COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSEMENT OF INTERNAL AUDITING PRACTICE: A CASE STUDY ON AWASH

INTERNATIONAL BANK HARAMAYA BRANCH

Senior research paper submitted to the department of Accounting and finance in partial
fulfillment of the requirement for the bachelor of Art Degree in Accounting and Finance

BY;

EPHREM TILAHUN

ADVISOR: Ashu Girma

MAY, 2023

HARAMAYA, ETHIOPIA
 DECLARATIONS

The researcher, Ephrem Tilahun, hereby declare that the research entitled " ASSESSEMENT OF
INTERNAL AUDITING PRACTICE in AWASH INTERNATIONAL BANK Haramaya
BRANCH "submitted for the award of bachelor of art degree in accounting and finance,
Haramaya university, is my original work and it hasn't been presented for the award of any other
degree, fellowship or other similar titles of any other university or institution.

prepared by; Ephrem Tilahun Signature-----------------------Date------------------

confirmed by;--------------------------Signature----------------------Date----------------------

CERTEFICATION

I
This is to certify that student Ephrem Tilahun with ID 3752/12 has conducted his senior essay
paper on the title “Assessment of INTERNAL AUDITING PRACTICE in AWASH
INTERNATIONAL bank Haramaya Branch” and the work is completed with good
evaluation of the advisor and the examiners as per the requirement of university.

Advisor Name Signature------------------------ Date-----------------------------------------

Examiners Name 1. ----------------------- Signature----------------------- Date----------

ACKNOWLEDGMENT

First of all, I would like to thank my God for assistance and leadership in this difficult work.
Next to God I would like to thank my advisor Instructor Ashu Girma for his tireless held
consultation and advices in perpetual assessment and consultation. Next my thanks goes to the
employees of Awash international bank in Haramaya branch for their cooperation. And finally I
would like to thank my family for their long last help.

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 ABSTRACT

Auditing is an important activity for all types of organizations where governmental, private for
profit, non-profit or any other. The objective of this study is to assess the internal audit practice
in Awash international bank in Haramaya Branch. The researcher used mixed approach which
means, both qualitative and quantitative research approach to gather relevant data from the
concerned body and also the researcher applied descriptive method of the research design
because the method used to describe the state of the nature of internal audit practice in detail. A
primary method of data collection was applied. The primary data was collected through
questionnaire from the employees of the bank and from the two division head of the bank. The
researcher used non random sampling technique to accumulate a desire data about internal
audit practice of the bank within the sample size of 9 respondents. The data were presented and

III
analyzed through tabular representation and descriptive method of analysis so as to clarify
points related to the subject matter in detail. The finding of the study shows: the existing internal
auditing are not reliable for investor and other user or the audit result in AIB. Finally, The
researcher recommend the bank, their document available for the users who went to use their
document.

TABLE OF CONTENT

ACKNOWLEDGMENT......................................................................................III
ABSTRACT......................................................................................................IV
1. INTRODUCTION...........................................................................................1
1.1. Background of the study...................................................................................................1

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

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 Study...................................................................................................................4

1.7. Limitation of the Study......................................................................................................4

IV
 1.8. Organization of paper........................................................................................................4

2. 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...........................................................................................6

2.5. Meaning of internal Auditing............................................................................................7

2.6. Internal Audit Function.....................................................................................................7

2.7 Characteristic of Internal Audit..........................................................................................7

2.8. Internal auditing role in Control........................................................................................8

2.9 Independence, Objectivity and Compliance......................................................................8

2.10. Responsibility of Internal Auditor...................................................................................9

2.11. Applicability of Internal Auditing.....................................................................................9

2.12. Barriers to Successful Audit Result..................................................................................9

2.13. Audit reports.................................................................................................................10

2.14. Contents of Report........................................................................................................10

2.15. Format of Report...........................................................................................................11

2.16 Empirical literature review.............................................................................................11

