ABSTRACT
The main objective of the study is to examine
the effect of internal auditing on
managerial competency of production firms in Nigeria. This study adopts survey research design. The
research work adopts both primary and secondary source of data in obtaining all
the data needed for the study. The multiple regression method is adopted in
investigating the relationship between the dependents and independent variable.
Also, the result presents an insignificant effect on the effective revenue
collection of production firms in Nigeria. In conclusion internal audit has a
positive insignificant effect on fraud prevention and other financial irregularities
of production firms in Nigeria and internal auditing has a positive significant
effect on the fund utilization of production firms in Nigeria. In
recommendation, firms should put in place effective internal
auditing procedures that will checkmate fraud, move bottleneck and ease
operational towards the attainment of productivity and sound managerial
efficiency and also, a careful plan should be put in place in selecting the
right internal auditing producers that is devoid of lapses so as to further enhance
the quality of internal controls and lastly, managers should be well informed
about the available internal controls in place to enable them chose the right
inter auditing procedure that will enhance more managerial efficiency for fraud
utilization.
TABLE OF CONTENTS
Title
Page i
Declaration
ii
Certification iii
Acknowledgements iv
Dedication
v
Table
of Contents vi
Abstract
CHAPTER
ONE
INTRODUCTION
1.1
Background to the study 1
1.2
Statement of the problem 3
1.3
Objective of the study 4
1.4
Research questions 4
1.5
Research hypothesis 5
1.6
Significance of the study 5
1.7
Scope of the study 6
1.8
Operational Definition of Terms 6
CHAPTER TWO
REVIEW
OF RELATED LITERATURE
2.1. Conceptual Framework 8
2.1.1 Definition and nature of
internal audit 8
2.1.2 Essential element of internal
audit 9
2.1.3 Definition of internal controls 10
2.1.3 Essential features of internal
control 13
2.1.4 Limitations of effectiveness of
internal control 13
2.1.5 Internal control and internal
auditing 14
2.1.6 Key Assumptions about the
Internal Audit Function 15
2.1.7 Meaning of Audit 16
2.1.8 Types of Audit 17
2.1.10 The Need for an Auditor 21
2.1.11 Internal Control System and its Importance to Audit. 22
2.1.12 The Importance of Internal
Control to Audit 23
2.1.13 The Effect of Internal Audit on Managerial Competence 24
2.1.14 Benefit of Internal Audit Department 25
2.1.15 Problems of Internal Audit
Department 26
2.1.16 Internal Audit Planning 27
2.1.17 Audit Principle 28
2.2 Theoretical Framework 29
2.3 Empirical review 31
CHAPTER THREE
METHODOLOGY
3.1 Research Design 34
3.2 Area of Study 34
3.3 Sources of Data 34
3.4
Population of The Study 35
3.5 Sample Size Determination 35
3.6 Sampling Technique 36
3.7 Description Of The Research Instrument 36
3.8 Validity Of The Instrument 36
3.9 Reliability Of Instrument 37
3.10 Method Of Data Analysis 37
3.10.1 Model specification 37
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1
Data Presentation 39
4.2
Data Analysis 40
4.2.1
Data Validity Test 41
4.2.2
Descriptive Statistics 41
4.2.2.1
Percentile Analysis of Response 43
4.2.3
Regression of the Estimated Model Summary 45
4.2.4
Regression Results 46
4.2.4.1Test
of Research Hypothesis One 46
4.2.4.2
Test of Research Hypothesis Two 47
4.2.5.3
Test of Research Hypothesis Three 47
4.3
Discussion of findings 47
CHAPTER FIVE
SUMMARY,
CONCLUSION AND RECOMMENDATION
5.1Summary
of Findings 50
5.2Conclusions 50
5.3
Recommendations 51
5.4
Suggestion for Further Research 52
References 53
Appendix1 56
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Auditing
has become the tool accepted by individuals or group of individuals who have
link to any organization in accepting the annual report presented by the
management as being true and fair and can therefore be relied upon. Not only
that individuals or group attach much importance to auditing, the Companies and
Allied Matters Act 1990 (CAMA 1990) has made it compulsory for companies or
organizations to have their accounts audited by an independent auditor before
being presented to the users of such financial information.
