AKSUM UNIVERSITY

COLLEGE OF BUSNESS AND ECONEMICS

DEPARTMENT ACCOUNTING AND FINANCE

TITILE: ASSESSEMEENT OF INTERNAL AUDITING EFFECTIVENESS

(A CASE STUDY ON COMMERICAL BANK OF ETHIOPIA HAWELTI
BRANCH)

FOR PARTIAL FULFILLMENT OF BA DEGREE IN ACCOUNTING AND

FINANCE

BY: NEBIYAT KIDANEMARIAM

ID No AKUE/ 0260/08

ADVISOR NAME: GOYTOM W. (MSc.)

FEBRUARY,2019

AKSUM ,TIGRAY,ETHIOPIA

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 DECLARATION
I, the undersigned, declare that this senior essay is my original work and has not been presented
for a degree in any other University, and that all sources of materials used for the senior essay
have been duly acknowledged.

______________________________ __________ ___________

Candidate’s Name Signature Date

Advisor’s Approval

This Senior Essay has been submitted for examination with my approval as a University advisor.

__________________________ ____________ ____________

Advisor’s Name Signature Date

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 ACKNOWLEDGEMENT
Firstly, I would like to extend my unshared thanks to the almighty God for his unreserved gift
and for providing me the opportunity and smoothening of all aspects throughout my study.
secondly , I would also like to express special thanks to my research advisor Mr. Goytom, for
his honest guidance, critical comments. also very grateful to all person for their everyday
encouragement and promotion which helped me great in the completion of the study possible.
, I would also like to express gratitude to all of internal auditing department of employee for
granting me the opportunity to use their organization as the case study, I also grateful to them for
responding to the questionnaires.
Abstract

The study would be conduct on internal auditing effectiveness in case of commercial bank of
Ethiopia hawelti branch .

TABLE OF CONTENTS

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Content page
DECLARATION..........................................................................................................................................i
ACKNOWLEDGEMENT...........................................................................................................................ii
List of table..................................................................................................................................................v
Abbreviation and Acromyms (if any).............................................................................................vi
Abstract..........................................................................................................................................vii
CHAPTER ONE..........................................................................................................................................1
1. INTRODUCTION..................................................................................................................................1
1.1. back ground of the study..................................................................................................................1
1.2Statement of the problem....................................................................................................................3
1.3 Research Question.............................................................................................................................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 Limitation of the study.......................................................................................................................4
1.8. Research design & methodology......................................................................................................4
CHAPTER TWO.........................................................................................................................................5
2. Review literature.....................................................................................................................................5
2.1 Introduction.......................................................................................................................................5
2.1.1Definition of internal auditing......................................................................................................5
2.1.2 Basic concept of internal auditing...............................................................................................5
2.1.3 Objective of internal auditing.....................................................................................................5
2.1.4 Professional proficiency.............................................................................................................5
2.1.5 Scope of internal audit work.......................................................................................................5
2.1.6 The reason for internal auditing..................................................................................................6
2.1.7 Responsibility of internal audit...................................................................................................6
2.1.8 Code of Ethics for internal auditors............................................................................................6
2.1.9.Managing the internal audit activity...........................................................................................8
2.1.10Applicability of internal auditing...............................................................................................8
2.1.11Quality of the internal audit personnel.......................................................................................9
2.1.12 Degree of independence of the internal auditors and the objectivity with which the work is
performed............................................................................................................................................9

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 2.1.13 The nature of internal audit control..........................................................................................9
2.1.14 Importance of internal audit control........................................................................................10
2.1.15 Objectives and related internal control relevant to an audit....................................................10
2.1.16Reason for internal audit control evaluation............................................................................11
2.1.17 evaluating internal audit control..............................................................................................11
2.2 Empirical literature Reviews...........................................................................................................11
CHAPTER THREE...................................................................................................................................13
3. Data analysis and presentation...............................................................................................................13
3.1 personal information of respondents................................................................................................13
3.2 Analyses related to internal auditing................................................................................................15
3.2.1 Rule and procedure of internal auditing....................................................................................15
3.2.3 Challenge of internal audit........................................................................................................16
3.2.4 Evaluation of internal audit.......................................................................................................17
3.2.5 Performance of internal audit work...........................................................................................18
3.2.6 General objective and responsibility of internal auditing..........................................................19
CHAPTER FOUR.....................................................................................................................................20
4. Findings, Conclusion and recommendation...........................................................................................20
4.1 Conclusion.......................................................................................................................................20
4.2 Recommendation.............................................................................................................................21
Reference...................................................................................................................................................22
APPENDIX...............................................................................................................................................23

List of table page

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Abbreviation and Acromyms (if any)
CBE- commercial bank of Ethiopia

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Abstract
This study focused on internal auditing effectiveness in case of commercial bank of Ethiopia
Hawelti branch. The general objective is to examine the effectiveness of internal auditing to
established rules and regulations of auditing practices. To achieve the objective, necessary
sources of data would be used. Primary and secondary sources of data well be collect .
The general objective of this study was to asses’ internal auditing effectiveness in CBE in
hawelti branch.
primary data would be collect through interviews and questionnaires distribution to employees
and customers. Secondary data would be collected from review of the documents, manual of
commercial bank of Ethiopia hawelti branch and report issued to their employees and the
research would be used census method . Finally the collected would be processed, analyzed and

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interpret by using different tables, percentage and recommendation and conclusion would be
for warded in identified problems.