2.17 Research gap..................................................................................................................12

3. METHODOLOGY........................................................................................13
3.1 Research Design...............................................................................................................13

3.2 Types of data and data collection method.......................................................................13

3.3 Population and sampling design......................................................................................13

3.4. Method of data analysis and presentation.....................................................................13

4. RESULTS AND DISCUSSION......................................................................14

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 4.1. The AIB’ Haramaya Branch reliance on internal auditing practice 14
4.1.2 The AIB Haramaya Branch internal auditor objectivity 15
4.1.3 Internal auditors competence in AIB Haramaya Branch 16
4.1.4 Internal auditors perception toward staffing and safeguarding  of asset in   AIB,
Haramaya Branch. 18
4.1.5 The application of internal auditing principle in practice in AIB, Haramaya   Branch
19
4.2.1 Division of internal auditing department in AIB, Haramaya Branch and their Function
21
4.2.2 Response of Financial audit division head 21
4.2.3 Response of operational division head 22
5. CONCLUSION AND RECOMMENDATION...................................................23
5.1 CONCLUSION....................................................................................................................23

5.2 RECOMMENDATION.........................................................................................................23

APPENDIX......................................................................................................26

VI
TABLE OF CONTENT

LIST OF TABLE

Table Page

Table 4.1 AIB Haramaya Branch reliance on internal audit work ….....17

Table 4.2 The AIB Haramaya Branch level of reliance on internal audit
work........................................................................................................18

Table 4.3 The AIB Haramaya ch Internal audit objectivity ……...19

Table 4.4 The internal auditors opinion on the degree of competence of AIB,
Haramaya Branch.................................................................20
Table 4.5 The internal auditors perception towards staffing and safeguarding

of assets in AIB, Haramaya Branch........................................22

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

auditing items of objectives and competent ………………...……24

VII
 1. INTRODUCTION

1.1. Background of the study

Auditing is an important activity for all types of organizations where governmental, private for profit, non-profit 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
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
(Konrath, 1999).

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 (AIB) 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,
1989).

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 proclamation69/1952 to audit the account of the
ministry of finance(MOFED,1997).

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 reasonable
report on the truth and fairness of the account of the company.
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.

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The other problem is that inadequate internal control can expose the company to various
identifiable risks, 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 undertake a study of this nature. Here in
this paper, the researcher wants to assess the existing internal auditing system.

As we seen in the previous research are done the research which is related to the researcher's
title when the studies which are stated in the above namely. Adem(2016), Muluken(2015) did
not assess both compliance and fraud audit to assess the factors strength and weakness with
regard to internal auditing.

Therefore, this study tried to assess the factors strength and weakness with regard to internal
auditing practice in Awash international bank by identifying the quality of internal audit work,
by assessing the financial audit, compliance audit and fraud audit.

1.3. RESEARCH QUESTIONS

Depending on the above problem the researcher raises the following question:-
 Are the principles of internal auditing applied in practice in AIB?
 How internal auditing department in AIB is divided?
 How internal audit practice affects external auditing function and what is their relationship?
 What seems the quality of internal audit work in AIB in terms of competence, objectivity
and independence?
 What is the general nature and use of internal audit in AIB?

1.4. Objective of the Study

1.4.1. General Objective
The general objective of this study is to assess the internal auditing practice of Awash
international bank, Haramaya branch.

1.4.2. Specific Objective

The specific objectives of this study are:
 To examine whether the internal audit principles are applied in AIB .
 To identify the quality of internal audit work.
 To examine the nature and use of internal audit in Awash international bank.
 To assess the degree of independence of the internal auditor from those who task they
reviewing.
 To assess the performance of the employee in Awash international bank in terms of
competence, objectivity and independence.

