CHAPTER-ONE 1. INTRODUCTION 1.1. Background of the study Auditing in ancient time is land owner assign some individual to control or manage in assets and assigned percent some evidence orally causing report in ancient time) to the owner of the land. This is auditing in ancient time, but now auditing is systematic process of obliging and elevating evidence about information to determined establish criteria or is a professional and experienced person can gather economic evidence and investigate how they prepared, comparing with the previous plan and finally on the variation from the plan and report the result presented to the client of audit information. The current day audit is more widely in scope and levels of responsibility than the ancient year. The current day internal audit efficiency and effectiveness, improving performance by showing different problems live embattlement, completion and fraud. It is advisable for the hospital to have internal audit control. The objective of internal audit is to assess the management of the hospital in the effective discharging of the respective responsibility. Internal audit is very significant to the hospital and it has following importance reduce risk of fraud, improve efficiency and effectiveness, assessing control over the production of asset and management ability. Therefore, the hospital mass
Transcript
CHAPTER-ONE
1 INTRODUCTION
11 Background of the study
Auditing in ancient time is land owner assign some individual to control or manage in assets
and assigned percent some evidence orally causing report in ancient time) to the owner of the
land This is auditing in ancient time but now auditing is systematic process of obliging and
elevating evidence about information to determined establish criteria or is a professional and
experienced person can gather economic evidence and investigate how they prepared
comparing with the previous plan and finally on the variation from the plan and report the
result presented to the client of audit information The current day audit is more widely in
scope and levels of responsibility than the ancient year The current day internal audit
efficiency and effectiveness improving performance by showing different problems live
embattlement completion and fraud It is advisable for the hospital to have internal audit
control The objective of internal audit is to assess the management of the hospital in the
effective discharging of the respective responsibility
Internal audit is very significant to the hospital and it has following importance reduce risk of
fraud improve efficiency and effectiveness assessing control over the production of asset
and management ability Therefore the hospital mass follow the audit procedure for
obtaining the above benefit So this research is live a direction internal audit practice in
Mizan-Aman Hospital in Aman town
12 Statement of the problem
Internal audit is one key areas of hospital in hospitals but the following problems in Mizan-
Aman hospital in Aman town There is lack of audit trading and there are in efferent audit
performance between auditors that leads to reduce the efficient and effectiveness of the hospital
lack of experience sharing with the other hospital auditor does not share experience with the
other auditor has good performance by doing these the auditor of the hospital over come
mistuned standing mistakes and increase levels of performance level of the hospital in other
problem associated with internal audit drafted government rules principles standards and
polices on internal audit those rules and principles standards are carelessness in reading the audit
manual and also lack of segregation of duties among auditor with audit type (compliance
financial and performance) which is performed only audit staff these results no separation of
power (duty) and also cash collection among auditors
Mizan-aman hospital is the following value added by examining the above problem Improve to
the hospital efficiency and effectiveness improving the hospital financial report and obtain back
ground information about purchase and stores Determining resources necessarily to perform the
audit financial resource material resources improving performance by solving different problem
live embattlement corruption and fraud
13 Objective of the study
131 General objective
The general objective of this study is to assess internal audit practice in mizan-aman hospital in
Aman town
132 Specific objective
The specific objective of this study is
- The specific objective of the study is employees of the hospital
- Reducing irregularities which mean not following the GAAP and GAAs
- To examining the management fraud which mean fraudulent preparation of financial
statement
- To indentify the problem associated with employee training and explain internal audit
- To identify the role of internal audit in areas monitoring the effectiveness of internal
control
14 Significance of the study
The reason donning this research is to indentifying that exist in mizan-aman hospital internal
audit activity After indentifying the problems the hospital has proper authorization of translation
and activities physical control over asset and records adequate separation of duties and
checking the departmental audit level performance The other importance of this study may be
used for other hospital as are fernce to search what problems they have and also used for other
potential research as a source material and it is significant for as to gain knowledge and
experience on the research area
15 Scope of the study
Basically the study is concerned with internal auditing practice in Mizan-Aman hospital The
research is emphasized on now internal auditing principle is applicable in practice In addition to
the study focused on internal auditing system and application of the system in general and its
application in particular mizan-aman hospital
16 Limitation of the study
There are some problems that limit this research study among there the following are some
limitation
- Lack of information
- Lack of resource like intermit access reference etc
- Lack of finance and enough time
- Lack of experience
- Lack of voluntary person to fill the questionnaires
Is the objectives of auditor to assist the
internal control system of they hospital
No of
respondent
of respondent
Yes 4 57
No 3 43
Total 7 100
From the above table indicates 43 of the respondent is the objective of auditor is not assist
internal control and 57 of the respondent is says that the objective of auditor is assist the
internal control
CHAPTER-TWO
2 Literature review
Definition- auditing is a systematic process of obtaining and evaluating evidence above
information to determine and report on the degree of crosspiece information and establish
criteria
Internal audit is an independent objectives assurance and consulting acidity designed to add
value and improve an organization operation It help an organization accomplish its
objective by be ringing a systematic disciplined approach to evaluate and improve the
effectiveness of risk management Control and governance process internal auditing is
catalyst for improving an organization effectiveness and efficiency by providing insight and
recommendation based on analysis is and assessment of data and business process With
commitment to integrate and accountability internal audit provides value to governing bodies
and senior management as an objective sources or an independent advice Professionals
called internal auditor are employed by originations to perform the internal auditing activity
the scope of internal auditing with an organization is broad and mar involve topics such as
the efficiency of operation the reliability of financial report deterring and investigating
fraud safeguarding frequently involves measuring compliance with the entityrsquos policies and
procedures However internal auditors are not responsible for the execution of company
activities they advice management and board of director regarding how to better execute
their responsibility As a result of their board scope of involvement internal auditors may
have a variety of higher education and (internet) professional background
Audit describes the role of management in the preparation of financial statement
management is responsible to for the preparation of financial statement and auditor is
responsible for the responsible assurance of detective material misstatement and expressing
opinion
Audit also over come the following problem such as irregularity there is destination theft
asset often called defalcation or employeersquos fraud and fraudulent preparation of financial
statement called management fraud
The management assertion about the financial formation must be existence or occurrences
completeness right and obligation evaluation and avocation presentation and disclosure
Audit gas with the planning and designing accumulates evidence test and controls
transaction use to perform procedures and test of detailed of balance final complete the audit
and is issue an audit report Describe the financial statement cycles approach to segmenting
the audit and use this approach as basics for further study
Describe how the auditor develops general and specific audit objective from management
assertions
22 Types of auditing
Can be classified in different ways
Classified bused an objectives of audit
Classified bused an organizational stricture of the enterprise under audit
Classification based on thing and scope of audit procedures
221 Classification based on objective of audited
Independent financial audited its objective is to ascertain in weather the financial
statement (balance sheet and profit and loss account) of an enterprise are reliable Know
the type of audit are used for investor trade creditors banks and financial institution
government authorities etc
Internal audited- is an audited conducted on behalf of the management of an enterprise
with the objective of assisting the management to discharges its responsibility effectively
an internal audited examination and evolution involves various activity of an enterprise-
An internal audited may conduct to ascertain whether the enlisting controls are
adequate and effective
An internal audited may be conducted to ascertain whether the prescribed policies
and procedures are being followed
An internal audited may be conducted to examine whether the asset of the
entropies are properly safeguarded
An internal audit may be conducted to examine whether the resources of the
enterprise are being used economically and efficiently
Cost audit- this an audit of cost accounting records
Task audit audit of the accounts of certain income tax assessment whose turnover or
receipts exceeds the specified limits
Government audit is conducted primary to ensure that financial transactions of the
government are executed with proper sanctions and authorities
222 Classification based on original structure on audit
21 Audit of companies- the management are responsible for the proportion of
financial statement and the share holders want to know the reliability of the
financial statement by independent author and draft his opinion
22 Audit of partnership firms
23 Audit of sole proprietor concerns
223 Based on time and scope of audit procedures
Continuous audit a situation where the audit work is carried on almost of throughout
the remade to be covered by the audit
Final audit situation where the audit work is commenced only after the expiry of the
period to be covered by the audit
Interim audit normally to financial statement or other data to be audited pertain to a
ful accounting year
Balance sheet audit audit appears in balance sheet profit and loss account and
conducting detail examination of entries (voucher and related accounts)
(komal Gupta 2002 7-14)
Advantages of audit
Is tools of control over those who handle resources belonging to others
Is tools it acts as a means of protection aquarist misuse of funds and reduces the
possibility of errors of fraud tools for ensuring credibility of economic information
Tools for improving economy and efficiency in we of resource
Tools for certain special purposes
To potential investors creditors employees and other third parries it provide greater
reliability of financials statement as providing a data base for taking investment
credit and other decisions
(Kumay Getu 2002 11-170
23 Objective of internal audit
The objective of internal auditing adding value to the organization improving the
effectiveness and organizational operation to provide assistance in the form of analysis
evaluation recommendation and advice In general there are the following objectives of
internal audit-
To properly disclose the documented information accurately and reliable to
management and other governing bodies
To check whether the control risk to the organization are identified and minimized
To felicitates the early dictation and privation of fraud
To determine whether the organizational goal are effectively achieved
To determine whether resource are used efficiently and economically
(effectively)
24 Components of internal audit code of ethics
A principle consists essential guidance for the profession and practice of internal auditing It is
also ideal standard of ethical conduct stated in philosophical terms and are not enforceable
among there standards the following the same of them-
A Integrity- is a prerequisite for all those who act in the public interest Integrity requires
that the auditor is not affected and is not seen to be affected by conflict of interest
Conflict of interest may arise from personal financial business employment and other
relationships which the audit engagement team
B Objectivity- is a stage of mind that excludes bias prejudice and compromise and that
gies fair and impartial consideration to all matters that are relevant to the tasl in hand
disregarding those that are not The need for auditors to be objective arises from the fact
that money of the important issues implied in the preparation of financial statement do
not relate to question of fact but rather to questions of judgment
C Independence Independence is freedom from situations and relationship which make it
probable that a reasonable and informed their party would conclude the objectivity either
is impaired or could be impaired Independence relates to the circumstance surrounding
to the audit including the financial employment business and personal relationship
between the auditors and the audited entity its connected parties
D Confidentially- as a result of professional and business relationship and should not
disclosed any such information to third parties without proper and specific authority
unless there is a legal or professional right or duty to disclose Professional and business
relationships should not be used for the personal advantage of the professional account
or third party
E Competency an auditor has a continuing duty to maintain professi9onal knowledge and
skill at the level required to ensure that a client or employer receives competent
professional service based on current development in practice legislation and techniques
unprofessional accountant (Auditor) should act diligently and in accordance with
professional service
F Accounting principles- a member shall not express opinion or state affirmatively that the
financial statement or other financial data of an entity represent in conformity with
GAAP or states that heshe is not aware of a material modification that should be made to
such statements or data in order this to be in conformity with GAAP If such stamtenst
(data) contain any departure from an accounting principle
(Alin A Arrens)
25 Types of internal audit
Compliance audit- this of audit is conducted to check weather the organization unit is following
the various rules regulation and polices set by higher authorizes and also auditing weather the
account is following the rules and regulation set by the company controller This type of audit is
conducted by the auditor employed by the organization
Performance (operational) audit- this type of audit is carried so as to examine whether the
organization is using resource in efficient and effective manner It is review of any part of the
organization procedures and methods for the purpose of evaluating effective and efficiency It
tries to evaluate the organizational structure competent operation production department or
marketing department and any other areas in which the auditor is qualified the result of this type
of audit is subjective rather than objective
Financial audit- this type of audit examines whether the financial statement are prepared
in avoidance with established criteria (which mean accordance with GAAP) and it also
carried out of check the accuracy reliability and fairness of financial statement (income
statement statement of stockholders cash flow statement balance sheethellipetc)
Information system audit- it review the automated information system of the
organization and evaluates the system inputs process look put system security system
retrieval and computes quality
26 Internal duties and responsibility
Internal auditor is require to give on annual opinion to the audit committee on the adequate and
effectiveness the whole system of internal controls with in the university and the extent to which
the governing authority may relevant it
Auditors are responsible to give some modification on the drifted policies procedures and
objectives of the organizations by deciding with the managements and giving consultants
To know the employees of the organizations has separate of duty segregation power and has
good quality proficiencies and experience Discussion of the audit plan and making stratify for
the auditor program
Internal auditor is accountability of compliance with standard (fund and economic ministry
1998 3-17)
Internal audit shall develop on over al audit strategy taking account integralities of available
resource knowledge of the university the work of external auditors and internal assurance
provider the university risk management process and internal auditor on assumption of risk
Based on the over all audit strategy internal audit will undertake medium term and annual
programs of work to provide the required assurance This will be drawn up by internal audit in
consolation with the president and the approval of the audit committee
(httpwwwdcuieinternslauditdutiesshtml)
261 Technical responsibility
Performing assigned taxes with in internal audit reviewprojects or business ie operational