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 CHAPTER ONE
1. INTRODUCTION

The state Bank of Ethiopia was found in 1942 with an objective forming the duties of both
commercial and central bank in 1963 established as Share Company to take over the commercial
banking activities of the state bank of Ethiopia. In the 1974 revolution, commercial bank of
Ethiopia got its strength by emerging with privately owned Addis Ababa Bank. Since then it has
been playing significant role in the development end over the country.

1.1. back ground of the study

Internal auditing is an important activity for all types of organizations for governmental, private
for profit, non profit or any others.

The Commercial Bank of Ethiopia, which is striving to embark in to excellent commercial Bank,
rendering state of the art and reliable service to its millions of customers both locally and abroad.
The business strategy of the bank focus on the stakeholders it serves.

On April 30, year 2011 the number of branches reached 362 and stretched across the length
breadth of the country. CBE combines a wide capital base with more than 9700 talented and
committed employees. In 2011 whom it regard as its key asset for banking development.

The state owned commercial bank of Ethiopia still dominates the market in terms of asset
deposit, capital and customers base and branch network, deposit the growing competition from
private Bank over the last 15 years.

This make it one of the most reliable and strong commercial Bank in the country and the region.
Its strong capital base above 67 years of rich experience in the market and large branch network
throughout the country enable the bank to accommodate large demand for banking service, bank
from private and public companies and to increase its overall revenue on sustainable bases.

Now a day, commercial bank of Ethiopia reached around 940 branches found in different part of
Ethiopia.
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Internal Auditing is an important activity for all types of organizations where governmental,
private for profit, nonprofit or any other. 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
communication the result to interested user (Konrath, 1999, P.2).

Internal auditing is an independent objective assurance and consulting activity designed to add
value and improve as organization accomplished its disciplined. (arenes 1997).

Internal auditing always support management in ensuring that the company are carried out
effectively ,efficiently and economically. It is also an appraisal activity within an organization
for the review of accounting ,financial and other operations as basis for service to management .
(Sekabasu, 20006)

The researchers observed from previews researchers, “The primary objectives of an

organization’s system of internal auditing are to provide administrative management with
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reasonable assurance that financial information is accurate and reliable; the Organization
complies with policies, plans, procedures, laws, regulations and contracts; assets are safeguarded
against loss and theft; resources are used economically and efficiently; and established objectives
and goals for operations or programs cant.

It was also found out that management of internal audit department, professional proficiency,
objectivity and review significantly influence the effectiveness of internal auditing. Scope of
work and performance of audit work significantly influences the information and communication
aspect of the internal control system while performance of audit work, professional proficiency
and objectivity significantly influence the control environment aspect of the internal control
system. The study also shows that management of internal audit department, performance of
audit work, audit program and audit reporting significantly influences the risk assessment aspect
of the internal control system.

(Muhammad janatan, 2000).

According to Ratlift, (1988) the chief audit executive should effectively manage the internal
audit activity to ensure adds value to the organization.

“Internal auditing is an independent, objective assurance and consulting activity designed

To add value and improve an organization’s operations. It helps an organization accomplish

Its objectives by bringing a systematic, disciplined approach to evaluate and improve the

Effectiveness Of risk management, control, and governance processes.” (The IIA, 2011)

1.2Statement of the problem

Internal auditing helps an organization to accomplish its objectives by bringing systematic

disciplined approach to evaluate employee, the effectiveness of risk management process
extracted from the professional practice from work published by internal auditor.

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1.3 Research Question

1. Does the internal audit of the organization apply audit policy and procedure in working
environment?

2. Does the internal audit department independence is adequate?

3. Does the internal auditors of the organization competent enough?

1.4 Objective of the study

1.4.1 General objective

The general objective of this study was to asses’ internal auditing effectiveness in CBE in
hawelti branch.

1.4.2 Specific objective

 To assess whether the internal audit of the organization apply audit policy and
procedure .
 To assess whether internal auditor in CBE are enough skilled or not.
 To assess internal audit challenges for their effectiveness.
 To assess the independence of internal audit

1.5. Significance of the study

Firstly, this study helps to relate the theories which the researcher have learned in the class with
real world environment and this study also has contribute to the bank of CBE, when various
problem that related to internal audit has been investigate and presented to the organization.

Second, the finding of these paper or study has suggested the possible internal audit related
problem that leads to them faulty.

Finally, this study also benefits other researcher as secondary source.