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  To encourage the organization to prepare strong internal audit reports.
 To assess internal auditing as internal control.
 To assess limitation of internal auditing practices
1.5. Significance of the Study

The major benefits and importance of this study are the following:-
 It will be enabled the managers to be aware of the importance and use of internal audit
in achieving intended objective.
 It will be helped 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.
1.6. 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 Awash International Bank and division of
the internal audit department and the function and responsibility of each division.

1.7. Limitation of the Study

There are some limitations to conduct the study, since the study does not cover all branch of
Awash International Bank, the result of the study may not give full information about internal
auditing practice. Some of the respondent may not give response sincerely. Lack of experience to
conduct such type of research.

1.8. Organization of paper

This study has five parts. part 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. part two summarizes review of
literature. Part three deals with research methodology. Part four deal with the data analysis and
presentation. Part five deals with summery, conclusion and Recommendation.

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 2. LITERATURE REVIEW

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). 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).
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 exists 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 re-engineering 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 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.

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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 proclamation 69/1952 to audit the account of the
ministry of finance.

The period of 1980s marked the introduction of a budgetary system in government. The
encounter of an annual public budget in 1985 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).

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

5
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
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

 Auditors are company employee.
 Review of company activities is continuous.
 Have a direct influence on the scope of external auditor 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 functions 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).

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/her 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.

6
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 Program consists of the overall 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 is 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).

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 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).

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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.
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 are 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 a recommendation 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

A content of report is impossible to be dogmatic as to the contents of internal audit reports it

suggested. However, that part forms 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 is
the essential matter on which information is required (Arens and Loebbecke, 1997, pp.34-37).

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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 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
from 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 ther (Messier, 2003, p. 421).

2.16 Empirical literature review

Different researches were conducted on the existing practices of internal auditing in the
Ethiopian context. The focus of those papers varies in terms of sectors, industries and
institutions. Highlights of some previous research papers on similar subject including the
research conclusions and recommendations are discussed as part of the assessment of previous
empirical evidences and presented as. Yisehak Tigabu (2013) in the research entitled “Internal
audit practices in the Ethiopian Financial sector, as compared to the International Professional
Practicing Framework (IPPF) pronounced by the IIA”, to compare the existing internal audit
practices in the Ethiopian financial sector by taking the framework as a benchmark. The financial
sector in Ethiopia comprises of banks, insurance companies and micro finance institutions. A
mix of sample was taken from all and the research deployed three data collection methods:
questionnaires, interview and document review.

Adem(2016) conducted on internal auditing practice in commercial bank of ethiopia.This

researcher tried to assess the performance of internal auditing through analyzing the internal
auditing practice.

Muluken (2015) conducted on internal auditing practice in Dashin bank. This researcher focus on
the financial audit through evaluating of the adequate and effectiveness of the organization by
quality performance of the employee.

2.17 Research gap

As we seen in the previous research that conduct by the following researcher namely,
Adem(2016),Muluken(2015) did not assess both compliance and fraud audit to assess the factors
strength and weakness with regard to internal auditing. but this study tried to assess the factors

9
strength and weakness with regard to internal auditing practice in Awash international bank by
identifying the quality of internal audit work, by assessing the financial audit, compliance audit
and fraud audit.

3. METHODOLOGY
3.1 Research Design

The researcher has been used descriptive method of research design because, descriptive
research design helps to describe and summarize the data using percentage and tables. In
addition to this it helps to describe the present status of the research area of investigation. the
other reason to use descriptive research design is the researcher to obtain detail description of
both qualitative and quantitative information about internal auditing practice in Awash
international bank as well as to address the basic research question.

3.2 Types of data and data collection method

In order to complete the study the researcher has been used both primary and secondary source
of data to achieve the planned objective. The primary data would be gathered from primary data

10
source. To collect primary data, the researcher has been used questionnaires. Because the entire
internal auditor and both Financial and operation division head are very busy due to this the
researcher enforced to use questionnaires.

