditing department in BIB, Yela Sawla Branch and their Function..............23
4.2.2 Response of Financial audit division head....................................................................................23
4.2.3 Response of operational division head.........................................................................................23
CHAPTER FIVE.............................................................................................25
SUMMERY, CONCLUSION AND RECOMMENDATION....................................25
5.1 Summary..........................................................................................................................................25
5.2 Conclusion.......................................................................................................................................25
5.3 Recommendation............................................................................................................................26
References.....................................................................................................28
Declaration...................................................................................................29

IV
 List of table

Table Page

Table 4.1 BIB Yela Sawla Branch reliance on internal audit work ……………… 16

Table 4.2 The BIB Yela Sawla Branch level of reliance on internal audit work ….16

Table 4.3 The BIB Yela Sawla Branch Internal audit objectivity ……………………17

Table 4.4 The internal auditors opinion on the degree of competence of BIB,
Yela Sawla Branch ………………………………………………………………….18
Table 4.5 The internal auditors perception towords staffing and safeguarding of

assets in BIB, Yela Sawla Branch ………………………………………….20

Table 4.6 Internal auditor’s suggestion about good qualities of internal auditing

items of objectives and competent … …………………………21

V
 CHAPTER ONE
INTRODUCTION

1.1. Background of the study

Internal auditing is independent appraisal faction established with in an
organization to examine and evaluate its activities as a serve to the
organization. The objectives of internal auditing is to assist members of the
organization concerning with auditing and its activities.

Different changes and factors have been influenced the auditing profession in
recent years. Technological development and regulatory bodies have caused the
auditing policy to re-examine its purpose intentions and methodology. Because
of this the profession has change in auditing method from detailed examination
of individual transaction to use sampling techniques. Therefore, all these
changes have affected the internal auditing components of the profession.

Proper internal auditing practice is a base for preserving the stability of any
company. The study faces on describing and analyzing the important control
directions that are related to internal auditing practice, in regard to see the
existing and applicability of attributes and the standards in Ashaw
international Bank (BIB) performance to increase the quality of audit work.
Raising awareness of the role and significance of internal auditing to the
achievement of specific objectives in reasonable assurance, accountability,
effectiveness and efficiency of operations, reliability of financial reporting in
compliance with applicable laws and regulations (Sawyer, lawyer B, 1989,
p.21).

1.2. Statement of the problem

Internal auditing is examination of internal control system in which it
functions by measuring and evaluating effectiveness of other control on the
other hand external auditor has reasonability to report on the truth and
fairness of the account of the company.

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The absence of proper internal auditing in the organization leads many
problems. The absence of primarily internal auditing in the organization will
result in lack of continuous assurance service.

The second problem in achieving internal auditing practice is the degree of

limited independence of internal auditor since internal auditors are employees
of company this serve, they can’t achieved the certified public accountants
(CPA) independence in fact. This limited independence reduces their role with
company to the lever of the more assistance to the top management.

The other problem is that inadequate internal control can expose the company
to various identifiable risk, such as waste of company available resource, fraud
by employees and lack of control over asset. By not having adequate internal
auditing activities, the company will loss substantial amount of resource and
have difficulty to achieve its intended objectives.

All the above mentioned point made the researchers to under take a study of
this nature. Here in this paper, the researcher wants to assess the existing
internal auditing system.

Depending on the above problem the researcher raises the following question:-

 Are the principles of internal auditing applied in practice in BIB?

 How internal auditing department in BIB is divided?
 How internal audit practice affect external auditing function and what is
their relationship?
 What seems the quality of internal audit work in BIB in terms of
competence, objectivity and independence?
 What is the general nature and use of internal audit in BIB?

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1.3. Objective of the Study

1.3.1. General Objective

The general objective of this study is to evaluate and determine whether the
BERHAN International Bank internal auditing practice is effective and efficient
or not.

1.3.2. Specific Objective

The specific objectives of this study are:

 To examining the application of the internal audit practice in the

company.
 To identify the quality of internal audit work.
 To assess the degree of independence of the internal auditor from those
who task they reviewing.
 To examine the application of the internal auditing in BIB audit.

1.4 Significance of the Study

The major benefits and importance of this study are the following:-

 It will be enable the managers to be aware of the importance and use of

internal audit in achieving intended objective.
 It will be help the auditor in this organization to know their role in the
organization.
 It will be allowed the researcher to practice a larger similar study that
could be performed in other organizational sector.
 It will be used as an additional reference to the existing restructure and
can be used as a spring boards for other research, who wishes to
conduct a research in the same area.