audit of independent agent in accordance with departmental audit program and participate on a
silicate audit)
Gain an understanding of client risk control and area of operational improvement
Obtain analysis and appraise evidential data in order to evaluate the adequacy and effectiveness
of internal control
Assist in identification of internal control gap and deficiencies as well as efficiency and
effectiveness opportunities
Assist in development of recommendations for improved and enhanced controls and business
efficiencies to clients
httpenwikipediaorgwikiinternal audit
262 Other professional responsibility
Develop extent professional oral and written communication in order to establish working
relationship with client personal and communicate engagement result
Exercise professional segment on engagement and assist in development of proactive solution
and recommendation (internet)
27 The difference between internal audit and external audit
Internal audit is a function that although operating independently from other departments and
reports decency to the audit committee resides within an organization (ie they are company
employees) It is responsible for performing audit with in wide range of areas within a business
as directed by the annual audit plan Internal audit look at a risk facing the business and what is
being done to manage there risks effectively to help the organizations achieve its objectives
For example they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc
External audit are independent bodies which reside out side of the organization which it is
auditing They are focused on the financial accounts of risks associated with fianceacute and are
appointed by the company shareholder The main responsibility of external audit is to perform
the annual statutory audit of the financial account Providing an opinion whether they are a true
and fair reflection of the companyrsquos financial position As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts to determine if they are working as intended
httpenwikipediaorgwikiinternalaudit
28 Advantage of internal audit
o It keep safeguard of asset
o It make financial information and documentation free from errors
o It is very important to the external auditors by minimizing csot and time
o It is very important for the organization by achieving its overall objectives
o Effective internal control reduce deviation amount of the audit risk
o Internal audit is useful to know the amount of persons needed in the organizations
o Generally internal audit is very important to assessing the overall audit plan program and
how it is effective
(Finance and economic minister 1998 58-61)
29 Nature of the internal audit activity
Based on a risk assessment of the organization internal auditors management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual multiyear audit planning usually the audit plan is proposed by the chief internal Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors) Internal auditing activity is generally conducted as one or more discrete
assignments A typical internal audit assignment involves the following steps
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
polices on internal audit those rules and principles standards are carelessness in reading the audit
manual and also lack of segregation of duties among auditor with audit type (compliance
financial and performance) which is performed only audit staff these results no separation of
power (duty) and also cash collection among auditors
Mizan-aman hospital is the following value added by examining the above problem Improve to
the hospital efficiency and effectiveness improving the hospital financial report and obtain back
ground information about purchase and stores Determining resources necessarily to perform the
audit financial resource material resources improving performance by solving different problem
live embattlement corruption and fraud
13 Objective of the study
131 General objective
The general objective of this study is to assess internal audit practice in mizan-aman hospital in
Aman town
132 Specific objective
The specific objective of this study is
- The specific objective of the study is employees of the hospital
- Reducing irregularities which mean not following the GAAP and GAAs
- To examining the management fraud which mean fraudulent preparation of financial
statement
- To indentify the problem associated with employee training and explain internal audit
- To identify the role of internal audit in areas monitoring the effectiveness of internal
control
14 Significance of the study
The reason donning this research is to indentifying that exist in mizan-aman hospital internal
audit activity After indentifying the problems the hospital has proper authorization of translation
and activities physical control over asset and records adequate separation of duties and
checking the departmental audit level performance The other importance of this study may be
used for other hospital as are fernce to search what problems they have and also used for other
potential research as a source material and it is significant for as to gain knowledge and
experience on the research area
15 Scope of the study
Basically the study is concerned with internal auditing practice in Mizan-Aman hospital The
research is emphasized on now internal auditing principle is applicable in practice In addition to
the study focused on internal auditing system and application of the system in general and its
application in particular mizan-aman hospital
16 Limitation of the study
There are some problems that limit this research study among there the following are some
limitation
- Lack of information
- Lack of resource like intermit access reference etc
- Lack of finance and enough time
- Lack of experience
- Lack of voluntary person to fill the questionnaires
Is the objectives of auditor to assist the
internal control system of they hospital
No of
respondent
of respondent
Yes 4 57
No 3 43
Total 7 100
From the above table indicates 43 of the respondent is the objective of auditor is not assist
internal control and 57 of the respondent is says that the objective of auditor is assist the
internal control
CHAPTER-TWO
2 Literature review
Definition- auditing is a systematic process of obtaining and evaluating evidence above
information to determine and report on the degree of crosspiece information and establish
criteria
Internal audit is an independent objectives assurance and consulting acidity designed to add
value and improve an organization operation It help an organization accomplish its
objective by be ringing a systematic disciplined approach to evaluate and improve the
effectiveness of risk management Control and governance process internal auditing is
catalyst for improving an organization effectiveness and efficiency by providing insight and
recommendation based on analysis is and assessment of data and business process With
commitment to integrate and accountability internal audit provides value to governing bodies
and senior management as an objective sources or an independent advice Professionals
called internal auditor are employed by originations to perform the internal auditing activity
the scope of internal auditing with an organization is broad and mar involve topics such as
the efficiency of operation the reliability of financial report deterring and investigating
fraud safeguarding frequently involves measuring compliance with the entityrsquos policies and
procedures However internal auditors are not responsible for the execution of company
activities they advice management and board of director regarding how to better execute
their responsibility As a result of their board scope of involvement internal auditors may
have a variety of higher education and (internet) professional background
Audit describes the role of management in the preparation of financial statement
management is responsible to for the preparation of financial statement and auditor is
responsible for the responsible assurance of detective material misstatement and expressing
opinion
Audit also over come the following problem such as irregularity there is destination theft
asset often called defalcation or employeersquos fraud and fraudulent preparation of financial
statement called management fraud
The management assertion about the financial formation must be existence or occurrences
completeness right and obligation evaluation and avocation presentation and disclosure
Audit gas with the planning and designing accumulates evidence test and controls
transaction use to perform procedures and test of detailed of balance final complete the audit
and is issue an audit report Describe the financial statement cycles approach to segmenting
the audit and use this approach as basics for further study
Describe how the auditor develops general and specific audit objective from management
assertions
22 Types of auditing
Can be classified in different ways
Classified bused an objectives of audit
Classified bused an organizational stricture of the enterprise under audit
Classification based on thing and scope of audit procedures
221 Classification based on objective of audited
Independent financial audited its objective is to ascertain in weather the financial
statement (balance sheet and profit and loss account) of an enterprise are reliable Know
the type of audit are used for investor trade creditors banks and financial institution
government authorities etc
Internal audited- is an audited conducted on behalf of the management of an enterprise
with the objective of assisting the management to discharges its responsibility effectively
an internal audited examination and evolution involves various activity of an enterprise-
An internal audited may conduct to ascertain whether the enlisting controls are
adequate and effective
An internal audited may be conducted to ascertain whether the prescribed policies
and procedures are being followed
An internal audited may be conducted to examine whether the asset of the
entropies are properly safeguarded
An internal audit may be conducted to examine whether the resources of the
enterprise are being used economically and efficiently
Cost audit- this an audit of cost accounting records
Task audit audit of the accounts of certain income tax assessment whose turnover or
receipts exceeds the specified limits
Government audit is conducted primary to ensure that financial transactions of the
government are executed with proper sanctions and authorities
222 Classification based on original structure on audit
21 Audit of companies- the management are responsible for the proportion of
financial statement and the share holders want to know the reliability of the
financial statement by independent author and draft his opinion
22 Audit of partnership firms
23 Audit of sole proprietor concerns
223 Based on time and scope of audit procedures
Continuous audit a situation where the audit work is carried on almost of throughout
the remade to be covered by the audit
Final audit situation where the audit work is commenced only after the expiry of the
period to be covered by the audit
Interim audit normally to financial statement or other data to be audited pertain to a
ful accounting year
Balance sheet audit audit appears in balance sheet profit and loss account and
conducting detail examination of entries (voucher and related accounts)
(komal Gupta 2002 7-14)
Advantages of audit
Is tools of control over those who handle resources belonging to others
Is tools it acts as a means of protection aquarist misuse of funds and reduces the
possibility of errors of fraud tools for ensuring credibility of economic information
Tools for improving economy and efficiency in we of resource
Tools for certain special purposes
To potential investors creditors employees and other third parries it provide greater
reliability of financials statement as providing a data base for taking investment
credit and other decisions
(Kumay Getu 2002 11-170
23 Objective of internal audit
The objective of internal auditing adding value to the organization improving the
effectiveness and organizational operation to provide assistance in the form of analysis
evaluation recommendation and advice In general there are the following objectives of
internal audit-
To properly disclose the documented information accurately and reliable to
management and other governing bodies
To check whether the control risk to the organization are identified and minimized
To felicitates the early dictation and privation of fraud
To determine whether the organizational goal are effectively achieved
To determine whether resource are used efficiently and economically
(effectively)
24 Components of internal audit code of ethics
A principle consists essential guidance for the profession and practice of internal auditing It is
also ideal standard of ethical conduct stated in philosophical terms and are not enforceable
among there standards the following the same of them-
A Integrity- is a prerequisite for all those who act in the public interest Integrity requires
that the auditor is not affected and is not seen to be affected by conflict of interest
Conflict of interest may arise from personal financial business employment and other
relationships which the audit engagement team
B Objectivity- is a stage of mind that excludes bias prejudice and compromise and that
gies fair and impartial consideration to all matters that are relevant to the tasl in hand
disregarding those that are not The need for auditors to be objective arises from the fact
that money of the important issues implied in the preparation of financial statement do
not relate to question of fact but rather to questions of judgment
C Independence Independence is freedom from situations and relationship which make it
probable that a reasonable and informed their party would conclude the objectivity either
is impaired or could be impaired Independence relates to the circumstance surrounding
to the audit including the financial employment business and personal relationship
between the auditors and the audited entity its connected parties
D Confidentially- as a result of professional and business relationship and should not
disclosed any such information to third parties without proper and specific authority
unless there is a legal or professional right or duty to disclose Professional and business
relationships should not be used for the personal advantage of the professional account
or third party
E Competency an auditor has a continuing duty to maintain professi9onal knowledge and
skill at the level required to ensure that a client or employer receives competent
professional service based on current development in practice legislation and techniques
unprofessional accountant (Auditor) should act diligently and in accordance with
professional service
F Accounting principles- a member shall not express opinion or state affirmatively that the
financial statement or other financial data of an entity represent in conformity with
GAAP or states that heshe is not aware of a material modification that should be made to
such statements or data in order this to be in conformity with GAAP If such stamtenst
(data) contain any departure from an accounting principle
(Alin A Arrens)
25 Types of internal audit
Compliance audit- this of audit is conducted to check weather the organization unit is following
the various rules regulation and polices set by higher authorizes and also auditing weather the
account is following the rules and regulation set by the company controller This type of audit is
conducted by the auditor employed by the organization
Performance (operational) audit- this type of audit is carried so as to examine whether the
organization is using resource in efficient and effective manner It is review of any part of the
organization procedures and methods for the purpose of evaluating effective and efficiency It
tries to evaluate the organizational structure competent operation production department or
marketing department and any other areas in which the auditor is qualified the result of this type
of audit is subjective rather than objective
Financial audit- this type of audit examines whether the financial statement are prepared
in avoidance with established criteria (which mean accordance with GAAP) and it also
carried out of check the accuracy reliability and fairness of financial statement (income
statement statement of stockholders cash flow statement balance sheethellipetc)
Information system audit- it review the automated information system of the
organization and evaluates the system inputs process look put system security system
retrieval and computes quality
26 Internal duties and responsibility
Internal auditor is require to give on annual opinion to the audit committee on the adequate and
effectiveness the whole system of internal controls with in the university and the extent to which
the governing authority may relevant it
Auditors are responsible to give some modification on the drifted policies procedures and
objectives of the organizations by deciding with the managements and giving consultants
To know the employees of the organizations has separate of duty segregation power and has
good quality proficiencies and experience Discussion of the audit plan and making stratify for
the auditor program
Internal auditor is accountability of compliance with standard (fund and economic ministry
1998 3-17)
Internal audit shall develop on over al audit strategy taking account integralities of available
resource knowledge of the university the work of external auditors and internal assurance
provider the university risk management process and internal auditor on assumption of risk
Based on the over all audit strategy internal audit will undertake medium term and annual
programs of work to provide the required assurance This will be drawn up by internal audit in
consolation with the president and the approval of the audit committee
(httpwwwdcuieinternslauditdutiesshtml)
261 Technical responsibility
Performing assigned taxes with in internal audit reviewprojects or business ie operational
audit of independent agent in accordance with departmental audit program and participate on a
silicate audit)
Gain an understanding of client risk control and area of operational improvement
Obtain analysis and appraise evidential data in order to evaluate the adequacy and effectiveness
of internal control
Assist in identification of internal control gap and deficiencies as well as efficiency and
effectiveness opportunities