3.3 Population and sampling design

The population of the study is 18 employees of the organization, from the total of 18 employee,
the researcher is selected 9 employees for the sample size and judgmental sampling would been
used to collect the data. Because these employee are more knowledgeable and their action related
to internal auditing practice may well. And it allows the researcher to get the real information
about internal auditing practice from the employees who have knowledge about internal auditing
practice and from both financial audit division head and operational division head through
questioners.

3.4. Method of data analysis and presentation

The data has been collected through questionnaires were analyzed by using descriptive analyses
method accordingly and integrated by using table and percentage. This method also helps the
researcher to draw basic conclusion on the study and enable to make valuable recommendation
based on the finding.

4. RESULTS AND DISCUSSION

This chapter presents the result and analysis done on the internal auditing practice in AIB in
Haramaya Branch. This discussion covers both the attribute standard and performance standard
of internal auditors. A total of nine (9) questionnaires were distributed to respondents that are
working in AIB in Haramaya Branch. From these nine (9) questionnaires (8) of them are filed
properly and forwarded, which represent 88.9% 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 questionnaire analysis made on this data is
presented on the following section.

4.1. The AIB’ Haramaya 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’s. This will increase quality of the company. 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 depends on the
quality of internal auditing rules and procedures and the proper application of these rules and
procedures.

To address the eleventh question, which concern about the Awash International Bank of
Haramaya Branch reliance on internal auditing practice, respondents were asked whether or not
they rely on proper internal audit work and the degree of reliance.

11
Table 4.1 AIB Haramaya Branch reliance on internal audit work

No. Responses Respondents

No. Percent
1 Yes 3 50

2 partially 3 50

3 No 0 0

Total 6 100%

Source: Questionnaires

As shown under table 4.1 below 3 out of 6(50%) of the respondents said yes and 3 out of 6(50%)
of respondents replied partially they rely.

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

Table 4.2 the AIB Haramaya Branch level of reliance on internal audit work

No. Level of reliance Respondents

No. Percent
1 High 1 16.7
2 Medium 2 33.3
3 Low 3 50
Total 6 100%

Source: Questionnaires

As indicated in the above table 4.2 even if the AIB Haramaya Branch has enough internal auditor
work which amount 16.7% of their work relied on the internal audit work and 33.3% of their
work is medium. The reliance on the level of internal audit work low i.e. 50%, therefore we can
say that, even though the bank has internal auditing practice highly its application is low. The
quality of internal audit work depends on adequate and relevant as required by auditing standard.

4.1.2 The AIB Haramaya 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.
12
 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 AIB Haramaya branch Internal Auditor objectivity

Responses
Strongly Strongly
N agree Neutral disagree
Statement agree disagree
o
N N
No % % % No % No %
o o
1 Internal auditor in AIB Haramaya
Branch is free from conflicting
auditors 1 16.7% 1 16.7% 4 66.7% 0 0% 0 0%
2 The internal auditor in AIB
Haramaya Branch exercise due
professional care in performing
audit 1 16.7% 5 83.3% 0 0% 0 0% 0 0%

Total

Q1 1 16.7% 1 16.7% 4 66.7% 0 0% 0 0% 100%

Q2 1 16.7% 5 83.3% 0 0% 0 0% 0 0% 100%

Source: Questionnaires

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
said neutral with the statement that internal auditor in AIB Haramaya Branch was Free from
conflicting of auditors which is 66.6% responses. The internal auditors in Awash International
Bank, Haramaya Branch are exercising due professional care in performing audit work are 5 out
of the 6 respondents which 83.3%. From this it is possible understand that internal auditors in
Awash International Bank in Haramaya Branch have objective. In other words, this objectivity
increases the extent of reliance on internal audit practice.

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 4.1.3 Internal auditors competence in AIB Haramaya 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 AIB, Haramaya 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.