Auditing
Practices Committee (APC) as quoted by Uzoma (2016) defines audit as “an
independent examination of, and expression of opinion on the financial
statements of an enterprise by an appointed auditor in pursuance of that
appointment and in compliance with any relevant statutory obligation.” Thus
audit concerns itself with the verification and the certification of the claims
of the management on the financial statements presented by them.
Auditing
could be seen from two perspectives viz; external and internal audit. External
audit is the audit conducted by an external auditor. He is not an employee of
the organization. Institute of Internal Auditors as quoted by Uzoma(2016)
defines internal audit as “an independent appraisal activity within an
organization for the review of operations as a service to management. Internal
audit is a management control tool which functions by examining, evaluating and
reporting to management on the adequacy and effectiveness of the accounting and
internal control systems.
In
some organizations it seems that this function is a duplicate of the work of
the external auditor. Obviously, the two overlap but with different objectives
for which they are set up. In contrast to the objective of the external
auditing which is to state whether a financial statement gives a true and fair
view of the performance and the financial position of the entity, internal
auditing is aimed at investigating and appraisal of the system of internal
controls and the efficiency with which various units of the entity carry out
their assigned functions. Internal audit is aimed at ensuring value-for-money
in the achievement of the entity’s goals.
Today,
in the private sector, much emphasis is laid on the internal audit function as
it is seen as virtually impossible to ensure that the assets of the entity are
used for the purpose of the entity, prevent and detect errors and fraud as well as ensure the efficiency of
operations by depending on the external auditing. No wonder internal auditing
is regarded as an indispensable part of any corporate governance structure, and
responsible for the efficiency and
effectiveness so much that it is called the ‘heart’ of good corporate
governance.
More so,internal auditing is an
independent, objective; assurance and consulting activity designed to add value
and improved an organization’s operations. It helps an organization to
accomplish its objective by bringing a systematic, disciplined approach to
evaluate and improve the effectiveness of risk management, control and
governance processes (Okafor, 2016).
Furthermore,
Okezie (2016) opined that management and the board can resolve issues that have
surface through internal auditing and implement solutions. After internal
auditors present conclusions, management and the board have responsibility for
subsequent decision to act or not to act. If action is taken, management has
responsibility to assure progress is made. Internal auditor’s letter can determine
whether the actions had the desired results. If no action is taken, internal
auditors have responsibility to determine if management and the board
understand and have assumed risk of inactions. Under all circumstances,
internal auditors have the direct responsibility to notify management and the
boards of significant matters that the internal auditors believe need the
attention.
Instructively,
auditing exists as a discipline which explains the concepts of stewardship and
stewardship accounting. Stewardship is a name given to a practice by which
productive resources owned by one person or group are managed by another person
or group of persons. Thus, it became pertinent for the managerial skills,
competency, reports and dealing be evaluated through auditing of the financial
statement.
1.2 Statement of the
Problem
Okafor
(2015) elucidated that the rate of financial statement manipulation cum window
dressing has left many shareholders without of discovering the lasting solution
to this creative accounting practices by most managements. Thus, the internal
audit process is expected to provide reasonable assurance with regard to the
effectiveness and efficiency of company(s) operations, compliance with roles
and regulations and the reliability of company(s) financial
Here
in Nigeria, most administrator in production firms are characterized by
misappropriation of funds, embezzlement, window dressing, creative accounting
practices, over quotations, fraud and other fraudulent practices (Adenji, 2015).
Many
management staff see their positions as the fastest means of acquiring wealth.
This adverse situation has led to the shareholdersand employees not enjoying
value-for-money on the activities of company. Thus internal auditing is
concerned with how to maximize efficiency and effectiveness on the use of company
fund and resources.