1.5. Scope of Study

The study will emphasize on how internal auditing principle are applicable in
practices and the quality and applicability of the internal auditing in the
BERHAN International Bank and division of the internal audit department and
the function and responsibility of each division.

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1.6. Limitation of the Study
There are some limitations to conduct the study, since the study does not cover
all branch of BERHAN International Bank, the result of the study may not give
full information about internal auditing practice because of:-

 Financial source is not sufficient to gather all relevant information.

 The time allocated for data collections is not sufficient to gather all the
relevant information.
 Questionnaire method is primary used to gather primary data. However,
the information may not free from personal bias of respondent.
 Some of the respondent may not give response sincerely.

1.7. Organization of Study

This study has five chapters. Chapter one deals with the introduction part
which containing, the background of the study, statement of problem, objective
of the study, significance of the study, significance of the study, scope of the
study and limitation. Chapter two summarizes review of literature. Chapter
three deals with research methodology. Chapter four deal with the data
analysis and presentation. Chapter Five deals with summery, conclusion and
Recommendation.

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CHAPTER TWO

LITERATURE REVIEW
This part of the study reviews the role internal auditing department needs for
independence and the scope and objective of the work performed by internal
auditor.

2.1. Definition of Internal Auditing

Many schools and professional institution in the field of define auditing in
different manner. According to William and water perspective on modern
auditing book, auditing is exercise whose objective is to enable auditor to
express and opinion about the fairness of the financial statement. In addition
auditing is as the accumulation and evaluation of evidence about the quality of
an economic entity to determine and regard the degree of correspondence
between the information and establish standard. (Setter, 1980,p.10). Financial
statement is based on an examination of the statement regarding their quality,
Fairness, and reliability compared to the establish criteria. After verified by the
independent auditor it is presented in the form of written regard (Arens ALVin,
1997, pp. 767-769).

2.2. Historical development of Initial Auditing

It is a normal for any nativity to become into being as a result of emerging
need. To understand better the nature of the activity which currently exist
some know something about changing conditions in the past which create the
needs for that activity.

The changes in the field of internal auditing reflect the emergent changes in the
concept and techniques of baseness and government service delivery. New
approach in global competition, business process reengineering security,
advances in the technology have created the challenges of development new
and more relevant in approaches in the concept and practice of internal
auditing. In spite of its earlier existence the internal auditing did not emerged
as recognized field of professional practice until the 1940s, when the factors

5
influenced its development as distinguished profession. In the first place, the
rapid development and sophistication of business, government service and the
development of statutory audit brought about strengthened demand on
management and board to ensure that assets properly safe guarded, result are
consistent with established objective, programs and operation goals are
achieved as planned. The second factor which becomes potent force in the
development internal auditing profession is establishment of the institution of
the internal auditing (IIA) in 1941 in New York. Despite this, the first official
pronouncement of internal auditor (IIA) was issued in 1947.

2.3. Internal Auditing in Ethiopia

The history of the development of internal auditing in Ethiopia dates back to
about the middle of the 1940s jest about the time when internal auditing was
evolving as an organized profession in the United States. Internal audit in
Ethiopia had its early legislative root in the constitution of 1931s which
authorized the establishment of an audit commission (Art.34) and the audit
commission itself was establish much rater by proclamtion 69/1952 to audit
the account of the ministry of finance.

The period of 1950s marked the introduction of a budgetary system in

government. The enouncement of an annual public budget in 1955 for the first
tie mint history of the country us a system of financial Administration based on
the annual budget with all its attendant requirement for strengthen internal
control in budgetary agencies. This entailed the formation of internal audit as
an integral part of the budgetary internal control system. Presently,
government has taken the initiative to improve same enumerated weakness
and recognize and strengthen the internal auditing practice both in private and
public sector enterprise to this effect only government did provide from
necessary frame work by the financial administration profanation of federal
government (proclamation 57/1997) as well as directive issued by the ministry
of finance and economic development but also taking measure to recognize and
strengthen in eternal auditing in these organization (MOFED, 1997).

6
2.4. Objective of Internal Auditing
The objective of internal auditing is to axis member of organization in the
effective discharge of their responsibility. Internal auditing is an independent
appraisal function established with in an organization to examine and evaluate
its activity as service to the organization. To this end internal auditing
furnished them with analyses appraises, recommendations coursed and
interruption concerning the activities reviewed. The member of the organization
assisted by internal auditing includes these in management and the bound of
an refer internal auditor a responsibility to both, providing them with
information about the adequacy and effectiveness of the organization system of
internal control and the quality of preference the information furnished to each
may differ informant and details depending up an the requirement and request
of management and the board (Engle T.J, 1999, P.118).