Table 4.4 the internal auditors opinion on the degree of    competence   AIB Haramaya Branch

Responses
Strongl
Strongly y
agree Neutral disagree
No Statement agree disagre
e
N
% No % No % No % No %
o
1 Enough level of practical 0
experience 1 16.7% 5 83.3% 0 0% 0 0% 0 %
2 Appropriable continuing 0
educational program 1 16.7% 5 83.3% 0 0% 0 0% 0 %
3 Working paper documentation
and report have enough in
quality and quantity 1 16.7% 5 83.3% 0 0% 0 0% 0 %

Total

Q1 1 16.7% 5 83.3% 0 0% 0 0% 0 0% 100%

Q2 1 16.7% 5 83.3% 0 0% 0 0% 0 0% 100%

Q3 1 16.7% 5 83.3% 0 0% 0 0% 0 0% 100%

Source: Questionnaires

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 As clearly shown in table 4.4, most of the respondents agreed on statement indicated on no (1) 5
out of 6 which is 83.3% of the respondents agree, 1 out of 6 which is 16.7% of respondents have
Strongly agreed. The internal auditor in AIB, Haramaya Branch have enough level of practical
experience. For the statement indicated under no (2) 5 out of 6 which is 83.3% of the respondent
have agreed, 1 out of 6 which is 16.7% of the respondent have Strongly agreed. For the statement
indicate on no (3) 5 out of 6 which is 83.3% of the respondents have agreed, 1 out of 6 which is
16.7% of respondent have Strongly agreed. The internal auditors prepare working paper to
reduce test carried out, the result of test and conclusion draw in the bank. Therefore, 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 program 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 competence of internal auditors in AIB, Haramaya Branch are moderate due
to lack of appropriate continuing educational program.

4.1.4 Internal auditors perception toward staffing and safeguarding  of asset in   AIB,
Haramaya Branch.

The internal auditing department reviews the means of safeguarding assets and as appropriate,
verify the existence of such assets. The internal auditors not only verifies the assurance of such
asset, but also, appraise the economy and efficiency with which resources are employed. The
existence of these criteria enhances 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 auditors perception towards staffing and                  safeguarding of assets
in AIB, Haramaya Branch.

Responses
Strongly Strongly
N agree Neutral disagree
Statement agree disagree
o
N N
No % % % No % No %
o o

15
1 In AIB, internal auditor is review
the means of safeguarding asset 1 16.7% 5 83.3% 0 0% 0 0% 0 0%
2 In AIB staff assignment of internal
auditor is rotated periodically 1 16.7% 5 83.3% 0 0% 0 0% 0 0%

Total

Q1 1 16.7% 5 83.3% 0 0% 0 0% 0 0% 100%

Q2 1 16.7% 5 83.3% 0 0% 0 0% 0 0% 100%

Source: Questionnaires

As clearly show in table 4.5 the majority of the respondents agreed for statement indicated on no
(1) which is 83.3% of respondents agreed and 16.7% of respondents have strongly agreed.
Generally, 100% of respondents have agreed concerning the banks appropriate safeguarding of
assets. For the statement on no (2) respondent have almost agreed which is 83.3% and 16.7% of
respondents have strongly agreed about the statement. The low staff assignment may be the
technical proficiency and level of experience is appropriate for the audit performed. From this
the researcher understand that, there is potential and the internal auditor should be expected to
report to the manager. The existences of stable worker in any company in case of the adaptability
of the work and hence increase the quality of audit work.

4.1.5 The application of internal auditing principle in practice in AIB, Haramaya   Branch

In the first part of this chapter, the questionnaire results indicate that the extent of internal
auditors reliance on internal auditing practice and quality of internal audit work in AIB is high.

