BST College SCHOOLOF

POSTGRADUATE STUDIES MBA

program

ASSESSMENT OF INTERNAL AUDITING PRACTICE THE CASE OF

COMMERCIAL BANK OF ETHIOPIA

ADDIS ABABA.

(Thesis Proposal)

Group member name Id No

1. Hilina Hirkoo MBAW/021/15

2. Dawit Dufera MBWW/029/15
3. Safi mohamed MBAW/051/15

Submitted to: -Reta mulugeta(ass.proff)

 Feb, 2024

Addis Ababa, Ethiopia

Table of Contents
1.1. Background of the Study..........................................................................................................................................3
1.2. Statement of the Problem......................................................................................................................................5
1.3. Basic Research Questions.....................................................................................................................................6
1.4. Objective of the Study..........................................................................................................................................6
1.5. Significance of the Study......................................................................................................................................7
1.6. Scope of the Study................................................................................................................................................7
1.7. Limitation of the Study.........................................................................................................................................8
1.8. Organization of the study......................................................................................................................................8

CHAPTER TWO..........................................................................................................................9
REVIEW OF RELATED LITERATURE.......................................................................................................................9
2.1. Definition and Theoretical Frame Work...............................................................................................................9
2.1.1. Internal Control and Internal Auditing...............................................................................................................9
2.1.3.1 Internal Audit Role in Control...................................................................................................................1112
2.1.4. Audit Standard.................................................................................................................................................13
2.1.5. Internal Audit Report.......................................................................................................................................14
2.1.6. Principles and Rules of Conduct......................................................................................................................14
2.2 Empirical Literature Review................................................................................................................................15

CHAPTER THREE....................................................................................................................17
RESEARCH DESIGN AND METHODOLOGY......................................................................................................17
3.1. Research Design.................................................................................................................................................17
3.2. Research Approaches..........................................................................................................................................17
3.3. Sample technique and sample size......................................................................Error! Bookmark not defined.17
3.4. Population and Sample size................................................................................Error! Bookmark not defined.17

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 3.2.1 Sampling technique...........................................................................................Error! Bookmark not defined.18
3.3. Sampling method................................................................................................Error! Bookmark not defined.18
3.5. Methods of data collection..................................................................................................................................18
3.6. Methods of data analysis and presentation..........................................................................................................18
3.7 Reliability and Validity........................................................................................Error! Bookmark not defined.18
3.7. Ethical Considerations........................................................................................................................................19

References...............................................................................................................................1920

CHAPTER ONE
INTRODUCTION

1.1. Background of the Study

The history of auditing started as man’s awareness of the need to safeguard state and personal property that has
been infer from the records of a Mesopotamian civilization going back as early as 3500 BC. These records,
involving financial transactions display various markings, which may be construed as a system of verification,
internal controls and separation of duties. (Cecilia Nordin Van Gansberghe, 2003.). Ancient Rome employ the
"hearing of accounts", where one official would compare his records with those of another, entails an
application of both separation of duties and verification practice, hearing of accounts, which gave rise to the
term "audit", from the Latin “Audire”, to listen.

In the medieval period, Industrial Revolution in Europe, changed the role of auditing that went beyond hearing
of accounts to include verification of accounting records and associate supporting documentation Since Second
World War internal audit, has evolve rapidly from the primarily function, which is concern with financial and
accounting matters to the one that addresses the entire range of operation activities. Internal audit profession
has advance primarily as consequences of; the increase size and decentralization of organization, the greater
complexity of their operations, and the resulting need for means of monitoring their numerous activities,
various government organizations are expect to have an internal auditing function and an audit committee
compose of non-management directors. (IrvinnGliem, 2000)

Auditing is the accumulation and evaluation of evidence about information to determine and report on the
degree of correspondence between the information and the establish criteria. It is an examination and
verification of company’s financial and accounting records and supporting documents by professional.
Auditing use systematic manner to get and examine evidence regarding assertions about economic action and

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events to find out the level of correspondence between these state fact and established standard and
disseminating the result to the interest parties. In recent time each one is creating a history by itself which
trigger agitation or disturbance over the role of auditors, the effectiveness and the purpose of internal control
system in the organization.