Assist in development of recommendations for improved and enhanced controls and business
efficiencies to clients
httpenwikipediaorgwikiinternal audit
262 Other professional responsibility
Develop extent professional oral and written communication in order to establish working
relationship with client personal and communicate engagement result
Exercise professional segment on engagement and assist in development of proactive solution
and recommendation (internet)
27 The difference between internal audit and external audit
Internal audit is a function that although operating independently from other departments and
reports decency to the audit committee resides within an organization (ie they are company
employees) It is responsible for performing audit with in wide range of areas within a business
as directed by the annual audit plan Internal audit look at a risk facing the business and what is
being done to manage there risks effectively to help the organizations achieve its objectives
For example they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc
External audit are independent bodies which reside out side of the organization which it is
auditing They are focused on the financial accounts of risks associated with fianceacute and are
appointed by the company shareholder The main responsibility of external audit is to perform
the annual statutory audit of the financial account Providing an opinion whether they are a true
and fair reflection of the companyrsquos financial position As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts to determine if they are working as intended
httpenwikipediaorgwikiinternalaudit
28 Advantage of internal audit
o It keep safeguard of asset
o It make financial information and documentation free from errors
o It is very important to the external auditors by minimizing csot and time
o It is very important for the organization by achieving its overall objectives
o Effective internal control reduce deviation amount of the audit risk
o Internal audit is useful to know the amount of persons needed in the organizations
o Generally internal audit is very important to assessing the overall audit plan program and
how it is effective
(Finance and economic minister 1998 58-61)
29 Nature of the internal audit activity
Based on a risk assessment of the organization internal auditors management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual multiyear audit planning usually the audit plan is proposed by the chief internal Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors) Internal auditing activity is generally conducted as one or more discrete
assignments A typical internal audit assignment involves the following steps
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
used for other hospital as are fernce to search what problems they have and also used for other
potential research as a source material and it is significant for as to gain knowledge and
experience on the research area
15 Scope of the study
Basically the study is concerned with internal auditing practice in Mizan-Aman hospital The
research is emphasized on now internal auditing principle is applicable in practice In addition to
the study focused on internal auditing system and application of the system in general and its
application in particular mizan-aman hospital
16 Limitation of the study
There are some problems that limit this research study among there the following are some
limitation
- Lack of information
- Lack of resource like intermit access reference etc
- Lack of finance and enough time
- Lack of experience
- Lack of voluntary person to fill the questionnaires
Is the objectives of auditor to assist the
internal control system of they hospital
No of
respondent
of respondent
Yes 4 57
No 3 43
Total 7 100
From the above table indicates 43 of the respondent is the objective of auditor is not assist
internal control and 57 of the respondent is says that the objective of auditor is assist the
internal control
CHAPTER-TWO
2 Literature review
Definition- auditing is a systematic process of obtaining and evaluating evidence above
information to determine and report on the degree of crosspiece information and establish
criteria
Internal audit is an independent objectives assurance and consulting acidity designed to add
value and improve an organization operation It help an organization accomplish its
objective by be ringing a systematic disciplined approach to evaluate and improve the
effectiveness of risk management Control and governance process internal auditing is
catalyst for improving an organization effectiveness and efficiency by providing insight and
recommendation based on analysis is and assessment of data and business process With
commitment to integrate and accountability internal audit provides value to governing bodies
and senior management as an objective sources or an independent advice Professionals
called internal auditor are employed by originations to perform the internal auditing activity
the scope of internal auditing with an organization is broad and mar involve topics such as
the efficiency of operation the reliability of financial report deterring and investigating
fraud safeguarding frequently involves measuring compliance with the entityrsquos policies and
procedures However internal auditors are not responsible for the execution of company
activities they advice management and board of director regarding how to better execute
their responsibility As a result of their board scope of involvement internal auditors may
have a variety of higher education and (internet) professional background
Audit describes the role of management in the preparation of financial statement
management is responsible to for the preparation of financial statement and auditor is
responsible for the responsible assurance of detective material misstatement and expressing
opinion
Audit also over come the following problem such as irregularity there is destination theft
asset often called defalcation or employeersquos fraud and fraudulent preparation of financial
statement called management fraud
The management assertion about the financial formation must be existence or occurrences
completeness right and obligation evaluation and avocation presentation and disclosure
Audit gas with the planning and designing accumulates evidence test and controls
transaction use to perform procedures and test of detailed of balance final complete the audit
and is issue an audit report Describe the financial statement cycles approach to segmenting
the audit and use this approach as basics for further study
Describe how the auditor develops general and specific audit objective from management
assertions
22 Types of auditing
Can be classified in different ways
Classified bused an objectives of audit
Classified bused an organizational stricture of the enterprise under audit
Classification based on thing and scope of audit procedures
221 Classification based on objective of audited
Independent financial audited its objective is to ascertain in weather the financial
statement (balance sheet and profit and loss account) of an enterprise are reliable Know
the type of audit are used for investor trade creditors banks and financial institution
government authorities etc
Internal audited- is an audited conducted on behalf of the management of an enterprise
with the objective of assisting the management to discharges its responsibility effectively
an internal audited examination and evolution involves various activity of an enterprise-
An internal audited may conduct to ascertain whether the enlisting controls are
adequate and effective
An internal audited may be conducted to ascertain whether the prescribed policies
and procedures are being followed
An internal audited may be conducted to examine whether the asset of the
entropies are properly safeguarded
An internal audit may be conducted to examine whether the resources of the
enterprise are being used economically and efficiently
Cost audit- this an audit of cost accounting records
Task audit audit of the accounts of certain income tax assessment whose turnover or
receipts exceeds the specified limits
Government audit is conducted primary to ensure that financial transactions of the
government are executed with proper sanctions and authorities
222 Classification based on original structure on audit
21 Audit of companies- the management are responsible for the proportion of
financial statement and the share holders want to know the reliability of the
financial statement by independent author and draft his opinion
22 Audit of partnership firms
23 Audit of sole proprietor concerns
223 Based on time and scope of audit procedures
Continuous audit a situation where the audit work is carried on almost of throughout
the remade to be covered by the audit
Final audit situation where the audit work is commenced only after the expiry of the
period to be covered by the audit
Interim audit normally to financial statement or other data to be audited pertain to a
ful accounting year
Balance sheet audit audit appears in balance sheet profit and loss account and
conducting detail examination of entries (voucher and related accounts)
(komal Gupta 2002 7-14)
Advantages of audit
Is tools of control over those who handle resources belonging to others
Is tools it acts as a means of protection aquarist misuse of funds and reduces the
possibility of errors of fraud tools for ensuring credibility of economic information
Tools for improving economy and efficiency in we of resource
Tools for certain special purposes
To potential investors creditors employees and other third parries it provide greater
reliability of financials statement as providing a data base for taking investment
credit and other decisions
(Kumay Getu 2002 11-170
23 Objective of internal audit
The objective of internal auditing adding value to the organization improving the
effectiveness and organizational operation to provide assistance in the form of analysis
evaluation recommendation and advice In general there are the following objectives of
internal audit-
To properly disclose the documented information accurately and reliable to
management and other governing bodies
To check whether the control risk to the organization are identified and minimized
To felicitates the early dictation and privation of fraud
To determine whether the organizational goal are effectively achieved
To determine whether resource are used efficiently and economically
(effectively)
24 Components of internal audit code of ethics
A principle consists essential guidance for the profession and practice of internal auditing It is
also ideal standard of ethical conduct stated in philosophical terms and are not enforceable
among there standards the following the same of them-
A Integrity- is a prerequisite for all those who act in the public interest Integrity requires
that the auditor is not affected and is not seen to be affected by conflict of interest
Conflict of interest may arise from personal financial business employment and other
relationships which the audit engagement team
B Objectivity- is a stage of mind that excludes bias prejudice and compromise and that
gies fair and impartial consideration to all matters that are relevant to the tasl in hand
disregarding those that are not The need for auditors to be objective arises from the fact
that money of the important issues implied in the preparation of financial statement do
not relate to question of fact but rather to questions of judgment
C Independence Independence is freedom from situations and relationship which make it
probable that a reasonable and informed their party would conclude the objectivity either
is impaired or could be impaired Independence relates to the circumstance surrounding
to the audit including the financial employment business and personal relationship
between the auditors and the audited entity its connected parties
D Confidentially- as a result of professional and business relationship and should not
disclosed any such information to third parties without proper and specific authority
unless there is a legal or professional right or duty to disclose Professional and business
relationships should not be used for the personal advantage of the professional account
or third party
E Competency an auditor has a continuing duty to maintain professi9onal knowledge and
skill at the level required to ensure that a client or employer receives competent
professional service based on current development in practice legislation and techniques
unprofessional accountant (Auditor) should act diligently and in accordance with
professional service
F Accounting principles- a member shall not express opinion or state affirmatively that the
financial statement or other financial data of an entity represent in conformity with
GAAP or states that heshe is not aware of a material modification that should be made to
such statements or data in order this to be in conformity with GAAP If such stamtenst
(data) contain any departure from an accounting principle
(Alin A Arrens)
25 Types of internal audit
Compliance audit- this of audit is conducted to check weather the organization unit is following
the various rules regulation and polices set by higher authorizes and also auditing weather the
account is following the rules and regulation set by the company controller This type of audit is
conducted by the auditor employed by the organization
Performance (operational) audit- this type of audit is carried so as to examine whether the
organization is using resource in efficient and effective manner It is review of any part of the
organization procedures and methods for the purpose of evaluating effective and efficiency It
tries to evaluate the organizational structure competent operation production department or
marketing department and any other areas in which the auditor is qualified the result of this type
of audit is subjective rather than objective
Financial audit- this type of audit examines whether the financial statement are prepared
in avoidance with established criteria (which mean accordance with GAAP) and it also
carried out of check the accuracy reliability and fairness of financial statement (income
statement statement of stockholders cash flow statement balance sheethellipetc)
Information system audit- it review the automated information system of the
organization and evaluates the system inputs process look put system security system
retrieval and computes quality
26 Internal duties and responsibility
Internal auditor is require to give on annual opinion to the audit committee on the adequate and
effectiveness the whole system of internal controls with in the university and the extent to which
the governing authority may relevant it
Auditors are responsible to give some modification on the drifted policies procedures and
objectives of the organizations by deciding with the managements and giving consultants
To know the employees of the organizations has separate of duty segregation power and has
good quality proficiencies and experience Discussion of the audit plan and making stratify for
the auditor program
Internal auditor is accountability of compliance with standard (fund and economic ministry
1998 3-17)
Internal audit shall develop on over al audit strategy taking account integralities of available
resource knowledge of the university the work of external auditors and internal assurance
provider the university risk management process and internal auditor on assumption of risk
Based on the over all audit strategy internal audit will undertake medium term and annual
programs of work to provide the required assurance This will be drawn up by internal audit in
consolation with the president and the approval of the audit committee
(httpwwwdcuieinternslauditdutiesshtml)
261 Technical responsibility
Performing assigned taxes with in internal audit reviewprojects or business ie operational
audit of independent agent in accordance with departmental audit program and participate on a
silicate audit)
Gain an understanding of client risk control and area of operational improvement
Obtain analysis and appraise evidential data in order to evaluate the adequacy and effectiveness
of internal control
Assist in identification of internal control gap and deficiencies as well as efficiency and
effectiveness opportunities
Assist in development of recommendations for improved and enhanced controls and business
efficiencies to clients
httpenwikipediaorgwikiinternal audit
262 Other professional responsibility
Develop extent professional oral and written communication in order to establish working
relationship with client personal and communicate engagement result
Exercise professional segment on engagement and assist in development of proactive solution
and recommendation (internet)
27 The difference between internal audit and external audit
Internal audit is a function that although operating independently from other departments and
reports decency to the audit committee resides within an organization (ie they are company
employees) It is responsible for performing audit with in wide range of areas within a business
as directed by the annual audit plan Internal audit look at a risk facing the business and what is
being done to manage there risks effectively to help the organizations achieve its objectives
For example they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc
External audit are independent bodies which reside out side of the organization which it is
auditing They are focused on the financial accounts of risks associated with fianceacute and are
appointed by the company shareholder The main responsibility of external audit is to perform
the annual statutory audit of the financial account Providing an opinion whether they are a true
and fair reflection of the companyrsquos financial position As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts to determine if they are working as intended
httpenwikipediaorgwikiinternalaudit
28 Advantage of internal audit
o It keep safeguard of asset
o It make financial information and documentation free from errors
o It is very important to the external auditors by minimizing csot and time
o It is very important for the organization by achieving its overall objectives
o Effective internal control reduce deviation amount of the audit risk
o Internal audit is useful to know the amount of persons needed in the organizations
o Generally internal audit is very important to assessing the overall audit plan program and
how it is effective