The reason for high internal auditing practice in AIB 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, Awash international bank apply the
principle of internal auditing in practice; the second, audit procedure, including testing and
sampling techniques improves is selected in advance where practicable and expanded; the third,
the internal auditor in AIB, Haramaya Branch are skilled dealing with people and in
communicating effectively

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

Responses
N
Statement Strongly Strongly
o agree Neutral disagree
agree disagree

16
 N N N
No % % % % No %
o o o
1 Awash international bank apply
the principle of internal auditing in
practice 1 16.7% 5 83.3% 0 0% 0 0% 0 0%
2 Audit procedure such as testing
and sampling techniques is
selected in advance
1 16.7% 5 83.3% 0 0% 0 0% 0 0%
3 The internal auditors in AIB are
skilled dealing with people and
communicating effectively
1 16.7% 5 83.3% 0 0% 0 0% 0 0%

Total

Q1 1 16.7% 5 83.3% 0 0% 0 0% 0 0% 100%

Q2 1 16.7% 5 83.3% 0 0% 0 0% 0 0% 100%

Q3 1 16.7% 5 83.3% 0 0% 0 0% 0 0% 100%

Source: Questionnaires

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 83.3% agreed for the
statement that Awash international bank apply the principle of internal auditing in practice
while 16.7% of respondents said strongly agree. As indicate in table 4.6 on no (2) tell as the AIB
have enough level of audit procedures, which have 83.3% of respondent are agreed and 16.7% of
respondent have strongly agreed. The other statement on table 4-6 no (3) the internal auditors in
AIB are skilled dealing with peoples and in communicating effectively most of the respondents
which are 83.3% agreed; 16.7% of the respondents have strongly agreed. Generally, from above
analysis we can understand that internal auditors in AIB are compliance with role, police and
regulations. Therefore this realizes that 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
questionnaires that are expected to generalize the response of questionnaire.

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4.2.1 Division of internal auditing department in AIB, Haramaya Branch and their
Function

The internal auditing department in AIB has two major divisions. This division is operating and
financial division. The researcher distributed questionnaire for both of the division. The question
presented is different and analyzed separately. 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 five 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 AIB” “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 and “examine the control over all accounting operating which materially affected the
financial statement” have strongly agreed. 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 six 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 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 six questions
the respondents response for four 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 AIB, in Haramaya Branch
perform their activity properly. This increase the bank internal audit department to be efficient.
In AIB 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 questionnaire is the mirror image of the response obtained by the
questionnaire. Finally we can understand that, the quality of audit work the division and proper

18
function of internal auditor’s efforts to provide proper information to external auditor in AIB is
relatively high.

5. CONCLUSION AND RECOMMENDATION

5.1 CONCLUSION

Depending on the finding of the study, the following conclusions were made:-

1. Internal auditing practice is one of the most important functions 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 is one method. From the
questionnaire the respondents agree for existence of enough auditing practice in AIB,
HARAMAYA Branch. Therefore, internal auditing practice in AIB, HARAMAYA
Branch is high.
2. Internal auditor in AIB, HARAMAYA Branch have enough level of practical experience
and working paper documentation and report to record test carried out. But, internal
auditor in AIB, HARAMAYA 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.
3. Finally, when the researcher studied considers 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 reducing the quality and reliability
of audit work.

5.2 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.

19
 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 AIB.
 The researcher recommends the bank, their document available for the users
who went to use their document.
2. The internal auditor in AIB, Haramaya Branch have not appropriate containing
education program. This low level of internal auditors continuing educational
program affect the competence of internal auditors to be at low level. This affects 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 AIB, Haramaya Branch applied in practice without
any violation. But, the agreement percentage for the statement, the internal auditor in
AIB is skilled dealing with people and in communicating effectively is relatively
low. This indicates there is relatively low level at communication between internal
auditor and external auditor.
 To reduce these problem members 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 understands 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.