Internal audit is an independent, objective assurance and consulting activity design to add value and improve
an organization’s operations (Institution of internal auditors/ IIA/ research foundation, 2004,). 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 governance, risk management and management control by providing insight and
recommendations based on analysis assessments of data and business processes (ArensLoebbecke 2000, 8th
edition)

Internal auditing is conduct in diverse legal and cultural environments; within organizations that vary in
purpose, size, complexity, and structure; and by persons within or outside the organization. While differences
may affect the practice of internal auditing in each environment, conformance with IIA the IIA’s International
Standards for the Professional Practice of Internal Auditing (Standards) is essential in meeting the
responsibilities of internal auditors and the internal audit activity (IIA, 2010). Because functions and roles of
internal auditing has been expanded, changed and shifted more to management orient matters than accounting
matters, reporting lines have also been transform and currently in many countries internal audit reporting have
also been transform. Internal audit reporting lines ideally classified into administrative and functional, the chief
audit executive should report functionally to the board or audit committee and administratively to the chief
executive officer of the organization (RolandasRupsys, 2005.).

Internal audit today in Ethiopia still focuses on traditional activities such as financial and compliance auditing.
Less attention is given to operational audits or the application of modern techniques like flowcharting,
statistical sampling and computer auditing. Internal audit solves day to day problems of insurances and banks
organizations both at the head office and branches. However, they spend most of their time ensuring that
accounting records are properly maintained and reliable; that the assets of the company are adequately
safeguard and properly maintained; and that the company is in compliance with the established policies and
procedures. Internal auditing is also handicapped by a critical shortage of appropriately train and skill
manpower, inadequate organizational status and a lack of professional independence. Internal auditors are
typically recruit from internal and external accounting departments and the key qualification is still
accountancy-based, which constrains the role and scope of internal auditors (Gansberghe; 2005:27).

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Internal auditing is an independent appraisal functions establish within an organization to examine and
evaluate its activity as a service to the organization. The objective of internal audit is to assist member of the
organization in the effective discharge of their responsibility, one of the task internal audit may be the
evaluation of internal control and the determination of whether they are function effectively. The internal audit
use by management to bridge the gap by serving as an independent check on the Accounting and other
financial and non-financial areas of the organization. In this research the researcher will be contribute to
understanding on the nature of the internal audit role from internal auditor themselves, how they receive this
work and within the organization perspective. (ray and Kurt Pany, 2001)

When we come to the study area, commercial bank of Ethiopia was found in 1942 with an objective forming
the duties of both commercial and central bank in 1963 established as Share Company to take over the
commercial banking activities of the state bank of Ethiopia. In the 1974 revolution, commercial bank of
Ethiopia got its strength by emerging with privately owned Addis Ababa Bank. Therefore, the underline
attention of this study is to asses’ internal auditing practice of CBE in branch Sefere Selam Branch,merkato

satin tera branch, eyesus gdame branch, mexico minase branch and autobis tera pawlos branch.

1.2. Statement of the Problem

Internal auditing is examination of internal control system in which it functions by measuring and evaluating
effectiveness of other control on the other hand external auditor has reasonability to report on the truth and
fairness of the account of the company. The absence of proper internal auditing in the organization leads many
problems. The absence of primarily internal auditing in the organization will result in lack of continuous
assurance service. (Simon,1995 cited in Hussein Abdi, 2013). Based on the above discussion internal auditing
practice is the degree of limited independence of internal auditor since internal auditors are employees of
company this serve, they can’t achieve the certified public accountants (CPA) independence in fact. This limit
independence reduces their role with company to the lever of the more assistance to the top management.
(Yesshibirget, 2011).

The other problem is that inadequate internal control can expose the company to various identifiable risks, such
as waste of company available resource, fraud by employees and lack of control over asset. By not having
adequate internal auditing activities, the company will loss substantial amount of resource and have difficulty
to achieve its intend objectives. (Yesshibirget, 2011)

Internal audit activities are perform in diverse legal and cultural environments; within organizations that vary
in purpose, size and complexity and structure; and by persons within or outside the organizations. While
differences may affect the practice of internal auditing in each environment, compliance with the national or
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international standards for the Professional Practice of Internal Auditing is essential if the responsibilities of
internal auditors are to be met (Gansberghe; 2005:62).