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The last beneficiaries of this study were the researcher himself to get his bachelor degree in
accounting and finance.

1.6 Scope of the study

This study has been cover the internal auditing effectiveness only in CBE at hawelti branch.

1.7 Limitation of the study

There are some limitations to conduct the study, since the study does not cover all branch
commercial bank of ,the result of the study may give full information about the effectiveness of
internal auditing because of:-

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

 The time allocated for data collections was not sufficient to gather all the relevant
information.

1.8. Research design & methodology

3.1 design

As these studies would be described, the assessment of internal auditing effectiveness the
research design is descriptive type and data has been only qualitative type in nature.

3.2 Source of data

The source of data for the purpose of the study was both primary and secondary data. The
primary data was collected by open and close-ended question and the secondary data was
collected from published material of the organization like internal audit manual.

3.3 Sampling techniques

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 In data collection, the researcher used census method of data collection techniques. The
researcher has been used this techniques because the number of respondent or target population
were small and the technique used were feasible for this study to get adequate information.
Primary data are collected only by distribute questionnaires to the employee of internal audit
department of the organization.

3.4 Method of data analysis

Since the type of the study is descriptive and data has been only qualitative type. Therefore, the
study the researcher has been used more qualitative data; the analysis has been present in the
words from the data collected through questionnaire, and secondary data like organization
internal audit manuals.

3.5 Target population

The target population of the study has been included only the department of internal audit in the
organization.

CHAPTER TWO
2. Review literature

2.1 Introduction
2.1.1Definition of internal auditing

To add value and improve an organization’s operations, It helps an organization accomplish

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Its objectives by bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance processes.

“Internal Audit serves an accountability relationship. It is the independent, objective assessment

of the fairness of management’s representations on performance or the assessment of

Management’s Systems and practices, against criteria, reported to a governing body or others
with similar responsibilities.” (Canadian Comprehensive Audit Foundation, 1991)

2.1.2 Basic concept of internal auditing

Concepts are abstractions derived from experience and observation and are designed to aid
understanding of the similarities with in a subject matter and the difference from other subject
maters. such as engineering, physics, economics, and sociology and other physical and social
sciences, auditing is based up on a series of fundamental concepts. ( kinrsath 1999).

2.1.3 Objective of internal auditing

 To checks whether financial information presented to the management are accurate and
reliable.
 To determine whether the organization is compliance with established polices, plan and
procedures.
 To determines whether resources are used efficiently and effectively.
 To determines whether the organization objectives are effectively achieved.

2.1.4 Professional proficiency

Internal audits should be performed with proficiency and due professional care. An internal audit
department should established policies and procedures that provide assurance that are staff
member are competent to fulfill their assignment with professional proficiency.

2.1.5 Scope of internal audit work

According to (jack c.robertson,1990) the specific activities which are within the scope of internal
auditing, this are:
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  Reviewing the reliability and integrity of financial and operational information and the
means used to identify measure classify and report such information
 Reviewing the systems established to insure compliance with those polices, plan and
procedures that could have a significant impact on operation and determine whether the
organization is in compliance.
 Reviewing the means of safe guarding assets, and as appropriate verifying the existence
of such

2.1.6 The reason for internal auditing

Audits are made for number of reasons. Some stem from the accountability that subordinates
own to their superiors for the accomplishment of task. This has given rise to the theory of agency
the owners as principal, the manager as agent. The agent must provide objectively that tasks have
been efficiently and effectively accomplished. The jobs of most managers are two extensive to
accomplish by themselves. The managers need the help of skilled internal auditors (KONRATH,
1999)

2.1.7 Responsibility of internal audit

The some responsibilities of internal audits are as follow

 Responsible for evaluating design and effectiveness of compliance function

 Develop long –range audit

 Follow-up on significant findings from pervious audit

 Audit /review operational areas for stewardship of resources and compliance with
established policies and procedures.

 Review internal administrative and accounting control .

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2.1.8 Code of Ethics for internal auditors

The purpose of code of ethics is to promote all ethical culture in the profession of internal
auditing. and governance the code of ethics extended beyond the definition of internal auditing to
include to essential components.

1. Principles

2. Rule of conduct

In the code, the six principles are identified as follows:

 Responsibilities

 The public interest

 Integrity

 Objectivity and independence

 Due care

 Scope and nature of services

The public interest

Members should accept the obligation to act in a way that will serve the public interest, honor the
public trust, and demonstrate commitment to professionalism. The public interest is defined as
the collective well-being to the community of people and institutions that CPAS aerie the CPA’s
public interest includes clients, creditor, grantors, governmental agencies, employees,
stockholders, and the public.

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Integrity

To maintain and brooders public confidence, members should perform all professional
responsibilities with the highest sense of integrity. Integrity is a personal characteristic that is in
dependable in CPA. This element is the benchmark by which members must ultimately judge all
decisions made in engagement integrity is also the quality in which public trust is based.