2.5. Meaning of internal Auditing

Different scholars and institute define internal auditing indifferent way.
However, au definitions are almost similar in senses. According to the institute
of internal auditor (IIA) define in the following manner. Internal auditing is an
independent, appraisal objective assurance and consulting activity designed to
add value and improved and organization operate. It helps an organization
accomplish its objective by bringing a systematic disciplined approach to
evaluate and improve the effectiveness of risk management, control and
governance process. Internal auditing is helpful to assist member of the
organization in the effective discharge of their responsibilities (Atkinson,
1986,p.4).

2.6. Internal Audit Function

The internal audit function should have organizational independence and
should operate under a charter that grant the right carry out all activity
necessary to accomplish the following objective evaluation of the performance
of various functional unit with the organization, especially interims of operating
efficiency and the implementation of controls designed to achieve optimum

7
result. The verification of the reliability and integrity of the operating and
financial information on which the various controls that have management and
other must rely in performing their responsibility.

A good practical list is that the internal audit activity partially or completely
achieved, the regular company operation would on for the time being in the
normal manner. To the extent that the internal auditing group is charged with
day to day activity has simply taken place of regular accounting or other
operational responsibility.

The base role of internal audit is to provide assurance about financial and non
financial information and method for control. Therefore internal audit should
be kept distinct from other function engaged in analyzing and reporting on
program is performance (G.Braithwaite, 1989,pp.2-5).

2.7 Characteristic of Internal Audit

 Auditor are company employee.
 Review of company activities is continuous.
 Have a direct influence on the scope of exfernal euditor activity.
 Primary concern is in serving the needs of the organization.
 Accountable for management and does not issue opinion to the general
public.
 Working is subdivided primary according to operating function and line
management responsibility.

2.8. Internal auditing role in Control

Internal auditing often described as a control which function by examining and
evaluating the adequacy and effectiveness of other control. It serves to explain
much of internal auditing to day and also provides a central concept around
which focus tract a vision of the professions principal role in the future (Bigg
and daves, 1980, P.53).

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The concern of internal auditor with control grocers is both of immediate and
long term interest. The auditor should respond to that interest by focusing
his/here effect on great understanding of control probably needs to be more
clearly acknowledged by the profession since it account so much work being
done by internal editing to day.

A major port of the management process has to do with control. This every
manager has an important responsibility to develop a program of control that
will most effectively contribute the kinds of performance of which he/she is in
change. This control grogram consists of the over all control effort covering the
activities over which he/she is responsible and the individual control effort
which together comprise the total control efforts (Robert M. Atkisson, 1986, p.
323).

2.9 Independence, Objectivity and Compliance

Internal auditor should be independent of the activity they audit internal
auditor are independent when they can carry out their work freely and
objectively, independence permits internal auditor to render the logical and
unbiased judgment essential to the proper conduct to audits its is achieved
through organizational status and objectivity. Objectivity is an independent
mental attitude which internal auditor should maintain in performing audit.
Internal auditor are not to subordinate their judgment on audits matters to
that of others. Objectivity requires internal auditor to perform audit in such a
manner that they have all honest belief in their work product and that no
significant quality compromises are made internal auditors or not to be placed
in situation in which they fell unable to make objective processional judgment.
Compliance with standard of conduct and policies internal auditor should
comely with processional standard of conduct. The code of the institute of
internal auditor set for standard of conduct the code calls for high standard
honest, objectivity, diligence and loyalty to which internal auditor should
conform (Hourd F. Settler, 1990, p. 354).

9
2.10. Responsibility of Internal Auditor
The same responsibilities of internal audit are as follow:-

 Responsible for evaluating design and effectiveness of compliance

function
 Develop long range audit plan for organization.
 Audit of new management areas to evaluate internal control system.
 Review internal administrative and accounting control to safeguard
resource and ensure compliance with laws and regulation.

2.11. Applicability of Internal Auditing

The development of internal auditing has to a major extent been centered in
the business organization. This ties continuous in the exacting literature of the
profession and the convenient treatment of problems with work of business
organization. The need for internal auditing exist in all type of organization
when the completeness of activities, the volume of transaction and dependence
on large number of people to exist in some combination to create operational
problem (Arens, 1991, p. 154).