All the above mention point made the researchers to undertake a study of this nature. Here in this paper, the
researcher wants to assess the existing internal auditing system. Therefore, this study will try to assess the
performance of internal auditing through analyzing the internal auditing practice of CBE Sefere Selam
Branch,merkato satin tera branch eyesus gdame branch, mexico minase branch and autobis tera

pawlos branch by raising research questions. So, the study will try to forward the major gap of commercial
bank of Ethiopia Sefere Selam Branch,merkato satin tera branch eyesus gdame branch, mexico minase

branch and autobis tera pawlos branch internal auditing practice system with that of the international
standards of internal auditing, to which every Auditors are expected to adhere while conducting an audit. So
the quality, relevance, validity, independence of Auditors and standards of internal auditing system in bank
branches will assess deeply in order to identify any problem or grievance so that it can be correct.

The bank has auditing section which is assume to regularly follow and check whether the directive and the rule
are in there place and being appropriately apply. So far, no report of the auditing section indicates the causes of
the problems. These enforce the student researcher to suspect whether the activity of audit section are in their
place and discharging their responsibility of auditing efficiently and effectively. Based on the preliminary
study perform by the student researchers the following problems have been identify on the internal audit
activities of commercial bank of Ethiopia.

 On the assessing of risk faced,

 On the information and communication,
 On the control role of the auditors,
 On the independency and the degree of compliance with the rules and regulations.

1.3. Basic Research Questions

Generally, the following questions are considerable in the internal auditing practice

 How does the internal auditors in assessing the risk faced by the bank?
 To what extent the internal auditors in looking the information and communication practice of
commercial bank of Ethiopia?
 What is the problem on the internal auditors for being not effective on the assessing the control role of
the bank?

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  To what extent the internal auditors effectively ensuring the degree of compliance with rule and
regulation?
 What is the cause for being not independent the internal auditors of the bank?

1.4. Objective of the Study

1.4.1. General Objective

The general objective of the study is assessment of the internal audit practice of commercial bank of Ethiopia.

1.4.2. Specific Objective

With the above general objective, the study has the following specific objectives:

 To assess the internal auditors in assessing the risk faced by the bank.
 To evaluate the internal auditors in looking the information and communication practice of
commercial bank of Ethiopia
 To assess the problem on the internal auditors for being not effective on the assessing the control role
of the bank.
 To assess the internal auditors effectively ensuring the degree of compliance with rule and regulation.
 To assess the cause for being not independent the internal auditors of the bank.

1.5. Significance of the Study

The major significances of the study are;

 Which are more susceptive for mistake, errors discrepancies and fraud.
 The outcome of the study was show the strength and weakness of the current internal auditing systems,
policies procedures, rules and regulations, which are in turn, enhance the service giving capacity of
company in efficient and effective way.
 It is contribute to better decision making and continuous quality improvement and suggest modern
approach for risk prevention.
 It is also significant for external parties’ especially external auditors to know how the internal audit
practice of the authority is going on.
 Moreover, it was significance to the student researchers on overall activities of internal auditing.
 Finally the study used as a reference for the other students who works their study with the same title.
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1.6. Scope of the Study
This study is mainly concerned with the internal auditing practice in commercial bank of Ethiopia SefereSelam
Branch,merkato satin tera branch, eyesusgdamebranch, mexico minase branch and autobis tera

pawlos branch It was limited to main branch only because if it would be conduct in all branches of
commercial bank, it would be costly and time consuming. Similarly the study is narrow in scope because if it
widens its scope, it would become out of the researcher control; due to different constraints like financial
constraint. This study deal with the quality and application of internal auditing and the division of the internal
audit department and also the function and responsibility of each division in case of commercial bank of
Ethiopia SefereSelam Branch,merkato satin tera brancheyesusgdamebranch, mexico minase branch

and autobis tera pawlos branch Therefore, to undertake this research to a level that is manageable and to
minimize cost, the researcher has conduct this study on fair and achievable standards.The scope of this paper
covers internal auditing practice of commercial bank of Ethiopia The researchers emphasize on how internal
auditing practice were applicable in practice. This study deal with the quality and application of internal
auditing and the division of the internal audit department.To do that, the studies use both primary and
secondary data’s given by the bank branches employees.Presentation and analysis was perform using
descriptive analysis procedures like tables and percentages which enabled the researcher to know the trend and
level of internal audit practice of the bank because the aim of the study was to describe the actual internal
auditing practice.

1.7. Limitation of the Study

 There are some limitations to conduct the study, since the study does not cover all branch commercial
bank of Ethiopia, the result of the study may give full information about internal auditing practice
because of:-Financial source will be not sufficient to gather all the relevant information.
 The time allocate for data collections will not sufficient to gather all the relevant information. Interview
method is primarily used together primary data. In this reason, the auditors will unwilling to provide
accept data as the researchers.
 Moreover, there are not documented manuals that contain data about internal auditing practices.

