INTERNAL AUDITING AND MANAGEMENT DECISION MAKING IN AN ORGANIZATION: A STUDY OF NESTLE NIGERIA PLC

INTERNAL AUDITING AND MANAGEMENT DECISION MAKING IN AN ORGANIZATION: A STUDY OF NESTLE NIGERIA PLC

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CHAPTER ONE

INTRODUCTION

1.1             BACKGROUND TO THE STUDY

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. Internal auditing is a catalyst for improving an organization’s effectiveness and efficiency by providing insight and recommendations based on analyses and assessments of data and business processes. With commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called internal auditors are employed by organizations to perform the internal auditing activity (Adams, M.B, 2012).

The scope of internal auditing within an organization is broad and may involve topics such as the efficacy of operations, the reliability of financial reporting, deterring and investigating fraud, safeguarding assets, and compliance with laws and regulations (Adams, M.B, 2012).

Internal auditing frequently involves measuring compliance with the entity's policies and procedures. However, internal auditors are not responsible for the execution of company activities; they advise management and the Board of Directors (or similar oversight body) regarding how to better execute their responsibilities. As a result of their broad scope of involvement, internal auditors may have a variety of higher educational and professional backgrounds (Anderson Richard J. 2010).

Internal auditing activity is primarily directed at improving internal control. Internal control is broadly defined as a process, affected by an entity's 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 reporting.
  • Compliance with laws and regulations. (Anderson, 2010).

Management is responsible for internal control. Managers establish policies and processes to help the organization achieve specific objectives in each of these categories. Internal auditors perform audits to evaluate whether the policies and processes are designed and operating effectively and provide recommendations for improvement (Barrier M. 2012)

Internal auditing professional standards require the function to monitor and evaluate the effectiveness of the organization's Risk management processes. Risk management relates to how an organization sets objectives, then identifies, analyzes, and responds to those risks that could potentially impact its ability to realize its objectives (Barrier M. 2012).

Management performs risk assessment activities as part of the ordinary course of business in each of these categories. Examples include: strategic planning, marketing planning, capital planning, budgeting, hedging, incentive payout structure, and credit/lending practices. Corporate legal counsel often prepares comprehensive assessments of the current and potential litigation a company faces. Internal auditors may evaluate each of these activities, or focus on the processes used by management to report and monitor the risks identified. For example, internal auditors can advise management regarding the reporting of forward-looking operating measures to the Board, to help identify emerging risks (Shanteau, 2013).

In larger organizations, major strategic initiatives are implemented to achieve objectives and drive changes. Internal auditors may help companies establish and maintain Enterprise Risk Management processes. Internal auditors also play an important role in helping companies execute in assessing   their risk management.

1.2             STATEMENT OF THE PROBLEM

The financial statement audit is an important tool for reducing information asymmetries and maintaining an efficient market environment, also it improves organizational performance (Farouk & Hassan, 2014). Internal Audits are an essential management tool to be used for verifying objective evidence of processes, to assess how successfully processes have been implemented, for judging the effectiveness of achieving any defined target levels, to provide evidence concerning reduction and elimination of problem areas to improve overall organizational performance (Mahzan & Binti Hassan, 2015).

Despite this enormous role, the sector has been beclouded with
problems such as:

 
(i) Financial impropriety


(ii) Lack of auditing control


(iii) Lack of independence of the internal control

Based on the above the researcher want to investigate the following listed in the objective below.

1.3             OBJECTIVE OF THE STUDY

The broad objective of the study is:  

1.     To determine if internal audit ascertain the correctness of
financial records.

2.     To find out if internal audit inspect and verifies organizational
assets and liabilities.

3.     To determine the extent to which internal audit helps in
enforcing compliance to rules and regulations regulating companies

1.4     RESEARCH QUESTIONS

In line with the research objectives, the following are the research questions:

1.     Does internal audit ascertain the correctness of financial records?

2.     Does internal audit inspect and verifies organizational assets and liabilities.

3.     Does internal audit helps in enforcing compliance to rules and regulations                                                                                                                                         regulating companies      

1.5     RESEARCH HYPOTHESES

To address the above mentioned problems the following hypothesis are formulated.

Hypotheses 1

Ho:    internal audit does not ascertain the correctness of financial records?

Hi:     internal audit ascertain the correctness of financial records?

Hypotheses 2

Ho:    internal audit does not inspect and verifies organizational assets and liabilities.

Hi:     internal audit inspect and verifies organizational assets and liabilities.

Hypotheses 3                                                                                                  

Ho:    internal audit does not help in enforcing compliance to rules and regulations                                                                                                                                         regulating companies 

Hi:     internal audit helps in enforcing compliance to rules and regulations                                                                               &n


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