6. REFERENCES

Arens Alvin A. and etal, 1991, Auditing an integrated approach, 5thedifion, prentice USA
Big and Daves, 1980, Internal auditing, 5th edition, Britain

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Daniel G. Braith waite, 1989, Comprehensive Auditing, New Approach for internal auditing,
Britain.
James k. Loebbecke, 1997, Auditing, an integrated approach, 7th edition, prientice hall Int’l,
USA.
Whitting ton and gany, 1995, principle of auditing, 11th edition, US

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 APPENDIX

HARAMAYA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTEMENT OF ACCOUNTING AND FINANCE

The purpose of this questionnaire is to collect data on the internal audit practice in Awash
international Bank of Haramaya branch. This questionnaire is aimed to at examining the quality
of internal and functions of each division head. In general this questionnaire is focused on
examining whether the principles of internal auditing in Awash Bank are applied in practice or
not the quality of the output depends on the respondents fair response to the question.

I. For internal auditors only

 Dear respondent answer the following questions by putting "X" sign in front of each question
depending on your level of agreement.

Where:-
SA=Strongly agree N=Neutral DA=Disagree
A=Agree and SDA=Strongly disagree

No Questions Responses
SA Agree N DA SDA
1 Awash international bank apply the
principle of internal auditing in
practice
2 The internal audit in Awash
international bank have an
appropriate continuing use
3 The internal auditor in Awash
international bank have an
appropriate continuing education
program
4 The internal audit in Awash
international bank are free from
conflicting duties and able to
investigate any area
5 The internal auditor of awash
international bank exercise due

22
 professional care in performing
internal audit
6 The internal auditor in Awash
international bank is skilled in
dealing with people and in
communicating effectively
7 The internal auditors prepare working
paper to recorded test carried out, the
result of rest and conclusion drawn in
the bank
8 The internal auditor in Awash
International bank of Haramaya
branch have enough level of practical
experience
9 In Awash International Bank of
Haramaya branch internal auditor is
review the means of a safeguarding
assets and as appropriate, verity the
existence of such asset.

10 Audit procedure, including the testing

and sampling techniques employed,
is selected in advance, where
practicable and expanded

11 Does Awash International bank in Haramaya branch relied on internal audit

work Yes partially No
12 If your answer for question 11 is ‘yes’ or partial how much is the reliance
High medium Law
13 If your answer for question 11 is ‘no’ what do you think is the reason?
Internal auditor are not competent
Internal auditor have not adequate scope of work.
Internal auditor department is not stuffed properly.
Internal audit department has lack of following up.
II. For Financial audit division head only.
 Dear respondent answer the following questions by putting "X" sign in front of each question
depending on your level of agreement.
Where:-

23
 SA=Strongly agree A=Agree N=Neutral DA=Disagree SDA=Strongly
disagree

No Questions Responses
SA Agree N DA SDA
1 The internal audit use reliable
documentation for describing the
company’s system as the basis for his
procedural test, such as flow chart
and company procedure manual

2 Financial record and reports contain

accurate, reliable timely complete
and useful information in Awash
Bank of Ethiopia in Haramaya
Branch

3 In AIB the financial audit

division head examine
information

4 The financial audit head prepare

activity report and submitted to
management and to the board

5 The financial audit division head

examine the control over all
accounting operation which
materially affect the financial

III. For operational division

 by putting "X" sign in front of each question depending on your level of agreement.

24
 Where:- SA=Strongly agree A=Agree N=Neutral DA=Disagree
SDA=Strongly disagree

N Questions Responses
o SA Agree N DA SDA
1 In the internal audit department of the bank
operation division head report identify
weakness and recommendation for
improvement

2 The operational division head passes the

knowledge, Skill and discipline needed to
carry out its audit responsibility
3 The operational division head review
operations or programs to ascertain wither
result are consistent with established
objective and goals and whether the
operations are being carried out as planed

4 The operational division head relied the

reliability and integrity of operating
information and the means used to identify,
measure classify and report such
information

5 In AIB, the purpose, authority and

responsibility of the operational audit
division head is defined in a formal written
document
6 In addition to financial audit the
practice of both compliance and
fraud audit in AIB, is good

25