Objectivity and independence

A member should maintain objectivity and be free of conflicts of interest in discharging

professional responsibilities. A member in public practice should be independent in fact and
appearance when providing auditing and other attestation services.

Objectively is a state of mind although this principle is not precisely measurable, it nevertheless
is held up to members as an imperative objectivity means being impartial and unbiased in all
matters pertaining to an engagement. Independence is the corner stone of the profession’s
philosophical structure.

Due care

Member should observe the profession’s and ethical standards, strive continually to improve
competence and the quality of services, and discharge professional responsibility to the best of
the member’s ability the principle of due care is at the center of the profession’s ongoing quest
for excellence in the performance of professional services. Due care requires each member to
discharge his/ her professional responsibilities with competence and diligence.

 Competence is the product of education and experience

 Diligence involves steady, earnest, and energetic application.

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Scope and nature of services

Member in public practice should observe the principle of the code of professional conduct in
determining the scope and nature of service to be provide. This principle applies only to a
member who renders services to the public.

2.1.9.Managing the internal audit activity

According to Ratlift (1988) the chief audit executive should effectively manage the internal audit
activity to ensure if adds value to the organization.

Planning: - the chief audit executive should establish risk based plans to determine the priorities
of the internal audit activity consistent with the organization’s goals.

The chief audit executive should consider accepting proposed consulting engagements based on
the potential to improve managements of risk, add value and improve the organization’s
operations. Those engagements that have been accepted should be included in the plan.

Resource management:- the chief audit executive should ensure that internal audit resources are
appropriate, sufficient and effectively employed to achieve the approved plan.

Reporting to the board and senior management:- the chief audit executive should report
periodically to the board and senior management on the internal audit activity’s purpose,
authority, responsibility and performance relative to its plan. Reporting should also include
significant risk exposures and control issues, corporate governance issues and other matters
needed or requested by the board and senior management.

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2.1.10Applicability of internal auditing

The development of internal auditing has major extent been centered in the business
organization. These ties continuous in the exacting literature of the profession and the convenient
of problems with work of business organization.

This ties however unduly deny the universal applicability of internal auditing to all type of
organization more over they fail to recognize that some of the most progressive internal auditing
is how being done by non-business type organization a related fact also is that many organization
are blend of business and non-business activities all of these development confirm that 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 .

2.1.11Quality of the internal audit personnel

In ascertaining the quality of the internal personnel, the independent auditor should enquire in to
(Shekahar, 2003).

 The qualifications and technical training of the internal audit personnel in some cases
both the internal auditors and the independent auditors belong to the same professional
organization and are subject to the same professional regulation except for independence.

 The clients practices for the recruitment and training of the internal audit personnel.

 The extent of supervision provided by the chief internal auditor, including the supervision
on planning, monitoring progress, assessing conclusions reached, reviewing reports and
following up to ensure that recommendations accepted are carried out.

 The standing of and regard for the abilities internal Auditors personnel in the client
organization.

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2.1.12 Degree of independence of the internal auditors and the objectivity with
which the work is performed

The independent auditor should ensure himself that the internal auditor is in a position to
perform his work with a satisfactory degree of independence and objectivity. In assessing this
independent auditor should satisfy himself that the internal auditors reports or has access to the
highest levels of management.

In such a case he is likely to be more objective than when he reports to lower lever of
management. The nature and extent of any constraints placed on the work of the internal auditor
by management should carefully be considered by the independent auditor. A review of the
findings and recommendations contained in the reports of the internal audit personnel will
usually be useful factors in judging their independence and objectivity(Boynton 1995)s.

2.1.13 The nature of internal audit control

According to Boynton (1995) internal can be defined as the process through which an entity
attempts to minimize the likelihood of accounting related errors, irregularities, and illegal acts.
Internal control is a process, effected by and entity is board of director’s managements, and other
personal designed to provide reasonable assurance regarding the achievement of objectives in the
following categories:

 Reliability of financial reporting

 Compliance with applicable law and regulations

 Effectiveness and efficiency of operations

2.1.14 Importance of internal audit control

The importance of internal control to management and independent auditors has been recognized
in the professional literature of or many years. In 1947 publication by the AICPA entitled

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internal control cited the following factors as contributing to the expanding recognition of the
significance of internal control.

 The scope and the site of the business entity has become so complex and wide spread that
management must rely on numerous reports and analyses to effectively control
operations.

 The check and review inherent in good system of internal control afford protection
against human weaknesses and reduce the possibility that errors or irregularities will
occur.

 It is impracticable for auditors to make audits of most companies with in economic fee
limitation without keying on the client’s system of internal control.

2.1.15 Objectives and related internal control relevant to an audit

As noted previously, management adopts internal controls to provide reasonable assurance of

achieving three categories of objectives

1. Reliability of financial information

2. compliance with applicable laws and regulations, and

3. Effectiveness and efficiency of operations. Because not all of those objective

and related control are relevant to an audit of financial statements, one of the auditors first tasks
in meeting the second standard of field work is to identify those objective and controls that are
relevant, Generally, this includes those that pertain directly to the first category, reliability of
financial reporting. Thus, particular significance are controls that are intended to provide
reasonable assurance that financial statement prepared by management for external users are
fairly presented in conformity with generally accepted accounting principles.