(Finance and economic minister 1998 58-61)
29 Nature of the internal audit activity
Based on a risk assessment of the organization internal auditors management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual multiyear audit planning usually the audit plan is proposed by the chief internal Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors) Internal auditing activity is generally conducted as one or more discrete
assignments A typical internal audit assignment involves the following steps
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
CHAPTER-TWO
2 Literature review
Definition- auditing is a systematic process of obtaining and evaluating evidence above
information to determine and report on the degree of crosspiece information and establish
criteria
Internal audit is an independent objectives assurance and consulting acidity designed to add
value and improve an organization operation It help an organization accomplish its
objective by be ringing a systematic disciplined approach to evaluate and improve the
effectiveness of risk management Control and governance process internal auditing is
catalyst for improving an organization effectiveness and efficiency by providing insight and
recommendation based on analysis is and assessment of data and business process With
commitment to integrate and accountability internal audit provides value to governing bodies
and senior management as an objective sources or an independent advice Professionals
called internal auditor are employed by originations to perform the internal auditing activity
the scope of internal auditing with an organization is broad and mar involve topics such as
the efficiency of operation the reliability of financial report deterring and investigating
fraud safeguarding frequently involves measuring compliance with the entityrsquos policies and
procedures However internal auditors are not responsible for the execution of company
activities they advice management and board of director regarding how to better execute
their responsibility As a result of their board scope of involvement internal auditors may
have a variety of higher education and (internet) professional background
Audit describes the role of management in the preparation of financial statement
management is responsible to for the preparation of financial statement and auditor is
responsible for the responsible assurance of detective material misstatement and expressing
opinion
Audit also over come the following problem such as irregularity there is destination theft
asset often called defalcation or employeersquos fraud and fraudulent preparation of financial
statement called management fraud
The management assertion about the financial formation must be existence or occurrences
completeness right and obligation evaluation and avocation presentation and disclosure
Audit gas with the planning and designing accumulates evidence test and controls
transaction use to perform procedures and test of detailed of balance final complete the audit
and is issue an audit report Describe the financial statement cycles approach to segmenting
the audit and use this approach as basics for further study
Describe how the auditor develops general and specific audit objective from management
assertions
22 Types of auditing
Can be classified in different ways
Classified bused an objectives of audit
Classified bused an organizational stricture of the enterprise under audit
Classification based on thing and scope of audit procedures
221 Classification based on objective of audited
Independent financial audited its objective is to ascertain in weather the financial
statement (balance sheet and profit and loss account) of an enterprise are reliable Know
the type of audit are used for investor trade creditors banks and financial institution
government authorities etc
Internal audited- is an audited conducted on behalf of the management of an enterprise
with the objective of assisting the management to discharges its responsibility effectively
an internal audited examination and evolution involves various activity of an enterprise-
An internal audited may conduct to ascertain whether the enlisting controls are
adequate and effective
An internal audited may be conducted to ascertain whether the prescribed policies
and procedures are being followed
An internal audited may be conducted to examine whether the asset of the
entropies are properly safeguarded
An internal audit may be conducted to examine whether the resources of the
enterprise are being used economically and efficiently
Cost audit- this an audit of cost accounting records
Task audit audit of the accounts of certain income tax assessment whose turnover or
receipts exceeds the specified limits
Government audit is conducted primary to ensure that financial transactions of the
government are executed with proper sanctions and authorities
222 Classification based on original structure on audit
21 Audit of companies- the management are responsible for the proportion of
financial statement and the share holders want to know the reliability of the
financial statement by independent author and draft his opinion
22 Audit of partnership firms
23 Audit of sole proprietor concerns
223 Based on time and scope of audit procedures
Continuous audit a situation where the audit work is carried on almost of throughout
the remade to be covered by the audit
Final audit situation where the audit work is commenced only after the expiry of the
period to be covered by the audit
Interim audit normally to financial statement or other data to be audited pertain to a
ful accounting year
Balance sheet audit audit appears in balance sheet profit and loss account and
conducting detail examination of entries (voucher and related accounts)
(komal Gupta 2002 7-14)
Advantages of audit
Is tools of control over those who handle resources belonging to others
Is tools it acts as a means of protection aquarist misuse of funds and reduces the
possibility of errors of fraud tools for ensuring credibility of economic information
Tools for improving economy and efficiency in we of resource
Tools for certain special purposes
To potential investors creditors employees and other third parries it provide greater
reliability of financials statement as providing a data base for taking investment
credit and other decisions
(Kumay Getu 2002 11-170
23 Objective of internal audit
The objective of internal auditing adding value to the organization improving the
effectiveness and organizational operation to provide assistance in the form of analysis
evaluation recommendation and advice In general there are the following objectives of
internal audit-
To properly disclose the documented information accurately and reliable to
management and other governing bodies
To check whether the control risk to the organization are identified and minimized
To felicitates the early dictation and privation of fraud
To determine whether the organizational goal are effectively achieved
To determine whether resource are used efficiently and economically
(effectively)
24 Components of internal audit code of ethics
A principle consists essential guidance for the profession and practice of internal auditing It is
also ideal standard of ethical conduct stated in philosophical terms and are not enforceable
among there standards the following the same of them-
A Integrity- is a prerequisite for all those who act in the public interest Integrity requires
that the auditor is not affected and is not seen to be affected by conflict of interest
Conflict of interest may arise from personal financial business employment and other
relationships which the audit engagement team
B Objectivity- is a stage of mind that excludes bias prejudice and compromise and that
gies fair and impartial consideration to all matters that are relevant to the tasl in hand
disregarding those that are not The need for auditors to be objective arises from the fact
that money of the important issues implied in the preparation of financial statement do
not relate to question of fact but rather to questions of judgment
C Independence Independence is freedom from situations and relationship which make it
probable that a reasonable and informed their party would conclude the objectivity either
is impaired or could be impaired Independence relates to the circumstance surrounding
to the audit including the financial employment business and personal relationship
between the auditors and the audited entity its connected parties
D Confidentially- as a result of professional and business relationship and should not
disclosed any such information to third parties without proper and specific authority
unless there is a legal or professional right or duty to disclose Professional and business
relationships should not be used for the personal advantage of the professional account
or third party
E Competency an auditor has a continuing duty to maintain professi9onal knowledge and
skill at the level required to ensure that a client or employer receives competent
professional service based on current development in practice legislation and techniques
unprofessional accountant (Auditor) should act diligently and in accordance with
professional service
F Accounting principles- a member shall not express opinion or state affirmatively that the
financial statement or other financial data of an entity represent in conformity with
GAAP or states that heshe is not aware of a material modification that should be made to
such statements or data in order this to be in conformity with GAAP If such stamtenst
(data) contain any departure from an accounting principle
(Alin A Arrens)
25 Types of internal audit
Compliance audit- this of audit is conducted to check weather the organization unit is following
the various rules regulation and polices set by higher authorizes and also auditing weather the
account is following the rules and regulation set by the company controller This type of audit is
conducted by the auditor employed by the organization
Performance (operational) audit- this type of audit is carried so as to examine whether the
organization is using resource in efficient and effective manner It is review of any part of the
organization procedures and methods for the purpose of evaluating effective and efficiency It
tries to evaluate the organizational structure competent operation production department or
marketing department and any other areas in which the auditor is qualified the result of this type
of audit is subjective rather than objective
Financial audit- this type of audit examines whether the financial statement are prepared
in avoidance with established criteria (which mean accordance with GAAP) and it also
carried out of check the accuracy reliability and fairness of financial statement (income
statement statement of stockholders cash flow statement balance sheethellipetc)
Information system audit- it review the automated information system of the
organization and evaluates the system inputs process look put system security system
retrieval and computes quality
26 Internal duties and responsibility
Internal auditor is require to give on annual opinion to the audit committee on the adequate and
effectiveness the whole system of internal controls with in the university and the extent to which
the governing authority may relevant it
Auditors are responsible to give some modification on the drifted policies procedures and
objectives of the organizations by deciding with the managements and giving consultants
To know the employees of the organizations has separate of duty segregation power and has
good quality proficiencies and experience Discussion of the audit plan and making stratify for
the auditor program
Internal auditor is accountability of compliance with standard (fund and economic ministry
1998 3-17)
Internal audit shall develop on over al audit strategy taking account integralities of available
resource knowledge of the university the work of external auditors and internal assurance
provider the university risk management process and internal auditor on assumption of risk
Based on the over all audit strategy internal audit will undertake medium term and annual
programs of work to provide the required assurance This will be drawn up by internal audit in
consolation with the president and the approval of the audit committee
(httpwwwdcuieinternslauditdutiesshtml)
261 Technical responsibility
Performing assigned taxes with in internal audit reviewprojects or business ie operational
audit of independent agent in accordance with departmental audit program and participate on a
silicate audit)
Gain an understanding of client risk control and area of operational improvement
Obtain analysis and appraise evidential data in order to evaluate the adequacy and effectiveness
of internal control
Assist in identification of internal control gap and deficiencies as well as efficiency and
effectiveness opportunities
Assist in development of recommendations for improved and enhanced controls and business
efficiencies to clients
httpenwikipediaorgwikiinternal audit
262 Other professional responsibility
Develop extent professional oral and written communication in order to establish working
relationship with client personal and communicate engagement result
Exercise professional segment on engagement and assist in development of proactive solution
and recommendation (internet)
27 The difference between internal audit and external audit
Internal audit is a function that although operating independently from other departments and
reports decency to the audit committee resides within an organization (ie they are company
employees) It is responsible for performing audit with in wide range of areas within a business
as directed by the annual audit plan Internal audit look at a risk facing the business and what is
being done to manage there risks effectively to help the organizations achieve its objectives
For example they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc
External audit are independent bodies which reside out side of the organization which it is
auditing They are focused on the financial accounts of risks associated with fianceacute and are
appointed by the company shareholder The main responsibility of external audit is to perform
the annual statutory audit of the financial account Providing an opinion whether they are a true
and fair reflection of the companyrsquos financial position As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts to determine if they are working as intended
httpenwikipediaorgwikiinternalaudit
28 Advantage of internal audit
o It keep safeguard of asset
o It make financial information and documentation free from errors
o It is very important to the external auditors by minimizing csot and time
o It is very important for the organization by achieving its overall objectives
o Effective internal control reduce deviation amount of the audit risk
o Internal audit is useful to know the amount of persons needed in the organizations
o Generally internal audit is very important to assessing the overall audit plan program and
how it is effective
(Finance and economic minister 1998 58-61)
29 Nature of the internal audit activity
Based on a risk assessment of the organization internal auditors management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual multiyear audit planning usually the audit plan is proposed by the chief internal Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors) Internal auditing activity is generally conducted as one or more discrete
assignments A typical internal audit assignment involves the following steps
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
Audit also over come the following problem such as irregularity there is destination theft
asset often called defalcation or employeersquos fraud and fraudulent preparation of financial
statement called management fraud
The management assertion about the financial formation must be existence or occurrences
completeness right and obligation evaluation and avocation presentation and disclosure
Audit gas with the planning and designing accumulates evidence test and controls
transaction use to perform procedures and test of detailed of balance final complete the audit
and is issue an audit report Describe the financial statement cycles approach to segmenting
the audit and use this approach as basics for further study
Describe how the auditor develops general and specific audit objective from management
assertions
22 Types of auditing
Can be classified in different ways
Classified bused an objectives of audit
Classified bused an organizational stricture of the enterprise under audit
Classification based on thing and scope of audit procedures
221 Classification based on objective of audited
Independent financial audited its objective is to ascertain in weather the financial
statement (balance sheet and profit and loss account) of an enterprise are reliable Know
the type of audit are used for investor trade creditors banks and financial institution
government authorities etc
Internal audited- is an audited conducted on behalf of the management of an enterprise
with the objective of assisting the management to discharges its responsibility effectively
an internal audited examination and evolution involves various activity of an enterprise-
An internal audited may conduct to ascertain whether the enlisting controls are
adequate and effective
An internal audited may be conducted to ascertain whether the prescribed policies
and procedures are being followed
An internal audited may be conducted to examine whether the asset of the
entropies are properly safeguarded
An internal audit may be conducted to examine whether the resources of the
enterprise are being used economically and efficiently
Cost audit- this an audit of cost accounting records
Task audit audit of the accounts of certain income tax assessment whose turnover or
receipts exceeds the specified limits
Government audit is conducted primary to ensure that financial transactions of the
government are executed with proper sanctions and authorities
222 Classification based on original structure on audit
21 Audit of companies- the management are responsible for the proportion of
financial statement and the share holders want to know the reliability of the
financial statement by independent author and draft his opinion
22 Audit of partnership firms
23 Audit of sole proprietor concerns
223 Based on time and scope of audit procedures
Continuous audit a situation where the audit work is carried on almost of throughout