2.12. Barriers to Successful Audit Result

The most common barriers for the some achieve successful audit result
because of the following.
Conflicting goals management and auditor:
One of the most common barriers to successful audit results internal auditors
face of understanding of management goals and the ensuring conflicts that
rise.
Absence of full range of technical competence:
The absence of some form of legal requirement for technical competence has
put internal auditing in jeopardy. Areas that could be affect by the absence of
technical competence are morale in the audit staff, the conclusion drown,
making decision and corporate objectives at whole.

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Neglect of the most important phase of the study:

Internal audit the title analysis found in the observations focuses on easily
identifiable area corn. This neglect have been the direct cause for audit failure.

Neglect of internal audit of fundamental communication:

Neglect to communicate clearly with the entity audited poor communication of

audit results has coursed the down failed of some audit and led to a negative
misconception about auditor (G.Braith woite, 1989,p.230).

2.13. Audit reports

Its objectives is to pursue management to take premedical action. Report must
be written with very great care after full consideration of the subject matter.
Generally reports can be divided into four main categories based on the time
report will be issued. First, the report prepared by the internal audit staff after
their visit to a function unit, second, periodical report prepared which
summarizes the main audit finding and recommendations for the period under
consideration, third, report on the results of special investigation, and
enquires, fourth, an annual audit report.

2.14. Contents of Report

Contents of report is impossible to be dogmatic as to the contents of internal
audit reports it suggested. However, that part form a brief general reference to
the work to work perfumed. Report should deal with matters a rising from the
audit result of investigation. The types of error disclosed the defects revealed in
systems and the reason which allowed afraid to be perpetrated are the
essential matter on which information is required (Arens and Loebbecke, 1997,
pp.34-37).

2.15. Format of Report

The format of the audit report is important and a well drafted will contribute in
large to the optimization of its usefulness. The report should be inserted in
standard folder and should be appropriately headed. To fully understand what

11
is going on an audit report, one must analyze the following varies components.
Introductory: The purpose of introductory paragraph is to provide the reader
to understand and accept what is contained in the conclusion. It includes letter
of transmittal, report title table of contents and back ground, objective and
scope.

Main body: - refers to audit report selection where the finding are discussed
and principal work is performed.

Conclusion: - it refers to the auditor over all opinion of the area reviewed or
judgment drawn form the specific finding in the main body. The name and
designation of the person singing the report, together the date of issue should
be typed at the foot there of (Messier, 2003, p. 421).

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 CHAPTER THREE
METHODOLOGY

3.1. Study area

This study conducted on Berhan International Bank in Yela Sawla Branch.

3.2. Types of data and source

The researcher is used two types of data and source.

This are primary and secondary source of data.

3.3. Method of data collection

In the data collection process different types of data collection method has been
used in the study. These methods vary according to the source of data that has
been collected. To collect primary data, two different types of data collection
method has been used, such as unstructured interview and questionnaires.
The secondary data has been collected from pamphlets bank manual, reference
books and others research material which related with the topic.

3.4. The sample design

The sampling techniques that is going to be implemented for the study is non
probability judgmental sampling. This techniques of sampling is selected
because it enables to get accurate and sufficient information. By using these
techniques 30 individuals who are believed to have sufficient knowledge and
familiarity with the subject matter is selected. The total number of sampling 20
who are currently working on the organization directly or indirectly related with
internal auditing.

3.5. Data analysis and presentation

The researcher used for data analysis editing, coding and tabulation. Editing is
used to involves the inspection of questionnaire on a raw data and necessary
coactions of each questionnaires and defecting the most glaring omission in
accuracy in detail.

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Coding is a technical procedures by which data are categorized through coding
the raw data to transferred into symbols usually numerals. They may be
tabulated and counted. This can be done by specifying the categories in to
which remains to be place. The number is depend up on the number of
question on the questionnaires. Coding open-ended questions. This is done
through developing consistent set of standard to each questions.

Tabulation consists of simply counting the number faces that fall into varies
categories. It communicates the result of the study, can be used for several
propose (i.e. to calculate summary statistic).

Tabulation can be done by hand. It is facilitated determining the empirical

distribution. Variables frequencies were numerated in each table for
calculation of varies statistics and communicative distribution function would
be employed to observer with less than or equal to specify quantity determined.

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 CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION
This chapter is concerned with the characteristics of sample size, the
presentation as well as analysis of data gathered through questionnaire and
interview. In this chapter, the data collected through questionnaire and
interview is going to be analyzed and presented in the table form and it is
seems appropriate to interpret each data which are presented in table form.

