ABSTRACT
This bachelor’s thesis deals with analysing the importance of internal auditors for the company. It aims to solve the issue about the way the new management of John Holt Nigeria Plc perceives the internal audit department. The management of the company believe that the organization can function effectively without the internal audit department. Therefore, as a result of the ongoing downsizing process in the company, the management is considering scrapping the audit department. The main objective of this research is to ascertain the impact and values of internal auditors as well as their roles and responsibilities to John Holt Nigeria Plc.
This thesis consists of a theory and empirical section. The theory section will discuss about auditing, accounting, internal auditing and characteristics of an internal auditor which will be established by studying relevant literature, books, articles and internet sources. The empirical part will focus on the result of interviews conducted. The study will be based on qualitative method and will adopt interview as the main research tool which will be carried out with some senior managers who has experience about the subject matter.
The findings will enable the management to decide if the internal audit department will be useful and beneficial to the organization or not. The conclusion will be based on the result of the research while recommendation will be drawn from conclusion which will assist the management to decide if the functions, roles and responsibilities of the internal audit department are vital to the overall effective performance of the organization or maybe the department should be scrapped.
It is imperative for John Holt Plc to know the impacts and values of the internal audit department. The author therefore recommend that the management of John Holt Nigeria Plc should consider carefully several risks that might occur if the internal audit department is eventually scrapped without any alternative in place.
TABLE OF CONTENTS
1 Introduction
1.1 Background
1.2 Research Question
1.3 Demarcation
1.4 Key concepts
1.5 Difference between internal and external auditing
1.6 Case company introduction
1.7 Structure of the study
2 Theoretical frame of reference
2.1 Accounting
2.1.1 Accounting information
2.1.2 Connection between accounting and auditing
2.1.3 End users of accounting information
2.2 Auditing
2.2.1 Audit classification based on nature of assignment
2.2.2 Audit classification based on system of approach
2.3 Internal auditing
2.3.1 Roles and responsibilities of internal auditors
2.3.2 Internal auditors codes of ethics
2.3.3 Internal auditors importance
2.3.4 Internal auditors liability
2.3.5 Internal audit report
2.3.6 Internal audit limitations
2.4 Internal audit risk and failure
2.4.1 External and internal audit risk
2.4.2 Element of internal audit risk
2.4.3 Internal audit risk assessment and benefits
2.4.4 Internal audit failure
3 Research methodology
3.1 Research design
3.2 Research method and sample size
3.3 Data collection
3.3.1 Interview
3.3.2 Secondary data sources
3.4 Validity and reliability
4 Data result and analysis
4.1 Interview result and analysis
4.2 Overview of the interview with the managing director
5 Conclusion
5.1 Key findings
5.2 Recommendation
5.3 Own learning and professional development
References
Attachments
CHAPTER ONE
1 Introduction
Over the past years, the scope of auditing has broadened due to the dramatic changes in its impact to organizations. It has always been carried out in diverse environment within organization depending on the structure, size and purpose (Faudziah, Haron & Jantan 2005). Compulsorily, all registered companies under the Companies and Allied Matters Act in Nigeria must audit their financial statements after a certain period of time. Companies benefit from the audited financial statement in a large variety of ways. Users of financial information such as investors, stockbrokers and financial experts sees the audited financial statement as a major thing to look out for when deciding on a choice of company to invest. These people rely on the auditor’s report because they believe it gives a true and fair view of the financial statement.
Never the less, many companies have also drifted away from the use of internal audit-ors. While some perceives the department as a cost centre that does not generate rev-enue, some regard it as a unit whose value is not appreciated. Therefore, while some appreciate the advantages that are derived from having internal auditors others believe they are irrelevant and waste of money. Gone are the days when auditing is just about reviewing records or detecting irregularities and frauds. Modern auditing has developed and has thus increased the need of investors in requesting for credible financial state-ments.
According to Adeniji (2012, 1), Auditing is defined as an independent, objective assurance and consulting actions established to add value and help to improve an or-ganization’s operation. The actions carried out is done by an independent person called an Auditor. The independence in context refers to someone been free from all material conflicts such that the objectivity of the audit work is not threatened (Christopher, Sar-ens & Leung 2008). There must not be any form of interference with the independence of an auditor in discharging his or her duties. An auditor should be given freedom in planning, executing, analyzing and reporting his findings without been biased.
Apart from the fact that auditors express their opinion on the financial statement, they also conduct examinations on the financial records of the organization. The report in which auditors analyses their facts, give their opinions and recommendations is called audit report. The audit report is a vital information to the users of audited statements in making decisions.
According to the requirements of Nigerian stock exchange, all companies listed on the stock market must have their financial statement audited. Also companies and allied matters act (CAMA) 2004 request that auditors need to express their opinion on whether the financial statement is prepared in accordance with the act and if the bal-ance sheet, profit and loss account and group accounts shows a true and fair view. However, there are many issues hindering an auditing assignment. Such issues needs to be managed and curbed from future occurrence if possible in order to avert possible damage that might be caused.
1.1 Background
There has been some discussion on a live tv streaming broadcast about the difference between internal and external auditor. Some owners have argued and queried the role of internal auditors while at the end of the financial year,they still invite the external auditor to conduct the financial year audit. The aim of majority of these companies are to make profit and also cut their cost whenever they have liquidity issues. Internal audit department, tax and payroll department and other departments are always victim of such issue whenever it comes to downsizing all because they are regarded as cost centre that generates no-profit for the organization. While some organizations acknow-ledge the need for the department, others believe they are irrelevant or less important.
The topic came as a result of the perception of the new management of John Holt Ni-geria Plc. Yearly decline in the annual profit of the company has made the management to embark on downsizing . The management of the company believe that the organiza-tion can function effectively without the internal audit department and as a result of that, the management is considering scrapping the audit department . Therefore, the...
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