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Other objectives and related controls may also be relevant if they pertain to data the auditor uses
in applying audit procedures example includes objectives and related controls that pertain to:

 Non-financial data used in analytical procedures such as the number of employees, volume
of goods manufactured and other production and marketing statistics.

 Certain financial data developed primarily for internal purposes such as budgets and
performance data used by auditor to obtain evidence about the amount reported in the
financial statements.

2.1.16Reason for internal audit control evaluation

The primary reason for conducting an evaluating of a company’s internal control is to give the
auditors a basis for planning the audit and determining the nature, timing and extent of audit
procedures in the account balance audit program. The presumption is that the auditors have
prepared a preliminary audit program and have ideas about the work they want to do.

2.1.17 evaluating internal audit control

There is to be a proper study and evaluation of the existing internal control as a basis for reliance
there and for determination of the resultant extent of the tests to which auditing procedures are to
be restricted. An auditor studies internal control to obtain:

 A knowledge and understanding of an entity’s prescribed procedure and methods.

 A reasonable degree of assurance that prescribed procedures and methods are in use and
operating as planned. In turn, an auditor evaluates the prescribed procedures and methods
and the degree of compliance.

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An auditor’s an evaluation should relate to the existing system of internal control, not to controls
no longer applied or those contemplated for the future. Occasionally, employees may by pass
controls they believe are time-consuming or unnecessary.

In addition, some control may have been redesigned, but not yet implemented; an auditor must
be of control by pass and redesigned control in order to assure studying and evaluating control
which actually exists. Under generally accepted auditing standards, the scope of study and
evaluation of internal control includes accounting control, but not administrative control.

2.2 Empirical literature Reviews

According to Muhammad Janatan(2003), study on the title entitled ”Assessment of internal

auditing practice and quality control “he found out that the performance of audit work of the
internal auditing practices positively influences the control environment aspect of the quality of
the internal control system while professional proficiency and objectivity of the internal auditing
practices negatively influences the control environment aspect of the quality of the internal
control system. Performance of audit work plays a great impact on the control environment of
the quality of the internal control system. Therefore, the better the performance of the audit
work, the greater is the control environment on the quality of the internal control system. In
performing the audit work, the internal auditors have been trained and are competent to do the
audit work. Consequently, they are able to identify and analyses the necessary records to achieve
the audit objective. This will have a positive impact on the control environment of the quality of
the internal control systems since the senior management will demonstrate a higher climate of
trust with better performance of the audit work.

He also suggests that management of internal audit department of the Internal auditing practices
negatively influences the risk assessment aspect of the Quality of the internal control system.
However, the performance of audit work, audit Program and audit reporting of the internal
auditing practices positively influences the Risk assessment aspect of the quality of the internal
control system. Since the work performed by the internal audit department has been implemented
in the past and the work, schedules take into consideration the goals of internal audit department;
therefore, this will lead to lower risk assessment of the quality of the internal control system.
This is because; the necessary proper procedures are already applied in Managing the internal

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audit department. However, the better the performance of audit work, audit program and audit
reporting of the internal auditing practices lead to better risk assessment. In performing the audit
work, the internal auditors will identify better risk management framework and risk management
policy and better Procedures should be installed in monitoring the applications of policies and
procedures of the organization. This is also true for audit programs and audit Reporting.

Another researcher Abdul feta Redi (2011), on his work “internal auditing practice” found out
that:

Internal audit is very important for the overall operation of the organization in ensuring the
fairness of financial statement, evaluating whether the activities in the bank operated effectively
and efficiently, and detecting incorrect financial transaction records in banking activity. Internal
audit function need competent and efficient auditors that have understanding of procedures and
having detail accounting knowledge. The planned and properly designed training and
development program is not prepared over though there is training in the organization. The
training program given at the district levels is not sufficient and it is not supported by any visual
aids and practice. The auditors correct faults through review with the accountants and vice
manager of the branch after the problem occurred. This indicates the auditors did not work more
to prevent errors and faults before it happens.

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 CHAPTER THREE
3. Data analysis and presentation
This part of the study deals with presentation and analysis of data gathered through questionnaire
from the department of internal auditing by using censes method with involves directly and
indirectly involved in the department. Since the commercial bank of Ethiopia in case of hawelti
branch has twenty eight target populations all of them gives their response.

The result from the data helped the investigator to give recommendation based on the analysis
and presentation.

3.1 personal information of respondents

As census method used, the investigator gets all respondent, because during that time the
employee are presented at their work and collected all Questionnaires at work time.