the remade to be covered by the audit
Final audit situation where the audit work is commenced only after the expiry of the
period to be covered by the audit
Interim audit normally to financial statement or other data to be audited pertain to a
ful accounting year
Balance sheet audit audit appears in balance sheet profit and loss account and
conducting detail examination of entries (voucher and related accounts)
(komal Gupta 2002 7-14)
Advantages of audit
Is tools of control over those who handle resources belonging to others
Is tools it acts as a means of protection aquarist misuse of funds and reduces the
possibility of errors of fraud tools for ensuring credibility of economic information
Tools for improving economy and efficiency in we of resource
Tools for certain special purposes
To potential investors creditors employees and other third parries it provide greater
reliability of financials statement as providing a data base for taking investment
credit and other decisions
(Kumay Getu 2002 11-170
23 Objective of internal audit
The objective of internal auditing adding value to the organization improving the
effectiveness and organizational operation to provide assistance in the form of analysis
evaluation recommendation and advice In general there are the following objectives of
internal audit-
To properly disclose the documented information accurately and reliable to
management and other governing bodies
To check whether the control risk to the organization are identified and minimized
To felicitates the early dictation and privation of fraud
To determine whether the organizational goal are effectively achieved
To determine whether resource are used efficiently and economically
(effectively)
24 Components of internal audit code of ethics
A principle consists essential guidance for the profession and practice of internal auditing It is
also ideal standard of ethical conduct stated in philosophical terms and are not enforceable
among there standards the following the same of them-
A Integrity- is a prerequisite for all those who act in the public interest Integrity requires
that the auditor is not affected and is not seen to be affected by conflict of interest
Conflict of interest may arise from personal financial business employment and other
relationships which the audit engagement team
B Objectivity- is a stage of mind that excludes bias prejudice and compromise and that
gies fair and impartial consideration to all matters that are relevant to the tasl in hand
disregarding those that are not The need for auditors to be objective arises from the fact
that money of the important issues implied in the preparation of financial statement do
not relate to question of fact but rather to questions of judgment
C Independence Independence is freedom from situations and relationship which make it
probable that a reasonable and informed their party would conclude the objectivity either
is impaired or could be impaired Independence relates to the circumstance surrounding
to the audit including the financial employment business and personal relationship
between the auditors and the audited entity its connected parties
D Confidentially- as a result of professional and business relationship and should not
disclosed any such information to third parties without proper and specific authority
unless there is a legal or professional right or duty to disclose Professional and business
relationships should not be used for the personal advantage of the professional account
or third party
E Competency an auditor has a continuing duty to maintain professi9onal knowledge and
skill at the level required to ensure that a client or employer receives competent
professional service based on current development in practice legislation and techniques
unprofessional accountant (Auditor) should act diligently and in accordance with
professional service
F Accounting principles- a member shall not express opinion or state affirmatively that the
financial statement or other financial data of an entity represent in conformity with
GAAP or states that heshe is not aware of a material modification that should be made to
such statements or data in order this to be in conformity with GAAP If such stamtenst
(data) contain any departure from an accounting principle
(Alin A Arrens)
25 Types of internal audit
Compliance audit- this of audit is conducted to check weather the organization unit is following
the various rules regulation and polices set by higher authorizes and also auditing weather the
account is following the rules and regulation set by the company controller This type of audit is
conducted by the auditor employed by the organization
Performance (operational) audit- this type of audit is carried so as to examine whether the
organization is using resource in efficient and effective manner It is review of any part of the
organization procedures and methods for the purpose of evaluating effective and efficiency It
tries to evaluate the organizational structure competent operation production department or
marketing department and any other areas in which the auditor is qualified the result of this type
of audit is subjective rather than objective
Financial audit- this type of audit examines whether the financial statement are prepared
in avoidance with established criteria (which mean accordance with GAAP) and it also
carried out of check the accuracy reliability and fairness of financial statement (income
statement statement of stockholders cash flow statement balance sheethellipetc)
Information system audit- it review the automated information system of the
organization and evaluates the system inputs process look put system security system
retrieval and computes quality
26 Internal duties and responsibility
Internal auditor is require to give on annual opinion to the audit committee on the adequate and
effectiveness the whole system of internal controls with in the university and the extent to which
the governing authority may relevant it
Auditors are responsible to give some modification on the drifted policies procedures and
objectives of the organizations by deciding with the managements and giving consultants
To know the employees of the organizations has separate of duty segregation power and has
good quality proficiencies and experience Discussion of the audit plan and making stratify for
the auditor program
Internal auditor is accountability of compliance with standard (fund and economic ministry
1998 3-17)
Internal audit shall develop on over al audit strategy taking account integralities of available
resource knowledge of the university the work of external auditors and internal assurance
provider the university risk management process and internal auditor on assumption of risk
Based on the over all audit strategy internal audit will undertake medium term and annual
programs of work to provide the required assurance This will be drawn up by internal audit in
consolation with the president and the approval of the audit committee
(httpwwwdcuieinternslauditdutiesshtml)
261 Technical responsibility
Performing assigned taxes with in internal audit reviewprojects or business ie operational
audit of independent agent in accordance with departmental audit program and participate on a
silicate audit)
Gain an understanding of client risk control and area of operational improvement
Obtain analysis and appraise evidential data in order to evaluate the adequacy and effectiveness
of internal control
Assist in identification of internal control gap and deficiencies as well as efficiency and
effectiveness opportunities
Assist in development of recommendations for improved and enhanced controls and business
efficiencies to clients
httpenwikipediaorgwikiinternal audit
262 Other professional responsibility
Develop extent professional oral and written communication in order to establish working
relationship with client personal and communicate engagement result
Exercise professional segment on engagement and assist in development of proactive solution
and recommendation (internet)
27 The difference between internal audit and external audit
Internal audit is a function that although operating independently from other departments and
reports decency to the audit committee resides within an organization (ie they are company
employees) It is responsible for performing audit with in wide range of areas within a business
as directed by the annual audit plan Internal audit look at a risk facing the business and what is
being done to manage there risks effectively to help the organizations achieve its objectives
For example they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc
External audit are independent bodies which reside out side of the organization which it is
auditing They are focused on the financial accounts of risks associated with fianceacute and are
appointed by the company shareholder The main responsibility of external audit is to perform
the annual statutory audit of the financial account Providing an opinion whether they are a true
and fair reflection of the companyrsquos financial position As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts to determine if they are working as intended
httpenwikipediaorgwikiinternalaudit
28 Advantage of internal audit
o It keep safeguard of asset
o It make financial information and documentation free from errors
o It is very important to the external auditors by minimizing csot and time
o It is very important for the organization by achieving its overall objectives
o Effective internal control reduce deviation amount of the audit risk
o Internal audit is useful to know the amount of persons needed in the organizations
o Generally internal audit is very important to assessing the overall audit plan program and
how it is effective
(Finance and economic minister 1998 58-61)
29 Nature of the internal audit activity
Based on a risk assessment of the organization internal auditors management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual multiyear audit planning usually the audit plan is proposed by the chief internal Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors) Internal auditing activity is generally conducted as one or more discrete
assignments A typical internal audit assignment involves the following steps
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
An internal audited may be conducted to examine whether the asset of the
entropies are properly safeguarded
An internal audit may be conducted to examine whether the resources of the
enterprise are being used economically and efficiently
Cost audit- this an audit of cost accounting records
Task audit audit of the accounts of certain income tax assessment whose turnover or
receipts exceeds the specified limits
Government audit is conducted primary to ensure that financial transactions of the
government are executed with proper sanctions and authorities
222 Classification based on original structure on audit
21 Audit of companies- the management are responsible for the proportion of
financial statement and the share holders want to know the reliability of the
financial statement by independent author and draft his opinion
22 Audit of partnership firms
23 Audit of sole proprietor concerns
223 Based on time and scope of audit procedures
Continuous audit a situation where the audit work is carried on almost of throughout
the remade to be covered by the audit
Final audit situation where the audit work is commenced only after the expiry of the
period to be covered by the audit
Interim audit normally to financial statement or other data to be audited pertain to a
ful accounting year
Balance sheet audit audit appears in balance sheet profit and loss account and
conducting detail examination of entries (voucher and related accounts)
(komal Gupta 2002 7-14)
Advantages of audit
Is tools of control over those who handle resources belonging to others
Is tools it acts as a means of protection aquarist misuse of funds and reduces the
possibility of errors of fraud tools for ensuring credibility of economic information
Tools for improving economy and efficiency in we of resource
Tools for certain special purposes
To potential investors creditors employees and other third parries it provide greater
reliability of financials statement as providing a data base for taking investment
credit and other decisions
(Kumay Getu 2002 11-170
23 Objective of internal audit
The objective of internal auditing adding value to the organization improving the
effectiveness and organizational operation to provide assistance in the form of analysis
evaluation recommendation and advice In general there are the following objectives of
internal audit-
To properly disclose the documented information accurately and reliable to
management and other governing bodies
To check whether the control risk to the organization are identified and minimized
To felicitates the early dictation and privation of fraud
To determine whether the organizational goal are effectively achieved
To determine whether resource are used efficiently and economically
(effectively)
24 Components of internal audit code of ethics
A principle consists essential guidance for the profession and practice of internal auditing It is
also ideal standard of ethical conduct stated in philosophical terms and are not enforceable
among there standards the following the same of them-
A Integrity- is a prerequisite for all those who act in the public interest Integrity requires
that the auditor is not affected and is not seen to be affected by conflict of interest
Conflict of interest may arise from personal financial business employment and other
relationships which the audit engagement team
B Objectivity- is a stage of mind that excludes bias prejudice and compromise and that
gies fair and impartial consideration to all matters that are relevant to the tasl in hand
disregarding those that are not The need for auditors to be objective arises from the fact
that money of the important issues implied in the preparation of financial statement do
not relate to question of fact but rather to questions of judgment
C Independence Independence is freedom from situations and relationship which make it
probable that a reasonable and informed their party would conclude the objectivity either
is impaired or could be impaired Independence relates to the circumstance surrounding
to the audit including the financial employment business and personal relationship
between the auditors and the audited entity its connected parties
D Confidentially- as a result of professional and business relationship and should not
disclosed any such information to third parties without proper and specific authority
unless there is a legal or professional right or duty to disclose Professional and business
relationships should not be used for the personal advantage of the professional account
or third party
E Competency an auditor has a continuing duty to maintain professi9onal knowledge and
skill at the level required to ensure that a client or employer receives competent
professional service based on current development in practice legislation and techniques
unprofessional accountant (Auditor) should act diligently and in accordance with
professional service
F Accounting principles- a member shall not express opinion or state affirmatively that the
financial statement or other financial data of an entity represent in conformity with
GAAP or states that heshe is not aware of a material modification that should be made to
such statements or data in order this to be in conformity with GAAP If such stamtenst
(data) contain any departure from an accounting principle
(Alin A Arrens)
25 Types of internal audit
Compliance audit- this of audit is conducted to check weather the organization unit is following
the various rules regulation and polices set by higher authorizes and also auditing weather the
account is following the rules and regulation set by the company controller This type of audit is
conducted by the auditor employed by the organization
Performance (operational) audit- this type of audit is carried so as to examine whether the
organization is using resource in efficient and effective manner It is review of any part of the
organization procedures and methods for the purpose of evaluating effective and efficiency It
tries to evaluate the organizational structure competent operation production department or
marketing department and any other areas in which the auditor is qualified the result of this type
of audit is subjective rather than objective
Financial audit- this type of audit examines whether the financial statement are prepared
in avoidance with established criteria (which mean accordance with GAAP) and it also
carried out of check the accuracy reliability and fairness of financial statement (income
statement statement of stockholders cash flow statement balance sheethellipetc)
Information system audit- it review the automated information system of the
organization and evaluates the system inputs process look put system security system
retrieval and computes quality
26 Internal duties and responsibility
Internal auditor is require to give on annual opinion to the audit committee on the adequate and
effectiveness the whole system of internal controls with in the university and the extent to which
the governing authority may relevant it
Auditors are responsible to give some modification on the drifted policies procedures and
objectives of the organizations by deciding with the managements and giving consultants
To know the employees of the organizations has separate of duty segregation power and has
good quality proficiencies and experience Discussion of the audit plan and making stratify for
the auditor program
Internal auditor is accountability of compliance with standard (fund and economic ministry
1998 3-17)
Internal audit shall develop on over al audit strategy taking account integralities of available
resource knowledge of the university the work of external auditors and internal assurance
provider the university risk management process and internal auditor on assumption of risk
Based on the over all audit strategy internal audit will undertake medium term and annual
programs of work to provide the required assurance This will be drawn up by internal audit in
consolation with the president and the approval of the audit committee
(httpwwwdcuieinternslauditdutiesshtml)
261 Technical responsibility
Performing assigned taxes with in internal audit reviewprojects or business ie operational