1.8. Organization of the study

In general the research paper consists three chapters.

The first chapter involves sub-topics such as backgrounds of the study, statement of the problem, purpose of
the study, important of the study, scope of the study limitation of the study, organization of the study. The

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second chapter deals with literature review of internal audit practice. The third chapter deals the research
design and methodology of the study.

CHAPTER TWO
REVIEW OF RELATED LITERATURE

2.1. Definition and Theoretical Frame Work

2.1.1. Internal Control and Internal Auditing

The Institute of Internal Auditors defines internal control as: “Internal control is a process, affected by an
entity’s board of directors, managements and other personnel, designed to provide reasonable assurance
regarding the following primary corporate objectives”:

• The reliability of financial report

• The efficiency and effectiveness of operation

• Compliance with the applicable laws and regulations

• The accomplishment of established goals and objective

Internal audit is one of the internal control systems used by most organization. The Institute of Internal
Auditors (IIA) defines internal auditing as: “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 can also be recognized as an organizational control that functions by measuring and
evaluating the effectiveness of other controls. When an organization establish its planning and then proceed to

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implement its plan in terms of operations, it must do something to monitor the operations to ensure the
achievement of its established objectives.

This further effort can be thought of as controls. While internal audit function itself one of the type of controls
used, there is a wide range of other controls. The special role of internal audit is to help measure and evaluate
those other controls. Thus, internal auditors must understand both their own role and the nature and scope of
other types of controls in the organization (Robert M, 2005).

2.1.2 Types of Audit Internal audit can be divided into the following categories based on the audit technique
or objective.

2.1.2.1 Performance audit or Operational audit

Which assesses whether the activity, program or body has been managed economically and/or efficiently
and/or effectively? It embraces:

• Audit of economy of administrative activities in accordance with sound administrative principles and
practices, and management policies,

• Audit of the efficiency of utilization of human, financial, and other resources, and information systems,
performance measures and monitoring arrangements, and procedures followed by Audited entities for
remedying identified deficiencies.

• Audit of effectiveness of performance in relation to the achievement of the objectives of the Audited entity
and audit of actual impact of activities compared to intended impact.

Performance Audit is intended to be a broad, constructive examination and diagnosis of the policies,
organization and operation of the audited entity. It calls for appraisals of an organization to compare
accomplishments with plan, results with standards and practices with policy. The objective is to arrive at
dispassionate and verifiable bases for comparing what is being done with the plans, polices, and standards and
most imperfectly to understand the reasons for positive or negative variance from those plans, polices and
standards (ArensLoebbecke 2000 8th edition). The auditor’s role is to examine and report on how well that
responsibility has been discharged and suggest cost-effective improvement as necessary.

Performance audit falls into four broad categories according to ArensLoebbecke 2000 8th edition:

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• Selective investigations: These are carried out in cases where there are signs of possible serious waste,
extravagance, inefficiency, ineffectiveness or weakness in control. The investigations are confined to
examining whether criticism is justified, examining causes and considering action taken or needed to introduce
improvements.

• Major broad-based investigations: These kinds of investigations focus on the whole audited body or of
important activities or programs. These may serve to give assurance in 9 major areas where arrangements are
found to be satisfactory and no criticism is justified, as well as to draw attention to material weaknesses in
control or achievement and their consequences.

• Major examinations of standard managerial operations: These tend to follow common patterns or
procedures or established good practice. Here, the audit office selects an audit area, such smaller scale,
unplanned investigations: These types of investigations are directed towards producing useful improvements in
value for money in specific projects or activities. These may help strengthening systems and fostering cost-
consciousness.

• As cash management, Construction, procurement, etc.; and audits the issue across all of major departments
involved in the activity. These are sometimes called ‘sect oral’ audits.

2.1.2.2. Financial or Accounting Audit

This evaluates the accuracy of the accounting and related procedures and practices. It assesses the accuracy and
completeness of the financial statements of the activity, program or body being audited; and/or evaluates
whether the transactions underlying the financial statements are legal and regular. However, according to the
definition of internal auditing, internal auditors are mainly evaluating the system of internal control. Therefore
internal auditors’ primary interest is not the accounting as such, but rather the controls which ensures the
quality of accounting information and financial reporting (Arens L, 2000 8th edition).