4.1 Result analysis and discussion

This chapter presents the result and analysis done on the internal auditing
practice in BIB in Yela Sawla Branch. This discussion covers both the attribute
standard and performance standard of internal auditors. A total of twenty (20)
questionnaires were distributed to respondents that are working in BIB in Yela
Sawla Branch. From these twenty (20) questionnaires fourteen (14) of them are
filed properly and forwarded, which represent 70% of the response rate. The
responses obtained from operational and financial division head are analyzed
separately because both of them are asked separate questions. The data
gathered in the two method, that are questionnaire and interview and analysis
made on this data is presented on the following section.

4.1.1 The BIB’S YELA SAWLA Branch reliance on internal auditing

practice
As indicated earlier internal auditing practice of a company is useful for
enhancing the effective and efficient auditor work of the company. This well
increase quality. In addition, greater participation and coordination of internal
auditors may result in lower audit cost. The contribution of internal audit
function to the financial statement audit depend on the quality of internal
auditing rules and procedures and the proper application of these rules and
procedures.

To address the first question, which concern about the BERHAN International
Bank of Yela Sawla Branch reliance on internal auditing practice, respondents

15
were asked whether or not they rely on proper internal audit work and the
degree of reliance. As shown under table 4.1 below 10 out of 14(71.4%) of the
respondents yes and 4 out of 14(29.6%) of respondents replied partially they
rely.

Practically on internal quit work during the audit of financial statement.

Table 4.1 BIB Yela Sawla Branch reliance on internal audit work

No. Responses Respondents

No. Percent
1 yes 10 71.4
2 partially 4 28.6
3 No 0 0

Table 4.2 the BIB Yela Sawla Branch level of reliance on internal audit
work

No. Level of reliance Respondents

No. Percent
1 High 5 35.72
2 Medium 9 64.28
3 Low 0 0

As indicated in the above two table 4.1 and 4.2 even if the BIB YELA SAWLA
Branch has enough internal auditors work which amount 71.4% of their work
relied on the internal audit work. The reliance on the level of internal audit
work medium i.e. 64.28% , therefore we can say that , even though the bank
has internal auditing practice highly its application is medium. The quality of
internal audit work depend on adequate and relevant as required by auditing
standard.

16
 4.1.2 The BIB Yela Sawla Branch internal auditor objectivity
As indicated in the proposal internal auditor should be objective in performing
always audits. To be an internal auditor should ideally report to the higher
level of management and for other concerned party, such as audit committee
that allow internal auditor activity to achieve their responsibilities and be
independent of oppositional management in fact and in appearance. For the
audit work quality and functioning and there should avoid contact of interest.

Depending on the above issues related with the internal auditors objectivities
the response obtained by the questionnaire are presented in the following table
(i.e. table 4.3)

Table 4.3 The BIB Yela Sawla branch Internal Auditor objectivity

Responses
Strongly Strongly
N agree Neutral disagree
statement agree disagree
o
N
No % No % % No % No %
o
1 Internal auditor in BIB YELA
SAWLA Branch is free from 14.3
conflicting auditors 5 35.7% 7 50% 2 % 0 0% 0 0%
2 The internal auditor in BIB
YELA SAWLA Branch exercise
due professional care in
performing audit 6 42.8% 9 64.2% 0 0% 0 0% 0 0%

Depending on the table 4.3 the researcher can under stood as the response of
internal auditor work (i.e. strongly agree and agree) increase the higher the
internal auditors objectivity. This result told in quality of internal auditor
Function. The table show that majority of respondents agreed with the
statement that internal auditor in BIB YELA SAWLA Branch was Free from
conflicting of auditors which is 50% responses. The internal auditors in

17
BERHAN International Bank, YELA SAWLA Branch are exercising due
professional care in performing audit work are 9 out of the 14 respondents
which 64.2%. From this it is possible understand that internal auditors in
BERHAN International Bank in YELA SAWLA Branch have objective. In other
words, this objectivity increases the extent of reliance on internal audit
practice.

4.1.3 Internal auditors competence in BIB Yela Sawla Branch

If the organization has competent internal audit staff, it is expected to provide
more valuable inputs to work improving internal controls of an organization,
which will affect the quality of internal audit work to be competence internal
auditors should have enough level of knowledge, skill and discipline. The
degree of competence of internal auditor depend on their practical experience,
availability of continuing educational and the quality of internal audit working
appear.