Table 3.1.1 sex of respondent information

Number Sex No. of respondent Percentage (%)
1 Male 14 50%
2 Female 14 50%
Total 28 100%
As shown in the above tables 3.1.1, 50% of the respondents are males and 50%are females. This
shows that male and females are fairly distributed in the department of internal auditing. But this
distribution does not have effect on the internal audit working environment because whether they
are female or male there is no difference unless there is difference in attitude towards the work.
Table 3.1.2 age of respondents

Age No. of respondent Percentage(%)

21-25 years 5 17.86
26-30 years 15 53.57%

31-35 years 6 21.43%

Above 36 years 2 7.14%
Total 28 100%
As shown in the above table 3.1.2,17.86% of respondents are above 21-25 years 53.57%of
respondent are age between 26-30 and 21.43% are age the employee between31-35.this indicates
that the employee of the organization is relatively have an ability to perform their work and
adapt the business working environment . In addition to these, the employee of internal auditing
department in CBE has an educational level of degree (57.2%) and MSc. (42.8%).These
indicates that the employee have enough educated to serve the society because the person who

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have diploma or less never have equal knowledge in the working environment with personnel
who have degree and MSc.

Table 3.1.3 field of study

Field of study No. of respondent Percentage (%)
Accounting 12 42.8
Management 6 21.4
Economics 2 7.14
Banking 4 14.28
Human resource management 0 -
Marketing management 4 14.28
Total 28 100%
Source: primary data (questionnaire)2018

As shown in the above table 3.1.3 42. 8% of respondent are qualified in accounting, 42.8% of the
respondent are qualified in management and 21.4% are also respondent of marketing
management. these indicates that the employee of the internal audit department of CBE hawelti
branch have different qualification .these result misunderstanding of audit rule and procedure
because those who qualified in marketing management and management cannot be an auditor
which has no knowledge about audit. But most of the employees are qualified in accounting this
indicates that the department of the audit employee can understand the rule and procedure
required by the standard.

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3.2 Analyses related to internal auditing
3.2.1 Rule and procedure of internal auditing
Today the internal auditing is recognized to be not only financial and compliance auditing but
also encompass performance auditing, as well. In order to do these, internal auditor should
follow the rule and procedure required by standards.

Table3.21 the rule and procedure of internal auditing

Does your department use Yes No Total
internal audit police and
procedure in proper way?
No. of internal respondent 27 1 28
Percentage (%) 96.42% 3.57% 100%
As shown in the above table 3.21 96.42%of respondents in the department of internal auditing
were use police and procedures in proper way. This indicates that the employee of the
department understand it and have enough awareness about the concept of internal auditing
procedure and police .because for selecting and recruit the internal audit employee depend on
educational level, competency, same year experience and interest. This of show that the
employee of the department have good awareness .but 3.57%of respondent respond that the
auditor and worker of the bank sometimes forget the procedure because when internal auditor
are selected and recruit the field is not considered this results misunderstanding of procedure
and policy. Improper implementation and misunderstanding of the procedures are deviation from
what is primary aimed, ineffectiveness of the activities in achieving the objectives of the
organization Independency of internal audit

Institute of internal audit require, internal auditor to be independent of the activities they audit.
Their independency is released when they carry out their work freely and objectively without any
restriction. This freedom exist only if the auditor has free accesses to all records and
information off the organization to dig out any problem exist in the organization .independence
permit them to perform impartial and unbiased judgment essential to the proper conduct of their
work .

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Table 3.22 independency of internal audit
Is internal audit Yes No Total
independency enough
Number of response 28 - 28
Percentage 100% - 100%
Source primary data (questioner)

As it is shown in the above table 3.2.2 100%of the respondents respond that internal auditing is
meaningfully independent of any externalities because the auditor are free from restriction and
have access of all information as much as possible during their work and they perform their work
according to auditing standards .in addition to this the internal audit employees are apply their
responsibility and authority without any restriction. This show that internal audit department in
CBE of hawelti branch is independent. These indicate that the department of internal audit is
well organized because without well-organized internal audit the independency is meaningless.
The foundation of a successful internal auditing begins with the establishment of appropriate
internal audit organization. The establishment of appropriate internal audit structure is dependent
on the authority and responsibility given to the internal audit structure in the organization, which
is in turn influenced by the nature and complexity of the organization as well as the awareness of
top management on services to provide by this staff function.

3.2.3 Challenge of internal audit

As stated in literature review, challenge is any threat, obstacles that affect the overall activity of
operation and results to reduce the quality, or quantities of final report. (it also affect the
organizational objective and goal.

“Internal auditor expected to have thoughtful audit plan, an excellent working relationship with
management, support from audit committee and state of art audit tools”. Unless the right people
are in place, many audit departments will not be able to succeed. (Institute of Internal audit,
2004).

More ever, in adequate staffing can be one of the greatest obstacles to provides high quality
internal audit and its certainty one of the top challenge is faced by the internal audit department.