2.1.2.3. Compliance Audit

Which evaluates the how well the organization conforms and adherences with relevant policies, plan,
procedures, laws, regulations, and contracts. Usually all audits include the compliance element, because the
auditor uses the laws, policies and regulations as a yardstick to measure the performance of the organization.
Therefore these guidelines do not contain separate section for compliance audit, but the aspect is included in all
audit instructions later in these guidelines (Kamal G, 1996).

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2.1.3 Function and Roles of Internal Audit
The primary role of internal audit is to provide assurance about financial and non-financial information and
mechanism for control. It also reviews and appraises the soundness adequacy and accounting financial and
other operating activities and recommending effective control and ascertaining the extent of compliance with
established policies, laws and procedures. In order to do it in professional and independent manner, internal
audit unit should be kept distinct other functional engaged in analyzing and reporting performance. The other
functional group is primarily concerned day to day maintenance of the internal control for data processing.
Whereas the internal auditors are interested in evaluating the overall efficiency of data processing operation
and effectiveness of internal control (Bogg and Devies, 1980).

2.1.3.1 Internal Audit Role in Control

According to Bogg and Devies, 1980 control is any action taken by management, the board, and other parties
to manage risk and increase the likelihood that established objectives and goals will be achieved. Management
plans, organizes, and directs the performance of sufficient actions to provide reasonable assurance that
objectives and goals will be achieved.

The internal audit activity must assist the organization in maintaining effective controls by evaluating their
effectiveness and efficiency and by promoting continuous improvement. Internal auditors are employees of the
organization, but they apply the same procedures, rules and standards as external auditors. Internal audit
represents a management tool for the review of internal control systems, especially the reliability, efficiency
and effectiveness of accounting and data base systems. Internal audit is often called "management audit" or
"audit of the rational use of funds", because it helps management determine shortcomings within internal
operations, prevents embezzlement, financial and other fraud, theft, and evasion. Internal audit should be
properly planned, controlled, recorded and reviewed.

The role of internal auditors expanded to encompass overall operational policies and producers. Companies in
the defense industry were among the first to demand such services. These companies recognized the need for
the reliable operating reports which were used extensively by management to make decision. The reports often
were expressed not in dollars, but in the terms of operating factors, such as quantity of parts in short supply,
adherence to schedules, quality of the product. Work by the internal auditor’s devoted ensuring dependability
of these operating 12 reports was better spent than additional audit effort devoted to financial and accounting
matter. (Whittingon&Pany).

2.1.3.2. Internal Audit Role in Risk Management

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Risk is the possibility of an event occurring that will have an impact on the achievement of objectives. Risk is
measured in terms of impact and likelihood. The internal audit activity must evaluate the effectiveness and
contribute to the improvement of risk management processes. Internal auditing has core role with regard to
enterprise risk management. It provides objective assurance to the board on the effectiveness of an
organization's risk management activities to help ensure key business risks are being managed appropriately
and that the system of internal control is operating effectively.

The internal audit activity must evaluate risk exposures relating to the organization's governance, operations,
and information systems regarding the reliability and integrity of financial and operational information,
effectiveness and efficiency of operations and programs, Safeguarding of assets and compliance with laws,
regulations, policies, procedures, and contracts.

The internal audit activity must evaluate the potential for the occurrence of fraud and how the organization
manages fraud risk. During consulting engagements, internal auditors must address risk consistent with the
engagement's objectives and be alert to the existence of other significant risks. Internal auditors must
incorporate knowledge of risks gained from consulting engagements into their evaluation of the organization's
risk management processes. When assisting management in establishing or improving risk management
processes, internal auditors must refrain from assuming any management responsibility by actually managing
risks. (Bogg and Devies, 1980).

Management should carefully consider the factors that affect the risk that the organization objectives will not
be achieved when considering the financial reporting objective; these risks include the threats to preparing
financial statements in accordance with GAAP. (Whittingon&Pany).

2.1.4. Audit Standard

As ArensLoebbecke (2000) indicates, the American Institute of Certified Public Accountant (AICPA) has the
mandate to set audit standards and rules. Audit standards are general guidelines to aid auditors in fulfilling
their professional responsibilities in the audit of historical financial statements. AICPA in 1947 develop 10
general accepted audit standards /GAAS/. These standards categorized under three categories. These are:

General standard – Related to the character and competence of auditors. The audit is to be performed by a
person or a person’s having adequate technical training and sufficiency as an auditor, In all matters relating to
the assignment an independency in mental attitude is to be maintained by the auditor or the auditors, Due
professional care is to be exercised in the performance of the examination and the preparation of the report.