Therefore, examine the competence of internal auditors are practical

experience. Respondents were asked to indicate the extent of their opinion with
the following statements which are excused to have influence (direct relations)
with competence of internal auditor.

 Internal auditors in BIB, Yela Sawla Branch have appropriate continuing

educational program
 Internal auditors in BIB, Yela Sawla Branch have enough level of
practical experience
 The internal auditors prepare working paper to reduce test confident out
the result of test and conclusion drawn in the bank.

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 Table 4.4 the internal auditors opinion on the degree of
competence BIB, Yela Sawla Branch

Responses
Strong
Strongly ly
agree Neutral disagree
No statement agree disagr
ee
N
% No % No % No % No %
o
1 Enough level of practical 0
experience 2 14.3% 4 28.6% 8 57.1% 0 0% 0 %
2 Appropriable contracting 0
educational program 2 14.3% 3 21.4% 7 50% 2 14.3% 0 %
3 Working paper
documentation and report
have enough in quality and
quantity 3 21.4% 5 35.7% 4 28.6% 2 14.3% 0 %

As clearly shown in table 4.4, most of the respondents agreed on statement

indicated on no (1) 8 out of 14 which is 57.1% of the respondents neutral, 4
out of 14 which is 28.6% of respondents have agreed, and 2 out of 14 which is
14.3% of respondents strongly agreed. The internal auditor in BIB, Yela Sawla
Branch have enough level of practical experience. For the statement indicated
under no (2) 7 out of 14 which is 50% of the respondent have neutral, 3 out of
14 which is 21.4% of the respondent have agreed, 2 out of 14 which is 14.3%
of the respondents and 2 out of 14 which is 14.3% of the respondents have
disagreed. For the statement indicate on no (3) 5 out of 14 which is 35.7% of
the respondents have agreed, 4 out of 14 which is 28.6% of respondent have

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 neutral, 3 out of 14 which is 21.4% of respondents have strongly agreed and 2
out of 14 which is 14.3% of respondents have disagreed.

The internal auditors prepare working paper to reduce test carried out, the
result of test and conclusion draw in the bank. There fore, the bank has
enough level of practice to prepare working documentation and report. By
considering these three situations, we can suggest that whether the internal
auditor does not have appropriate continuing educational grogram they are
almost competent. Because they have enough level of practical experience and
proper working paper documentation and report. Internal auditing by
competent internal audit staff is relevant and reliable for the users of financial
statements of the bank. Therefore, the competences of internal auditors in BIB
Yela Sawla Branch are moderate due to lack of appropriate continuing
educational program.

4.1.4 Internal auditor’s perception toward staffing and safeguarding

of asset in BIB, Yela Sawla Branch.
The internal auditing department review the means of safeguarding assets and
as appropriate, verify the existence of such assets. The internal auditor not
only verify the assurance of such asset, but also, appraise the economy and
efficiency with which resources are employed. The existence of this criteria
enhance the adequacy of information provided by the internal auditor to its
customers. This application of internal auditors in practice for proper
safeguarding of assets will increase the reliability on internal auditors good
work performance. Based on the above information, we have the following
response for my questionnaire.

Table 4.5 the internal auditor’s perception towards staffing and

safeguarding of assets in BIB, Yela Sawla Branch
Responses
N Strongly Strongly
statement agree Neutral disagree
o agree disagree
No % No % No % No % No %
1 In BIB, internal auditor is
review the means of
safeguarding asset 4 28.6% 8 57.1% 2 14.3% 0 0% 0 0%
2 In BIB staff assignment of
internal auditor is rotated
periodically 0 0% 2 14.3% 3 21.4% 9 64.3% 0 0%

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As clearly show in table 4.5 the majority of the respondents agreed for
statement indicated on no (1) which is 57.1% of respondents a greed and
28.6% of respondents have strongly agreed. Generally, 85.7% of respondents
have agreed concerning the banks appropriate safeguarding of assets. For the
statement on no (2) respondent have almost disagreed which is 64.3% and
14.3% of respondents have agreed about the statement, “staff assignment of
the BIB internal auditor is periodically rotated”. By taking the majority about
64.3% of the internal auditors are disagreed about staff assignment of the bank
and periodic rotation of internal auditors. The low staff assignment may be the
technical proficiency and level of experience are appropriate for the audit
performed. From this the researcher understand that, there is no potential and
actual conflict of interest and the internal auditor should not be expected to
report to the manager. The existence of stable worker in any company incase of
the adoptability of the work and hence increase the quality of audit work.