Okafor
(2016) noted that most managers and administrators appear not to be interested
in the internal auditing function. This constitutes a problem. A logical
question that follows is; could Production Company achieve effectiveness and
efficiency without integrating an effective internal control system cum auditing
function in its management?
Hence,
there is need therefore to look at internal auditing vis-à-vis managerial
competency in the production firms.
1.3 Objectives of the Study
The
main objective of this study is to determine the effect of internal auditing on
managerial competency of production firms in Nigeria
Specifically,
the objectives are;
i.
to determine the impact of internal
auditing on efficient revenue collection in production firm management.
ii.
to determine the impact of internal
auditing on the fraud prevention and other financial irregularities in the production
firm management.
iii.
to determine the impact of internal
auditing on efficient fund utilization in the production firm management
1.4 Research Questions
For
the purpose of effective research, the following research questions were asked.
i.
What is the impact of internal auditing
practice on efficient revenue collection in production firm management?
ii.
What is the impact of internal auditing on
fraud prevention and other irregularities in the production firm management?
iii.
What is the impact of internal auditing on
efficient fund utilization in the production firm management?
1.5 Research Hypotheses
The
following hypotheses were formulated to guide the study;
Ho1:
Internal auditing has no significant impact on efficient revenue collection and
fund utilization in production firm
Ho2:
Internal auditing has no significant impact on the fraud prevention and other
financial irregularities in the production firm management.
H03:
Internal auditing has no significant impact on efficient fund utilization in
the production firm management
1.6 Significance of the Study
The
internal Audit provides the following benefits to the under mentioned
beneficiaries:
COMPANIES:
The absence of internal auditor in this company is the major cause of fraud.
Thus; company (s) must be under the headship of a qualified accountant who
should be reporting to the managing director. He should be independent and must
have the courage to exercise his duty must be kept adequate and sufficient to
explain the company (s) transactions disclose timely and accurately, the
financial position of the company and enable directors/managers to ensure that
any balance sheet and profit and loss account preferred states true and fair
view of the company’s state of affairs, as well as profit and loss.
BUSINESS ORGANIZATIONS:
must have sound accounting system in order to provide an efficient means of
recording and reporting business transactions of a financial nature provide
business information to assist management in taking informed decision and
safeguard the company(s) assets against fraud and misappropriation.
SHAREHOLDERS:
The findings will encourage the shareholder to incorporate internal auditing
function in the management of production firms which in turn will enable them
reduce fraud and other irregularities.
PUBLIC: The
study will also bring to limelight the need for the right, well-motivated and
equipped personnel to be in the internal audit and also to give the internal
audit the required independence to function effectively.
STUDENTS AND ACADEMIA:
The study will be beneficial to students in accounting, production firm
management and other related courses as it provides an insight to a better
understanding of problems and solutions of managerial competencies in
production firm management.
1.7 Scope of the Study
Due
to the nature of the study, the scope will be based on effect of internal
auditing on the managerial competence of production firms in Nigeria using 7up
bottling company Aba ABIA State as our study area were data will be gathered
through the administration of questionnaire to the workers of the company.
1.8 Operational Definition of Terms
Auditee:
An employee of the organization who is being audited by the internal auditor.
Internal Auditing:
it is an independent appraisal function established by management of an
organization for the review of the internal control system as a service to the
organization. It objectively examines, evaluates and reports on the adequacy of
internal control as a contribution to the proper, economic, efficient and
effective use of resources.
Internal Control:
it can be defined as being not only internal check and internal audit but the
whole systems of control, financial or otherwise established by the management
in order to carry on the business of the enterprise is an orderly and efficient
manner, ensure adherence to management policies, safeguard the assets and
secure as far as possible, the completeness and accuracy of the records.
External Auditor: This
is the audit of an organization accounts carried out by an auditor who is not
employed by that entity or its manager and is as poor as possible independent
of the persons who manage the entity.
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