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Standard of field work- related to the process of gathering and evaluating evidences a basis for opinion The
work to be adequately planned and properly supervised, A sufficient understanding of the internal control
structure, Sufficient competent evidential matter is to be obtained through inspection, observation inquires and
confirm action to afford a reasonable based for an opinion regarding the financial statement under examination.

Standard of reporting- guide the auditor in preparing the audit report. The report shall state weather the
financial statements are presented in accordance with GAAP. The report shall identify these circumstances in
which principles have not been consistently observed in the current period in relation to the preceding period.
Informative disclosure in the financial statement are to be regarded as reasonable, adequate unless otherwise
stage in the report. The report shall either contain an opinion regarding the financial statement taken as a whole
or an assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be expressed
the means therefore should be stated.

2.1.5. Internal Audit Report

As ArensLoebbecke (2000) indicates, immediate action should be taken on major, critical risks and such risks
should be reported as soon as they become apparent. Verbal communication during the audit should be used in
order to keep the auditors aware of development of the audit, and any minor issues should be dealt with
immediately. If they warrant a mention in the final audit report, it may be done with reference to them having
already been settled. In some cases a written interim memorandum may be issued, especially if the audit takes
a long time and there are issues which should be referred to the responsible management for immediate action.
The final audit report has to be presented in writing and signed by the responsible auditor. Before the final
report is issued, the findings and recommendations should be discussed with the auditors in a closing
conference. This is to avoid any misunderstanding and mistakes in the report and to agree on the timing for the
implementation of recommendations.

2.1.6. Principles and Rules of Conduct

As Kemal Gupta (1996) fundamentals of auditing, explains various rules of conduct for auditing.

2.1.6.1. Integrity Objectivity and Independence

2.1.6.1.1. Integrity

The integrity of internal auditors establishes trust and thus provides the basis for reliance on their judgment.
The Internal Auditor shall:

 Perform work with honesty, diligence, and responsibility;

 Observe the law and make disclosures expected by the law and the profession;
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  Not knowingly be a party to any illegal activity, or engage in acts that are discreditable to the
profession of internal auditing or to the organization;
 Respect and contribute to the legitimate and ethical objectives of the organization.

2.1.6.1.2. Objectivity

Internal auditors exhibit the highest level of professional objectivity in gathering, evaluating, and
communicating information about the activity or process being examined. Internal auditors make a balanced
assessment of all the relevant circumstances and are not unduly influenced by their own interests or by others
in forming judgments.

2.1.6.1.3. Independence

An auditor should be free of any such interest in the enterprise under audit as may affect his integrity or
objectivity.

2.1.6.4. Confidentiality

Internal auditors respect the value and ownership of information they receive and do not disclose information
without appropriate authority unless there is a legal or professional obligation to do so. The Internal Auditor
shall be:-

 prudent in the use and protection of information acquired in the course of their duties;
 Not use information for any personal gain or in any manner that would be contrary to the law or
detrimental to the legitimate and ethical objectives of the organization

2.2 Empirical Literature Review

Tesema & Abebe(2005), conducted research on titled “current asset management practice in commercial bank
of Ethiopia” with specific objective such as:- to assess the short term loan collection policies and
procedures ,to identify the problem the bank faces during in managing its cash and short term receivable and to
assess the liquidity position of the bank.

Based on the factors of the research they conducted, Tesema and Abebe conclude that:- As far as liquidity
requirement of the bank is concerned the bank had no problem in fulfilling the minimum requirement. Rather
the banks liquid assets both primary and secondary reserves had been excess in all the years. From this, they
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concluded that the bank had idle cash in those years; the major earnings of the bank have mainly from the
interest generated from the extended loans and advances. The bank also supported by commission and fees
charged from services given of international trade transactions. The bank has set to whom the loan to extended
the perquisites that the customer has to fulfill ho to decide to allow or not and the type of loans to extended
with the criteria for eligibility. Finally the bank has been taking certain crucial measures to evaluate the
existing and potential problem loans by assigning well experienced and treating the customers who dishonor
their debits using different techniques in order to enable them pay back their obligations.

Elalu(2012), undertaken the study on “budgeting and its impact on performance of commercial bank of
Ethiopia” with the following objectives;

- To identify the budget preparation processes or system established by the bank.