4.1.5 The application of internal auditing principle in practice in BIB,

Yela Sawla Branch
In the first part of this chapter, the questionnaire results indicate that the
extent of internal auditor’s reliance on internal auditing practice and quality of
internal audit work in BIB is high.

The reason for high internal auditing practice in BIB is due to high level of
objectivity and competence of internal auditor. To analysis this, respondents
were asked to indicate the extent of their point of view with the following three
statement that may be basic causes for the banks internal auditor
dependability. From the three the first one is, the programs in BIB , YELA
SAWLA Branch are regularly revised to covers changes in cleint system; the
second, audit procedure, including testing and sampling techniques improves
is selected in advance where practicable and expanded; the third, the internal
auditor in BIB, YELA SAWLA Branch are skilled dealing with people and in
communicating effectively.

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 Table 4.6 internal auditor’s suggestion about good qualities of
internal auditing items of objective and competent

Responses
Strongly Strongly
agree Neutral disagree
No statement agree disagree
N
No % % No % No % No %
o
1 Programs in BIB are regularly
revised to cover change in the 1
clients system 0 0% 0 71.4% 1 7.14% 3 21.4% 0 0%
2 Audit procedure such as testing
and sampling techniques is
seleted in advance 6 42.9% 8 57.2% 0 0% 0 0% 0 0%
3 The internal auditors in BIB are
skilled dealing with people and
communicating effectively 3 21.4% 9 64.3% 2 14.3% 0 0% 0 0%

The three factors which mentioned above influence the internal auditors
practice as indicated by the professional auditing standard. As clearly show in
the table 4.6 71.4% agreed for the statement that program in BIB’s regularly
revised to cover the change in the clients system while 7.14% of respondents
have neutral and 21.4% of respondent have disagreed.

As indicate in table 4.6 on no (2) tell as the BIB have enough level of audit
procedures, which have 57.1% of respondent are agreed and 42.9% of
respondent have strongly agreed. The other statement on table 4-6 no (3) the
internal auditors in BIB are skilled dealing with peoples and in communicating
effectively most of the respondents which are 64.3% agreed; 21.4% of the
respondents have strongly agreed and 14.3% of the respondents have neutral.

Generally, from above analysis we can understand that internal auditors in

BIB are compliance with role, police and regulations. There fore this realize
that

22
adequate work performed by internal auditors in line with internal auditing
principle of the bank which increase the effectiveness of the bank. To support
the response given by the internal auditors for presented questionably is used
related inter view that are expected to generalize the response of questionnaire.

4.2.1 Division of internal auditing department in BIB, Yela Sawla Branch and
their Function
The internal auditing departments in BIB have two major divisions. These
division are operating and financial division. The researcher distributed
questionnaire for both of the division. The question presented are different and
analyzed separetely. All question which related to the financial condition are
asked financial audit head and the other which related about the operating
condition are asked for the operating and it head. Then, their responses are
analyzed as follow.

4.2.2 Response of Financial audit division head

There are five questions that are asked for the financial audit head. Among the
five questions, the respondent response for the two questions, i.e. “the internal
audit use reliable documentation for describing the company’s system as basic
for his procedures test, such as flow chart and company’s procedure manual in
BIB” and “examine the control over all accounting operating which materially
affected the financial statement” have strongly agreed. From five questions, the
three respondent have agreed, these questions are, “financial record and
reports conation accurate, reliance timely complete and useful information”,
“financial audit division head examine information” and “the financial audit
head prepare activity report and submitted to management and to the board.
Finally we can generalize the financial audit division head discharge his
responsibly concerning the financial and accounting activity of the department.

4.2.3 Response of operational division head

There are five questions which are prepared for the operation head division.
Among these, the respondent agreed for two statements. The first one is
operational division head review operations or programs to ascertain whether

23
the results are consistent with established objectives and goals and whether
the operations are being carried out as planned. The second question is the
operational division head relied the reliability and integrity of operating
information and the means used to identify, measure classify and report such
information. Among the five questions the respondents response for two
statement strongly agreed. The first statement the bank operation division
head report identify weakness and recommendation for improvement and the
second statement the purpose, authority and responsibility of the operational
audit division head is defined in a formal written document form. The
researcher can understand from this statement the gradual audit division of
the department, was effective due to the existence of strong operational activity
of the operational division head. Therefore, both the financial audit division
and operational audit division of internal audit department of the BIB, in YELA
SAWLA Branch perform their activity properly. This increase the bank internal
audit department to be efficient. In BIB reliability and integrity of information
system reviewed by the internal auditor continuously to identify measure and
report such information. Generally, by considering the results of the
respondents from both questionnaire and interview the response given by the
interview are the mirror image of the response obtained by the questionnaire.
Finally we can understand that, the quality of audit work the division and
proper function of internal auditors efforts to provide proper information to
external auditor in BIB is relatively high.