Table 3.2.3challenges of internal audit

Are their challenges that face internal Yes No Total
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 auditor in their working environment?
No Respondents - 28 28
Percentage - 100% 100%
Source: primary data (questionnaire)

As clearly stated in the above table 3.2 .100% respond that the internal auditors not face any
challenge during their audit work. these indicates that there is strong internal control to wardes
the cover all organization activities accesses of record document without any restriction effective
use of resources' and creating integrated internal auditing.

3.2.4 Evaluation of internal audit

Table 3.2.4 evaluation of internal audit
How do you Highly effective Medium Ineffective Total
think that the effective
potential of
internal audit in
the department to
detect error?
No. respondent 24 4 - 28
Percentage 85.7 14.28 - 100%
Source; primary data (questioner)

As clearly stated in the table 3.24. 85.7%of respondent responds that the potential of internal
auditor is highly effective to detect error. This indicates that internal auditor has enough potential
or skill to perform its work efficiently and effectively because as the potential of the internal
auditing increase, the probability of making misstatement about the work of audit minimize too
and the institute of internal auditing required that the employee of the organization have
adequate skill to protect fraud and negligence. This indicates that they have an ability to
communicate with customer as well as other body in order to collect evidence. Nevertheless,
14.28%of the respondent responds that the potential of internal auditor has medium effective, as
the standard required the internal auditing should process the skill and knowledge accessory to
fulfill all the audit requirement of the organization this is acquired through effective
employment practice and continuing training and education program is should carrying out .

3.2.5 Performance of internal audit work

The institute of internal auditing standard requires that the internal audit is to be effective ,it must
be adequately planned, guidance is also provided for the internal auditor in collecting
,analyzing ,interpreting and evaluating evidence and document information to support audit
22
result .in addition ,communicating the results of the audit and following up to ascertain that
appropriate action is taken on reporting audit finding are part of the standards and there must be
well structured audit procedure .

Table3.25 performance of internal audit

Is there good performance of internal Yes No Total
audit work in the organization?
No. of respondent 28 28
Percentage (%) 100% - 100%
Source: primary data (questionnaire)

As shown the above table 3.2.5.100%of respondent respond that the performance of audit work
of the organization is good. This indicates that there is adequate audit planning, well-prepared
audit program, well structure audit procedure, internal guidance. Free Access of internal auditing
department to all record, reports and information and well auditing daily approach for internal
audit of the organization to perform their work. This shows that internal auditors qualification
related to working is very good performance in commercial bank of Ethiopia hawelti Branch.
However, internal auditors have skill and knowledge relative to latest technology. As peoples’
understanding for the importance and role of internal auditors, its’ operation becomes latest.
Internal audit function need competent and efficient manpower like good computer skill, good
understanding of procedures and having detail accounting knowledge.

3.2.6 General objective and responsibility of internal auditing

Most of the time internal auditor work is encompasses the organization s internal
control. The main objective stated in the manual of the audit:
 To determine whether resource are used efficiently, economically and
effectively
 To determine whether the organization complies with its establishment police,
plan and procedure.
 To check whether financial and operating information are accurate and
reliable.
 Determined whether the organization achieved its objective.

3.2.7 Responsibility of internal auditing

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Internal auditing are responsible to ensure the fairness of financial statement and detect incorrect
financial transaction records in banking activity and operational auditors ensure whether each
and every activities in organization are operate effectively and as per the plan prepared to
achieve the goal of each department and the organization as a whole. Since banking, system need
accurate reliable record, internal auditors are very important for commercial banks. in addition
to these, they are responsible to:

 Improve the art of accounting

 Maintain the public’s confidence in the profession

 Carry out the self-regulatory activities

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 CHAPTER FOUR
4. Findings, Conclusion and recommendation

4.1 Conclusion
This part of the study is to conclude the whole research and highlight implication and future
research direction.

Now day, the challenge is that companies must have enough internal audit staff to give the
critical mass to do the required amount of work and they must constantly invest in training of
employee and technology. In addition, especially skills may be needed for information
technology, fraud examination, financial reporting and many other areas. In facts, the internal
audit departments are required to perform and charges duties and responsibility in consulting
activities designed to add value and improve organizational effectiveness. There for, the
effectiveness of internal audit begins when there is appropriate or well-organized internal
auditing department because without well-organized internal auditing independence is
meaningless. The independence of internal auditing in CBE of hawelti branch is enough to
perform unbiased judgment For the growing and development of commercial banks industry,
effective work of internal auditing are essential unit.

From this fact, the authority of responsible body for commercial bank of Ethiopia formulate
effective internal audit strategy, which in turn to minimize the possible of error and any
negligence and to overcome the problem. But this happens when internal audit police and
procedure used in work time properly and strong existence of independence, highly effective
potential and performance.

Generally, as analysis in these research, internal audit plays major role in organizational
effectiveness.

Misunderstanding of policy and procedure results from UN related field of study which affects
the process of audit in the department.