audit of independent agent in accordance with departmental audit program and participate on a
silicate audit)
Gain an understanding of client risk control and area of operational improvement
Obtain analysis and appraise evidential data in order to evaluate the adequacy and effectiveness
of internal control
Assist in identification of internal control gap and deficiencies as well as efficiency and
effectiveness opportunities
Assist in development of recommendations for improved and enhanced controls and business
efficiencies to clients
httpenwikipediaorgwikiinternal audit
262 Other professional responsibility
Develop extent professional oral and written communication in order to establish working
relationship with client personal and communicate engagement result
Exercise professional segment on engagement and assist in development of proactive solution
and recommendation (internet)
27 The difference between internal audit and external audit
Internal audit is a function that although operating independently from other departments and
reports decency to the audit committee resides within an organization (ie they are company
employees) It is responsible for performing audit with in wide range of areas within a business
as directed by the annual audit plan Internal audit look at a risk facing the business and what is
being done to manage there risks effectively to help the organizations achieve its objectives
For example they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc
External audit are independent bodies which reside out side of the organization which it is
auditing They are focused on the financial accounts of risks associated with fianceacute and are
appointed by the company shareholder The main responsibility of external audit is to perform
the annual statutory audit of the financial account Providing an opinion whether they are a true
and fair reflection of the companyrsquos financial position As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts to determine if they are working as intended
httpenwikipediaorgwikiinternalaudit
28 Advantage of internal audit
o It keep safeguard of asset
o It make financial information and documentation free from errors
o It is very important to the external auditors by minimizing csot and time
o It is very important for the organization by achieving its overall objectives
o Effective internal control reduce deviation amount of the audit risk
o Internal audit is useful to know the amount of persons needed in the organizations
o Generally internal audit is very important to assessing the overall audit plan program and
how it is effective
(Finance and economic minister 1998 58-61)
29 Nature of the internal audit activity
Based on a risk assessment of the organization internal auditors management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual multiyear audit planning usually the audit plan is proposed by the chief internal Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors) Internal auditing activity is generally conducted as one or more discrete
assignments A typical internal audit assignment involves the following steps
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
Tools for certain special purposes
To potential investors creditors employees and other third parries it provide greater
reliability of financials statement as providing a data base for taking investment
credit and other decisions
(Kumay Getu 2002 11-170
23 Objective of internal audit
The objective of internal auditing adding value to the organization improving the
effectiveness and organizational operation to provide assistance in the form of analysis
evaluation recommendation and advice In general there are the following objectives of
internal audit-
To properly disclose the documented information accurately and reliable to
management and other governing bodies
To check whether the control risk to the organization are identified and minimized
To felicitates the early dictation and privation of fraud
To determine whether the organizational goal are effectively achieved
To determine whether resource are used efficiently and economically
(effectively)
24 Components of internal audit code of ethics
A principle consists essential guidance for the profession and practice of internal auditing It is
also ideal standard of ethical conduct stated in philosophical terms and are not enforceable
among there standards the following the same of them-
A Integrity- is a prerequisite for all those who act in the public interest Integrity requires
that the auditor is not affected and is not seen to be affected by conflict of interest
Conflict of interest may arise from personal financial business employment and other
relationships which the audit engagement team
B Objectivity- is a stage of mind that excludes bias prejudice and compromise and that
gies fair and impartial consideration to all matters that are relevant to the tasl in hand
disregarding those that are not The need for auditors to be objective arises from the fact
that money of the important issues implied in the preparation of financial statement do
not relate to question of fact but rather to questions of judgment
C Independence Independence is freedom from situations and relationship which make it
probable that a reasonable and informed their party would conclude the objectivity either
is impaired or could be impaired Independence relates to the circumstance surrounding
to the audit including the financial employment business and personal relationship
between the auditors and the audited entity its connected parties
D Confidentially- as a result of professional and business relationship and should not
disclosed any such information to third parties without proper and specific authority
unless there is a legal or professional right or duty to disclose Professional and business
relationships should not be used for the personal advantage of the professional account
or third party
E Competency an auditor has a continuing duty to maintain professi9onal knowledge and
skill at the level required to ensure that a client or employer receives competent
professional service based on current development in practice legislation and techniques
unprofessional accountant (Auditor) should act diligently and in accordance with
professional service
F Accounting principles- a member shall not express opinion or state affirmatively that the
financial statement or other financial data of an entity represent in conformity with
GAAP or states that heshe is not aware of a material modification that should be made to
such statements or data in order this to be in conformity with GAAP If such stamtenst
(data) contain any departure from an accounting principle
(Alin A Arrens)
25 Types of internal audit
Compliance audit- this of audit is conducted to check weather the organization unit is following
the various rules regulation and polices set by higher authorizes and also auditing weather the
account is following the rules and regulation set by the company controller This type of audit is
conducted by the auditor employed by the organization
Performance (operational) audit- this type of audit is carried so as to examine whether the
organization is using resource in efficient and effective manner It is review of any part of the
organization procedures and methods for the purpose of evaluating effective and efficiency It
tries to evaluate the organizational structure competent operation production department or
marketing department and any other areas in which the auditor is qualified the result of this type
of audit is subjective rather than objective
Financial audit- this type of audit examines whether the financial statement are prepared
in avoidance with established criteria (which mean accordance with GAAP) and it also
carried out of check the accuracy reliability and fairness of financial statement (income
statement statement of stockholders cash flow statement balance sheethellipetc)
Information system audit- it review the automated information system of the
organization and evaluates the system inputs process look put system security system
retrieval and computes quality
26 Internal duties and responsibility
Internal auditor is require to give on annual opinion to the audit committee on the adequate and
effectiveness the whole system of internal controls with in the university and the extent to which
the governing authority may relevant it
Auditors are responsible to give some modification on the drifted policies procedures and
objectives of the organizations by deciding with the managements and giving consultants
To know the employees of the organizations has separate of duty segregation power and has
good quality proficiencies and experience Discussion of the audit plan and making stratify for
the auditor program
Internal auditor is accountability of compliance with standard (fund and economic ministry
1998 3-17)
Internal audit shall develop on over al audit strategy taking account integralities of available
resource knowledge of the university the work of external auditors and internal assurance
provider the university risk management process and internal auditor on assumption of risk
Based on the over all audit strategy internal audit will undertake medium term and annual
programs of work to provide the required assurance This will be drawn up by internal audit in
consolation with the president and the approval of the audit committee
(httpwwwdcuieinternslauditdutiesshtml)
261 Technical responsibility
Performing assigned taxes with in internal audit reviewprojects or business ie operational
audit of independent agent in accordance with departmental audit program and participate on a
silicate audit)
Gain an understanding of client risk control and area of operational improvement
Obtain analysis and appraise evidential data in order to evaluate the adequacy and effectiveness
of internal control
Assist in identification of internal control gap and deficiencies as well as efficiency and
effectiveness opportunities
Assist in development of recommendations for improved and enhanced controls and business
efficiencies to clients
httpenwikipediaorgwikiinternal audit
262 Other professional responsibility
Develop extent professional oral and written communication in order to establish working
relationship with client personal and communicate engagement result
Exercise professional segment on engagement and assist in development of proactive solution
and recommendation (internet)
27 The difference between internal audit and external audit
Internal audit is a function that although operating independently from other departments and
reports decency to the audit committee resides within an organization (ie they are company
employees) It is responsible for performing audit with in wide range of areas within a business
as directed by the annual audit plan Internal audit look at a risk facing the business and what is
being done to manage there risks effectively to help the organizations achieve its objectives
For example they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc
External audit are independent bodies which reside out side of the organization which it is
auditing They are focused on the financial accounts of risks associated with fianceacute and are
appointed by the company shareholder The main responsibility of external audit is to perform
the annual statutory audit of the financial account Providing an opinion whether they are a true
and fair reflection of the companyrsquos financial position As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts to determine if they are working as intended
httpenwikipediaorgwikiinternalaudit
28 Advantage of internal audit
o It keep safeguard of asset
o It make financial information and documentation free from errors
o It is very important to the external auditors by minimizing csot and time
o It is very important for the organization by achieving its overall objectives
o Effective internal control reduce deviation amount of the audit risk
o Internal audit is useful to know the amount of persons needed in the organizations
o Generally internal audit is very important to assessing the overall audit plan program and
how it is effective
(Finance and economic minister 1998 58-61)
29 Nature of the internal audit activity
Based on a risk assessment of the organization internal auditors management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual multiyear audit planning usually the audit plan is proposed by the chief internal Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors) Internal auditing activity is generally conducted as one or more discrete
assignments A typical internal audit assignment involves the following steps
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
that money of the important issues implied in the preparation of financial statement do
not relate to question of fact but rather to questions of judgment
C Independence Independence is freedom from situations and relationship which make it
probable that a reasonable and informed their party would conclude the objectivity either
is impaired or could be impaired Independence relates to the circumstance surrounding
to the audit including the financial employment business and personal relationship
between the auditors and the audited entity its connected parties
D Confidentially- as a result of professional and business relationship and should not
disclosed any such information to third parties without proper and specific authority
unless there is a legal or professional right or duty to disclose Professional and business
relationships should not be used for the personal advantage of the professional account
or third party
E Competency an auditor has a continuing duty to maintain professi9onal knowledge and
skill at the level required to ensure that a client or employer receives competent
professional service based on current development in practice legislation and techniques
unprofessional accountant (Auditor) should act diligently and in accordance with
professional service
F Accounting principles- a member shall not express opinion or state affirmatively that the
financial statement or other financial data of an entity represent in conformity with
GAAP or states that heshe is not aware of a material modification that should be made to
such statements or data in order this to be in conformity with GAAP If such stamtenst
(data) contain any departure from an accounting principle
(Alin A Arrens)
25 Types of internal audit
Compliance audit- this of audit is conducted to check weather the organization unit is following
the various rules regulation and polices set by higher authorizes and also auditing weather the
account is following the rules and regulation set by the company controller This type of audit is
conducted by the auditor employed by the organization
Performance (operational) audit- this type of audit is carried so as to examine whether the
organization is using resource in efficient and effective manner It is review of any part of the
organization procedures and methods for the purpose of evaluating effective and efficiency It
tries to evaluate the organizational structure competent operation production department or
marketing department and any other areas in which the auditor is qualified the result of this type
of audit is subjective rather than objective
Financial audit- this type of audit examines whether the financial statement are prepared
in avoidance with established criteria (which mean accordance with GAAP) and it also
carried out of check the accuracy reliability and fairness of financial statement (income
statement statement of stockholders cash flow statement balance sheethellipetc)
Information system audit- it review the automated information system of the
organization and evaluates the system inputs process look put system security system
retrieval and computes quality
26 Internal duties and responsibility
Internal auditor is require to give on annual opinion to the audit committee on the adequate and
effectiveness the whole system of internal controls with in the university and the extent to which
the governing authority may relevant it
Auditors are responsible to give some modification on the drifted policies procedures and
objectives of the organizations by deciding with the managements and giving consultants
To know the employees of the organizations has separate of duty segregation power and has
good quality proficiencies and experience Discussion of the audit plan and making stratify for
the auditor program
Internal auditor is accountability of compliance with standard (fund and economic ministry
1998 3-17)
Internal audit shall develop on over al audit strategy taking account integralities of available
resource knowledge of the university the work of external auditors and internal assurance
provider the university risk management process and internal auditor on assumption of risk
Based on the over all audit strategy internal audit will undertake medium term and annual
programs of work to provide the required assurance This will be drawn up by internal audit in
consolation with the president and the approval of the audit committee
(httpwwwdcuieinternslauditdutiesshtml)
261 Technical responsibility
Performing assigned taxes with in internal audit reviewprojects or business ie operational
audit of independent agent in accordance with departmental audit program and participate on a
silicate audit)
Gain an understanding of client risk control and area of operational improvement
Obtain analysis and appraise evidential data in order to evaluate the adequacy and effectiveness
of internal control
Assist in identification of internal control gap and deficiencies as well as efficiency and
effectiveness opportunities
Assist in development of recommendations for improved and enhanced controls and business
efficiencies to clients
httpenwikipediaorgwikiinternal audit
262 Other professional responsibility
Develop extent professional oral and written communication in order to establish working
relationship with client personal and communicate engagement result
Exercise professional segment on engagement and assist in development of proactive solution
and recommendation (internet)
27 The difference between internal audit and external audit
Internal audit is a function that although operating independently from other departments and
reports decency to the audit committee resides within an organization (ie they are company