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 CHAPTER FIVE
SUMMERY, CONCLUSION AND RECOMMENDATION

5.1 Summary
One of the key elements in ensuring business success is to build a strong and
efficient internal audit controlling system. Organizing in effective internal
auditing system for safeguarding resource of the organization as well as for
good internal control in the organization. In order to achieve the planed
objective, the method of data collection were survey of the bank document and
questionnaire distributed and interview. Data were presented and analyzed
through descriptive analysis along with simple statistical to such as table and
percentage.

5.2 Conclusion
Depending on the finding of the study, the following conclusion were made:-

1. Internal auditing practice is one of the most important function in any

organization for undertaking different purpose; such as examining and
controlling the organization’s resource. In any area of an organization’s
activity must need internal auditing application consistently. For this
research, data gathering instruments are two methods. These are
questionnaire and interview. From both questionnaire and interview the
respondents agree for existence of enough auditing practice in BIB, Yela
Sawla Branch. Therefore, internal auditing practice in BIB, Yela Sawla
Branch is high.
2. Internal auditor in BIB, Yela Sawla Branch have enough level of practical
experience and working paper documentation and report to record test
carried out. But, internal auditor in BIB, Yela Sawla Branch the survey
of result also shows that could review the means of safeguarding assets.
This happened due to internal auditor were authorized to review the
means used to suffered asset from various types of lose such as those
resulting from theft, improper or illegal activities.

25
 3. Finally, when the researcher studied consider the analysis part, there is
some problem in reliability of audit work accessibility for continuing
educational program and the revision on the bank program. The effect of
this problem was reduce the quality and reliability of audit work.

5.3 Recommendation
In view of the conclusion, the following build suggestion and
recommendation were made in the hope that they would minimize the
problem identified in the study area.

1. The reliability of internal auditing practice as one can understand from

the analysis part is medium i.e. the existing internal auditing are not
reliable for investor and other user or the audit result in BIB.
 The researcher recommend the bank, their document available for the
user’s who went to use their document.
2. The internal auditor in BIB, Yela Sawla Branch have not appropriate
containing education program. This low level of internal auditors
continuing educational program affect the cmpetence of internal auditors
to be at low level. This affect the internal auditing work to be poor and
decrease the quality of internal audit work.
 To solve this problem the auditor should have enough opportunity for
continuing educational program. The increase in competence of
internal auditors and enhance the effective and efficiency of internal
audit work. Form the conclusion part researcher understand that the
audit work is relatively good because internal auditors are discharge
their responsibility regarding to suffering of asset and they were
properly staffed at their proper place.
3. The internal auditing principle in BIB, Yela Sawla Branch applied in
practice without any violation. But, the agreement percentages for the
statement the internal auditor in BIB are skilled dealing with people and
in communicating effectively is relatively low. This indicate there is

26
 relatively low level at communication between internal auditor and
external auditor.
 To reduce these problem member of the internal auditors should be
well trained for the work they assigned and improve their high level of
profession competency by obtaining professional certifications.
4. Finally, the researcher understand that the organizations data were
needed by different party for different aim. The researcher recommend
that the organization must adjust and change its role in this regard.
Because the data needed mainly for academic purpose and have no
negative impact on the function of the bank.

27
 References
1. Arens Alvin A. and etal, 1991, Auditing an integrated approach,
5thedifion, prentice USA
2. Big and Daves, 1980, Intenal auditing, 5th edition, Britain
3. Daniel G. Braith waite, 1989, Comprehensive Auditing, New Approach for
internal auditing, Britain.
4. James k. Loebbecke, 1997, Auditing, an integrated approach, 7 th edition,
prientice hall Int’l, USA.
5. Whitting ton and gany, 1995, principle of auditing, 11 th edition, USA.

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 NEW GLOBAL VISION COLLEGE
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTEMENT OF ACCOUNTING

Declaration
I undersigned deader that this student Research proposal is my original work
and has not been presented for a degree in any other university and all the
materials used for this study have been duly acknowledged.

_________________ ______________

Name of student Signature

This student research paper has been submitted for examination with my
approval as university advisor.

__________________ _____________

Name of advisor Signature

___________

Date

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