Based on the fact that and finding, the study analyzed the major issues concerned internal audit
and forwarded recommendation.

The researcher found out that, effectiveness in internal audit could not be achieved unless
internal auditor plays their parts properly .this show that internal must freely access of resources
and independence is preferable to do their part work.
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  It also found out and recommended that, the field of study have considered for recruit and
select auditor.
 As the purpose, in order to have enough skills or knowledge about internal audit
procedure and police, we recommended that the employee of internal auditing in the CBE
required continue training and educational program.
 We recommended that, the measurement of responsible body over internal auditing
department have to apply segregation of duties for their independence.

4.2 Recommendation

based on the fact that and finding, the study analyzed the major issues concerned internal
audit and for warded recommendation.

the researcher found out that, effectiveness in internal audit could not be achieved unless
internal auditor plays their parts properly. this show that internal must freely access of
resources and independence is preferable to do their part work.

 It also found out and recommended that, the field of study have considered for
recruit auditor.
 As the purpose, in order to have enough skills or knowledge about internal audit
procedure and police, we recommended that the employee of internal auditing in
the CBE required continue training and educational program.
 We recommended that, the measurement of responsible body over internal
auditing department have to apply segregation of duties for their independence.

26
 Reference

 Alvin A. Arens, (1997). auditing an integrated approach, 7th edition, New jersey
(USA)

 Divide N Recchuite, (1982). Auditing concept and standard. University of Nottre

Dame.

 Muhammed janatan,(2000),research on internal auditing practice and

organizational efficiency

 Larry F, Knorath, (1999). Auditing concepts and Applications, Approach.

 Shekhan and shekhars, (2003). Auditing Approach 5th edition.

 William C. Boyntom, (1995). Modern Auditing sixth Ethiopian University of

Micbigon.

27
 Rattift,(1988),

28
 APPENDIX

AKSUM UNIVERSITY DEPARTMENT OF ACCOUNTING AND FINANCE

This questionnaire is prepare for employee of auditing department in CBE hawelti branch to get
the necessary data to do the research for partial fulfillment of degree in accounting and finance
.the survey study on the assessment of internal auditing effectiveness .your responsse will be
used only for research purpose and kept confident.

N.B: write your name is not necessary

”Thank you for your cooperation”

Part- one: personal information for employee

1. Age
A, 21-25 B, 26-30 C,31-35 D, above 35
2. Sex
A, Male B, female
3. education level

A, Certificate B diploma C, degree

D, MSC.

29
 4. Number of years worked in these organizations
A,1-3 years B, 4-6years C, 7-10years D, above 10 years

5. Field of study

A, accounting

B, Economics

C, Management

D, Banking

E, Human resource

F, Any other………………………

Part 2: main question about internal auditing

1. Does the organization use audit police and procedure in proper way?

A, Yes B, no

2. What are the criteria for the department to select and recruit the auditor?

A, Education level B, some year experience

C, Competency D if other specify…………………………………

3. The internal audit dependence is enough or adequate

30
A ,Yes B, no

4. If your answer in question number 3 is “No” specify the reason………………………..

5. Is the internal auditing department of the organization is well organized?

A Yes B, no

6. If your answer in question number 5 is “No” what reason does you think?

A, lack of accountability of the employee

B, lack of management control to audit department

C, lack of relationship among the employee

D, Lack of applying the responsibility

7. How do you judge the corrective action up on the internal audit report?

A ,Strong B, medium C, weak

8. Is there any problem that faces you in your work that challenges the auditor?

A, Yes B, no

9. If your answer for question number 8 is yes what challenge you face?

A, Fraud B, corruption C, management fêlure

D,Financial irregularities
31
10. If you r answer for question number 8 is NO what can be possibly reasons not face
challenges.

A ,existence of strong internal control

B, absence of fraud

C ,effective use of audit procedure

D ,absence of irregularities

If other specify…………………………………

11. How do you evaluate the potential of internal auditor in the organization?

A, Highly effective

B ,Medium effective

C, Weak effective (ineffective)

12 do you think that internal auditing department are skilled to detect fraud and negligence?

A, Adequate B, inadequate

13. The measurement that you take to control internal auditing?

32
A, Strong B, medium C, weak

14. Is the performance of the audit work in the organization good?

A, Yes B, No

15. If your answer for question number “14”is yes what makes the performance of audit work
good?

A ,adequate planned audit work

B, well prepare audit program

C, well structure audit procedure

D, internal audit guidance

E, If any other specify…………………………………………………………..

16. If your answer for question number14 is No what is the reason?

A ,not adequate planned audit work

B ,not well prepare audit program

s
C ,not well structure audit procedure

D ,not internal audit guidance

If any other specify…………………………………………………………..

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17. What are objective of internal auditing?

A ,checking reliability of financial statement

B ,determined whether resource are used effectively and efficiently

C ,determined whether fraud and error are minimized

D, determined whether organizations objectives are achieved

E, If other specify………………………………………

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35