employees) It is responsible for performing audit with in wide range of areas within a business
as directed by the annual audit plan Internal audit look at a risk facing the business and what is
being done to manage there risks effectively to help the organizations achieve its objectives
For example they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc
External audit are independent bodies which reside out side of the organization which it is
auditing They are focused on the financial accounts of risks associated with fianceacute and are
appointed by the company shareholder The main responsibility of external audit is to perform
the annual statutory audit of the financial account Providing an opinion whether they are a true
and fair reflection of the companyrsquos financial position As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts to determine if they are working as intended
httpenwikipediaorgwikiinternalaudit
28 Advantage of internal audit
o It keep safeguard of asset
o It make financial information and documentation free from errors
o It is very important to the external auditors by minimizing csot and time
o It is very important for the organization by achieving its overall objectives
o Effective internal control reduce deviation amount of the audit risk
o Internal audit is useful to know the amount of persons needed in the organizations
o Generally internal audit is very important to assessing the overall audit plan program and
how it is effective
(Finance and economic minister 1998 58-61)
29 Nature of the internal audit activity
Based on a risk assessment of the organization internal auditors management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual multiyear audit planning usually the audit plan is proposed by the chief internal Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors) Internal auditing activity is generally conducted as one or more discrete
assignments A typical internal audit assignment involves the following steps
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
organization procedures and methods for the purpose of evaluating effective and efficiency It
tries to evaluate the organizational structure competent operation production department or
marketing department and any other areas in which the auditor is qualified the result of this type
of audit is subjective rather than objective
Financial audit- this type of audit examines whether the financial statement are prepared
in avoidance with established criteria (which mean accordance with GAAP) and it also
carried out of check the accuracy reliability and fairness of financial statement (income
statement statement of stockholders cash flow statement balance sheethellipetc)
Information system audit- it review the automated information system of the
organization and evaluates the system inputs process look put system security system
retrieval and computes quality
26 Internal duties and responsibility
Internal auditor is require to give on annual opinion to the audit committee on the adequate and
effectiveness the whole system of internal controls with in the university and the extent to which
the governing authority may relevant it
Auditors are responsible to give some modification on the drifted policies procedures and
objectives of the organizations by deciding with the managements and giving consultants
To know the employees of the organizations has separate of duty segregation power and has
good quality proficiencies and experience Discussion of the audit plan and making stratify for
the auditor program
Internal auditor is accountability of compliance with standard (fund and economic ministry
1998 3-17)
Internal audit shall develop on over al audit strategy taking account integralities of available
resource knowledge of the university the work of external auditors and internal assurance
provider the university risk management process and internal auditor on assumption of risk
Based on the over all audit strategy internal audit will undertake medium term and annual
programs of work to provide the required assurance This will be drawn up by internal audit in
consolation with the president and the approval of the audit committee
(httpwwwdcuieinternslauditdutiesshtml)
261 Technical responsibility
Performing assigned taxes with in internal audit reviewprojects or business ie operational
audit of independent agent in accordance with departmental audit program and participate on a
silicate audit)
Gain an understanding of client risk control and area of operational improvement
Obtain analysis and appraise evidential data in order to evaluate the adequacy and effectiveness
of internal control
Assist in identification of internal control gap and deficiencies as well as efficiency and
effectiveness opportunities
Assist in development of recommendations for improved and enhanced controls and business
efficiencies to clients
httpenwikipediaorgwikiinternal audit
262 Other professional responsibility
Develop extent professional oral and written communication in order to establish working
relationship with client personal and communicate engagement result
Exercise professional segment on engagement and assist in development of proactive solution
and recommendation (internet)
27 The difference between internal audit and external audit
Internal audit is a function that although operating independently from other departments and
reports decency to the audit committee resides within an organization (ie they are company
employees) It is responsible for performing audit with in wide range of areas within a business
as directed by the annual audit plan Internal audit look at a risk facing the business and what is
being done to manage there risks effectively to help the organizations achieve its objectives
For example they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc
External audit are independent bodies which reside out side of the organization which it is
auditing They are focused on the financial accounts of risks associated with fianceacute and are
appointed by the company shareholder The main responsibility of external audit is to perform
the annual statutory audit of the financial account Providing an opinion whether they are a true
and fair reflection of the companyrsquos financial position As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts to determine if they are working as intended
httpenwikipediaorgwikiinternalaudit
28 Advantage of internal audit
o It keep safeguard of asset
o It make financial information and documentation free from errors
o It is very important to the external auditors by minimizing csot and time
o It is very important for the organization by achieving its overall objectives
o Effective internal control reduce deviation amount of the audit risk
o Internal audit is useful to know the amount of persons needed in the organizations
o Generally internal audit is very important to assessing the overall audit plan program and
how it is effective
(Finance and economic minister 1998 58-61)
29 Nature of the internal audit activity
Based on a risk assessment of the organization internal auditors management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual multiyear audit planning usually the audit plan is proposed by the chief internal Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors) Internal auditing activity is generally conducted as one or more discrete
assignments A typical internal audit assignment involves the following steps
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
(httpwwwdcuieinternslauditdutiesshtml)
261 Technical responsibility
Performing assigned taxes with in internal audit reviewprojects or business ie operational
audit of independent agent in accordance with departmental audit program and participate on a
silicate audit)
Gain an understanding of client risk control and area of operational improvement
Obtain analysis and appraise evidential data in order to evaluate the adequacy and effectiveness
of internal control
Assist in identification of internal control gap and deficiencies as well as efficiency and
effectiveness opportunities
Assist in development of recommendations for improved and enhanced controls and business
efficiencies to clients
httpenwikipediaorgwikiinternal audit
262 Other professional responsibility
Develop extent professional oral and written communication in order to establish working
relationship with client personal and communicate engagement result
Exercise professional segment on engagement and assist in development of proactive solution
and recommendation (internet)
27 The difference between internal audit and external audit
Internal audit is a function that although operating independently from other departments and
reports decency to the audit committee resides within an organization (ie they are company
employees) It is responsible for performing audit with in wide range of areas within a business
as directed by the annual audit plan Internal audit look at a risk facing the business and what is
being done to manage there risks effectively to help the organizations achieve its objectives
For example they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc
External audit are independent bodies which reside out side of the organization which it is
auditing They are focused on the financial accounts of risks associated with fianceacute and are
appointed by the company shareholder The main responsibility of external audit is to perform
the annual statutory audit of the financial account Providing an opinion whether they are a true
and fair reflection of the companyrsquos financial position As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts to determine if they are working as intended
httpenwikipediaorgwikiinternalaudit
28 Advantage of internal audit
o It keep safeguard of asset
o It make financial information and documentation free from errors
o It is very important to the external auditors by minimizing csot and time
o It is very important for the organization by achieving its overall objectives
o Effective internal control reduce deviation amount of the audit risk
o Internal audit is useful to know the amount of persons needed in the organizations
o Generally internal audit is very important to assessing the overall audit plan program and
how it is effective
(Finance and economic minister 1998 58-61)
29 Nature of the internal audit activity
Based on a risk assessment of the organization internal auditors management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual multiyear audit planning usually the audit plan is proposed by the chief internal Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors) Internal auditing activity is generally conducted as one or more discrete
assignments A typical internal audit assignment involves the following steps
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
For example they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc
External audit are independent bodies which reside out side of the organization which it is
auditing They are focused on the financial accounts of risks associated with fianceacute and are
appointed by the company shareholder The main responsibility of external audit is to perform
the annual statutory audit of the financial account Providing an opinion whether they are a true
and fair reflection of the companyrsquos financial position As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts to determine if they are working as intended
httpenwikipediaorgwikiinternalaudit
28 Advantage of internal audit
o It keep safeguard of asset
o It make financial information and documentation free from errors
o It is very important to the external auditors by minimizing csot and time
o It is very important for the organization by achieving its overall objectives
o Effective internal control reduce deviation amount of the audit risk
o Internal audit is useful to know the amount of persons needed in the organizations
o Generally internal audit is very important to assessing the overall audit plan program and
how it is effective
(Finance and economic minister 1998 58-61)
29 Nature of the internal audit activity
Based on a risk assessment of the organization internal auditors management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual multiyear audit planning usually the audit plan is proposed by the chief internal Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors) Internal auditing activity is generally conducted as one or more discrete
assignments A typical internal audit assignment involves the following steps
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
1 Establish and communicate the scope and objective for the audit to appropriate
management
2 Develop an understanding of the business area under review This includes objectives
measurements and key transaction types This involves review of documents and
interviews Flowcharts and narrative may be created if necessary
3 Describe the key risks facing the business activities within the scope of the audit
4 Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5 Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6 Report problems identified and negotiate action plans with management to address the
problems
7 Follow-up on reported finings at appropriate intervals Internal audit departments
maintain a follow-up database for this purpose
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available Many of the above steps are integrative and may not all occur in the
sequence indicated
By analyzing and recommending business improvements in critical areas auditors help the
organization meet its objectives In addition to assessing business processes specialists called
information technology (IT) auditor review information technology controls
IMFs internal audit is overseen by the external audit committee (three members all external and
with the accounting and financial expertise required) the OSCErsquos office of internal oversight
reports to the secretariat general and the permanent councilhellip
httpenwikipidiaorgwikiintenralaudit
210 Role in corporate governance
Internal auditing activity as it relates to corporate governance is generally informal
accomplished primarily through participation in meetings and discussions with members of the
Board of directors Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
structure implemented by the board o f directors to inform direct mange and monitor the
organizationrsquos resources strategies and policies towards the achievement of the organizations
objectives The internal auditor is often considered one of the lsquofour pillarsrdquo of corporate
governance the other pillar being the board of directors management and the external auditor
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers suggesting questions or topics for the audit committeersquos meeting
agendas and coordinating carefully with the external auditor and management to ensure the
committee receives effective information
httpenwikipidaorgwikiinternalhellipaudit
211 Role in internal control
Integral control activity is primarily directed improving internal control Under the COSO
framework internal control is broadly defined as a process affected by an entity board of
directors management and other personnel designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories
Effectiveness and efficiency of operations
Reliability of financial report
Compliance with laws and regulations
Management is responsible for internal control Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories Internal
auditors perform audits to evaluate and privde recommendations for improvement
In the united states internal auditors may assist management with compliance with the Sarbanes-
Oxley act (SOX)
Httpwikipidiaorgwikiinternalaudit
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
212 Development the plan of engagement
Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment updated at least annually The input of senior management and the
board is typically included in this process Many departments update their plan of engagements
though the year as risks or organizational priorities change
This effort helps ensure the audit activity is aligned with the organizations objective by
answering two key questions first what goals is the organization rying to accomplish in the
upcoming period Second how can the internal audit department assist the organization in
achieving these goals
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements Changes in people processes or systems often generate audit project ideas
Various documents are reviewed such as strat4egic plans financial reports consulting studies
etc further the results of prior audits and resolution of open issues are considered For example
automated programs such as NEMEA compliance center can collect responses produce and
write standardized compliance reports for an organization seeking or issuing compliance rules
Even if a business area is important prior audit work and the nature and status of open issues
may render further audit effort unnecessary If the organization has a formal enterprise risk
management (ERM) program the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit
The preliminary plan of engagements is documented and prioritized Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee The presentations very based on the needs of the stakeholders and may include the
following
Summary of key goals risks and corresponding major audits to illustrate alignment
Analyses of audit effort along a variety of dimensions (eg by business segment
COSO objective category IT Sarbanes-Oxley vs prior year etc) along with
commentary regarding change
Brief description of critical potential audit engagement identified
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
Audit engagement requested but not planned for excision due to prioritization and
resources
Required co-sourcing effort typically where outside expertise is required or during
peak periods
Coordination with other risk functions such as legal compliance or insurance to
ensure coverage of key organizational risks
Update on audit staffing levels experience and certification and
Appendix materials such as planning approach assumptions (eg days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization
httpenwikipidiaorgwikiinternalaudit
213 Internal audit reports
Internal auditors typically issue report as the end of each audit that summarize their findings
recommendations and any responses or action plans from management An audit report may
have an executive summary a body includes the specific issues or findings identified and related
recommendations or action plans and appendix information such as detailed graphs and charts
or process information Each audit finding within the body of the report may contain five
elements sometimes called the ldquo5 Crsquosrdquo
1 Condition what is the particular problem identified
2 Criteria what is the standard that was not time The standard may be a company
policy or other benchmark
3 Cause why did the problem occur
4 Consequence what is the risknegative outcome (or opportunity foregone) because of
the finding
The recommendations in an internal audit report are designed to help the organization achieve its
goals which may relate to operations financial reporting or legalregulatory compliance They
may relate to effectiveness (ie whether goals were met or compliance with standards was
achieved) or efficiency (ie whether the outputs were generated with minimum inputs)
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
Audit findings and recommendation also relate to particular assertions about transactions such
as whether the transactions were valid or authorized completely processed accurately valued
processed in the correct time period and properly disclosed in financial or operational reporting
among other eleemtns
httpenwikipidiaorgwikiinternalaudit
214 Quality program assurance
The internal audit should to process monetary and assess the over all effectiveness of the quality
programming
Reporting on the quality program
Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit
The internal audit establish risk base plane to date remain the consistence with the
organization goal
Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts
215 Phase of internal audit
1 audit planning phases once the auditor is appointed and issue and engagement letter to the
management the next stage is to plan the audit Planning is very important to the following
reason
it enable the auditor to get sufficient and competent evidence this will reduce the
legal liabilities and increase the reputation of the audit firm
it helped to keep the audit cost reasonable
to avoid misunderstanding the client
Audit planning has stage those are
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
a pre planning
b obtaining background information about the client
c obtaining information about client legal obligation
d set materiality and access acceptable audit risk and inherent risk
e understanding internal control system and assess control risk
a preplanning stage it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit
b Obtaining background information about the client- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides text book magazine
c Tanning information about the contractual obligation of the client- may be categorized-
Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity
d Set materiality and assess acceptable audit risk and inherent risk
It is the auditorrsquos preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement If the
financial statement of the client contain material misstatement auditor has to modify their
opinion when financial statement contain immaterial misstatement Materiality determines the
scope of audit procedure Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
Audit risk- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components-
Inherent risk
Control risk
Detection risk
a Inherent risk_ is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering
the internal control system
b Control risk is the measure of auditorrsquos assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control
c Detection risk is risk that the auditor is substantive test procedure will detect a
misstatement that exist in account balance or transactions that could be material
individually or aggregated with their misstating
Audit risk=control risk x detection risk x inherent risk
d Understanding the internal control system and assessment of control risks
Internal control is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include
Reliable financial report
Operational efficiency and effectiveness
compliance with various levels and regulation for eg tax rules of government
regulation
factors that affect internal control system are
the size of the organization
nature of operation
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
objective of organization
Components of internal control of an organization includes the following
controlling environment
Risk assessment Quantity information and communication Control activity Non to risk or evaluating
Know back of internal control system is collusion of employees carelessness fatigue mistakes
made by misunderstanding and top management over ride
Assessment of control risk determines the substantive test of the auditor When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test When the enterprise has weak internal control system there would be high control risk and
increase in extent of substantive test
e Developing audit program it is the detailed list of activities to be performed in the
course of audit These has two parties
a Assessment of control risk
b Substantive test
The objectives of audit programming are the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation
allocation presentation and disclosure
II Executive phase of auditing is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper
Sampling techniques is statistical or non statistical process of selecting a group of items from a large group of items called population and using the characteristics of the sample to draw influences about the characteristics of the entire population of teem These is one of the basic reason that the audit report are regard as expression of opinion rather than absolute certification of the fairness of financial statement
(O Ray whitlingston 1989 118-180)
CHAPTER-THREE
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
3 Research design and methodology
31 Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources There for the researcher used both primarily and secondary data sources The
researcher used primarily data by using of questionnaire inquiry and interview with the
concerned audit staff managers of the hospital who had possession financial area The secondary
data sources used was books and different unpopulated documents
32 Data collection method
Important information for this research is collected from internal auditor management of the
hospital and finance departments by suing well and standardized questionnaires and inquiry In
this research used both open ended and close ended questionnaires
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling) it containing black space and explanation space can be filled by respondent
33 Sampling technique
This research focused to collect information from the office of finance management audit So
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis these
implies the work of this research was more of qualitative research
CHAPTER-FOUR
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
4 Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors
41 Back ground of the respondent
To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent After distributing the questionnaires the following results
are obtained
Table 421 sex competition of the respondent
Sex Number of respondent of respondent
Male 5 71
Female 2 2
Total 7 100
As indicated the above table out of the total respondent 80 are males and the remaining 20
are female
Table 422 martial status
Martial status No of respondent of respondent
Divorce - -
Single 3 43
Married 4 57
Total 7 100
As have see from the above table the martial status of the respondent are 43 sigee and 57 the
married respondent
Table 43 educational background
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
Educational background No of respondent of respondent
Diploma 5 71
Degree 1 145
Other 1 145
Total 7 100
From the above table among the respondent 75 of respondent are diploma 145 degree
145 other
Table 431 age composition of respondent
age No of respondent of respondent
Below 30 3 43
31-45 3 43
Above 45 1 14
Total 7 100
From the above table the age compensation of the respondent with percentage of 43 below
30 43 of 31-45 and the reaming above 45 is 14
42 Presentation of data gathered through questionnaires
Do you agree the existence of auditor for
hospital
No of respondent of respondent
Yes 7 100
No - -
Total 7 100
As indicates the above table 100 of the respondent says that agree auditor sis important
for hospital
Do you thing that the existing no No of respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
Yes - -
No 7 100
Total 7 100
From the above table 100 of the respondent says that the existing auditor is not enough
to hospital
Do you believe that the auditor are
performing properly their task
No respondent of respondent
Yes - -
No 7 100
Total 7 100
From the above table the respondent do not believe that the auditor has not properly performing
their task 100 of respondent
Is the objective of auditor problem
associated with audit procedure
No
respondent
of respondent
Yes 2 89
No 5 71
Total 7 100
From the above table 29 of respondent says problems assonates with auditor procedure and
71 no associated with audit procedure
Do you thank that the auditor apply ethical
standards for example confidentiality objectivity
etc
No of
respondent
of respondent
Yes 3 43
No 4 57
Total 7 100
From the above table 45 respondent think that the auditor apply ethical standards and 57 of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality
objectivity etc
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
Do you believe that the existing auditor is
qualified
No of
respondent
of respondent
Yes - -
No 7 100
Total 7 100
All respondent do not believe the existing auditor is not qualified (100)
Could the audit report comply with standard No of
respondent
of respondent
Yes 1 14
No 6 86
Total 7 100
The respondent say the audit report comply with standards 14 and 86 is the audit report do
not comply with standards
43 Interview presentation
Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town The interviewee are one management and two auditor
431 Interview with the management
The researcher made interview with one management and the following data is our presentation
of interview from management
Does the auditor have structural work relation to the management and head
The management state that auditor has no structural work relationship with the
management and the head The only relationship that the auditor has to the management
and head is meetings and panel discussions of the organization but not related to the
work interactions
What is the management responsibility to organize the audit section materially
manpower and morally
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness) So they are weakly organized
materially and morally by the management
In the organization there is only one audit staff and no segregation among the
auditor How they effective in controlling and achieving their goal
As the operation in the organization is very wide and complex that canrsquot be controlled
by only one staff auditor In this case achieving the goal and controlling is very difficult
How audit play major roles in protection of the employment fraud over asset Most
of the time employment fraud over asset cannot be occurred but the major role ro
procedures are comparing the list of asset with the physical existing one or on hand
balance assets
Did the auditors of the organization sharing experience with other experienced
organization auditors Most of the time they could not share experience but are
searching the possibility to them
What is the reason of the organization facing lack of segregation among auditors
with audit type
These are the problems of the organization head or board of audit big problems Due to these the
organization audit type is only financial audit but there are no other types of audit
Could the auditor use the document assessing methods such as performance
reconciliation tracing and vouching
The organization auditor is lack of experience and auditor knowledge to those document
assessing methods Among those reconciliation and tracing is the only procedures used by the
organization auditors
How many times could the auditors prepare audit report per year
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period Their report is not formal but
rather subjective to the auditors The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay
By what method the management prevent collusion of employees
The big problem is employment collusion this is caused by each department headrsquos carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions
432 Interview with auditors
We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors
Could the management of the organization give permission to take audit training to
auditors
The organization manager is also weak in internal control and lack of knowledgersquos to analysis
the quality levels of the auditors Because of these problems management canrsquot provide
permission to the auditors to increase the work efficiency among them
How the management know the auditors independence professional quality
(experience) and ethical standard
The management is also weak to know the quality and ethical standards of auditors Partially the
auditor is ethically standard and independent and experienced Among the auditors one auditors
is come from management department and the work and position of work canrsquot match to each
other
How do you audit the financial audit and follow-up the improvement as per the
given common needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
The financial audit procedures are tracing the voucher amount to the deposit slip accounts And
also attaching the documents of the remittance advices bill of lading with each available
document The financial audit is the only audit in FHRH
Could the audit report compliance with audit standards
The audit report does not compliance with standards as a result of lack of auditorrsquos knowledge
and trainings and also managements weak by providing them compliance with standard their
reports
Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments For our research topic using qualitative data analysis
technique is appropriate
From the data analysis we understood that there is
Lack of structural work relation between the auditor and the management
The management of the hospitalrsquos controlling is not affective in materially
manpower and morally audit section is weak
There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors
There is lack of audit experience sharing with other organization auditorsthere is
shortage of following the auditor procedures such as performance reconciliation
vouching etc
There is no audit of performance compliance and other type audit but the only audit
is financial audit
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot
follow GAAS
The major problems related to internal audit control in EHRH is lack of segregation
fod duty shortage of audit staff and there is not audit type of compliance and
performance
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
There is shortage of auditor when comparing the organization activity
The auditor lacks knowledge and work on with out their professions area
Lack of information forwarding to the auditors
Lack of immediate action taken by management for audit opinion to implement it
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianceacute and other operational matters due
to audit performance
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
CHAPTER FIVE
5 CONCLUSION AND RECOMMENDATION
51 CONCLUSION
The objective of this research was to assess the problem of internal audit practice Based on the
analysis and finding of the previous chapter we colluded
Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers lack of audit training
among the existing audit no segregation among the auditor (segregation fo duty) and
responsibility and shortage of audit staff
The management of the hospital is not managing effectively and efficiently the
operation of audit work This opinion canrsquot implemented until finally
According the finding the audit section of the organization canrsquot know compliance
performance and special audit The only audit performed is financial audit
The auditor of the hospital canrsquot follow the techniques of data gathering by
confirmation performance and reconciliation etc
The audit procedures audit report and audit work of the organization cannot be
compliance with the GAAS rules and regulations of audit manuals But based on the
subjectivity of the auditors procedures
The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianceacute purchase and disbursement sales and
collection
Lack of implanting the audit program but the only method is comparing the audit
program with the work done followed by plan
Lack of structural work relation between the auditors and the management of the
organization
Lack of knowing the importance of the internal auditors
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
management group is needed
52 Recommendation
For the improvement of audit performance in Mizan-Aman hospital in Aman town The
following idea is recommended to minimize the problems related to internal audit control
The office of audit or management of the organization assign enough number of
worker and they should be professional skilled and experienced
To be effective in controlling they should increase the numbers of staff office and
should be segregation of duty and responsibility among auditor with audit type
The management group provide to the auditor training program and the auditor
should increase skill level by following these
The management of the organization should properly controlling directing planning
the employees to reduce employee fraud
To be effective auditing the compliance performance special audit hellipetc are very
important and improving the existing only audit financial audit mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation performance and reconciliation
of audit procedure data gathering is very important to be effective
The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general
accepted accounting principles (GAAP)
The auditor should diversify their work area in to many types of audit but not only
on the financial area
The management of the hospital should control the effectiveness of audit program
To be effectives the needs of structural work relationship between the auditor and the