- To examine factors that hinders the effective and efficient utilization of budget.

- To investigate the budget execution of the bank between 2010 and 2011 G.C.

In his research Elalu concluded that the bank used budget which budget was prepared many problems faced
such as: active flow of essential information from top management level to bottom and vice versa It is
important to managing, administrating and control the overall activities of the bank.

The entire above-mentioned researchers conducted their studies on the commercial bank of Ethiopia on their
specific field of study. None of them touched the internal auditing of the bank. Therefore, in this research, the
researcher is motivated to fill the gap they left by conducting the study on internal auditing practice in
commercial bank of Ethiopia to assess its overall practice.

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 CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY

3.1. Research Design

This research will be design to identify and answer the problem that is found by the researcher through
different types of data collection methods to different group of individual with different experience and
positions .Then analyzing and interpreting the data to achieve findings, conclusion and recommendations.
Therefore, among various types of research design I’m use stratify random sampling methods because the
population embraces a number of distinct categories. Hence the research gets a clear picture of the phenomena
from the study.

3.2. Research Approaches

In order to achieve the stated objective, the study would be adopted mix method research approach. For
answering different kind of questions through interview. This approach was use when the researcher combines
the elements of both qualitative and quantitative approach.

Quantitative research approach has been useful to answer the question about the relationships among the
variables with the purpose of explaining, predicting and controlling phenomena. It represents the main stream
approach research and a structured guideline exists. Variables and method of measurement tend to be define
before the study begins and remains the same throughout. In this approach the researcher identifies one or few
variables. Questionnaires (both open and close end are to be use).

Qualitative approach is carried out when the researcher wishes to understand meaning, look at, describe and
understand experience, idea, belief and values. Open end interview best characterizes this approach. For this
study the researcher had use mix approach.

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3.3. Sampling method
The method of sampling the researchers use to obtain the data will non probability or judgmental, i.e.,
convenience sampling to find the forget group of the study. This method will wed due to the reason that it is,
the most important technique to find convenient peoples that provide the necessary data for the researchers.
Because the researcher get fact, full, reliable information from head quarter of the enterprise, financially
manager, clients, and other experience employees of the Bank. It is also less costly and less time consuming.

3.3.1. Target Population

This research will conduct to assess the internal audit practices on the case of commercial bank of Ethiopia
under selective five branches. In the organization commercial bank of Ethiopia on selective branch there are
total employees of 143 including auditors and managers. From these the researcher select at all, so those 143
employees become the target population of the study.

3.3.2. Sample size

The total number of worker within commercial bank of Ethiopia Sefere Selam Branch 24 employees and 3
auditors, satin tera branch 21 employees and 2 auditors and eyesus gedam branch 23 employees and 2 auditors
and mexico minase branch 35 employees and 3 auditors and autobis tera pawlos branch 22 employees and 3
auditors. Since the sample technique that the researcher was use for this study is judgmental, from five
branches out of 143 employees, the researcher select all. Those are; audit department, management and
employees. From those branches the total 13 of internal auditors or internal controllers, researcher select all.
From total 5 branches manager’s researcher select all. They are enough to provide information that is necessary
for the study because they are working in the bank and have knowledge about auditing. Therefore
questionnaire will distribute for those who working on their work assignment and interview with a manager of
the branch done by the researcher.

3.3.3. Sampling technique

To meet the objective of the study the data will be be collect through a method of non-probability or
judgmental. Because the study will get accurate, fact, full, sufficient and reliable information from the branch
manager, internal audit department and other experienc employees of the Bank to conduct the study sample of
employees has been taken as sample from the whole

3.4. Methods of data collection

Primary data will obtain using questionnaires and interview. The sources of these data are Branch employees,
internal auditors, Branch Managers. Secondary data source such as the, articles; journals, internet, and other
documents relevant to the study will be review and observe relate to internal auditing.

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3.5. Methods of data analysis and presentation
After the collection of both primary and secondary data, Presentation and analysis will perform using
descriptive analysis procedures like tables and percentages which enable the researcher to know the trend and
level of internal audit practice of the bank because the aim of the study is to describe the actual internal
auditing practice. The next step will be editing and analyzing. To analyze the data collect the researcher use
quantitative and qualitative approach in which different factor or data collect will be descriptive method of data
analysis.

3.7. Ethical Considerations

In order to keep the confidentiality of the data that will give by respondents; the respondents are not requiring
writing their name and assuring that their responses are treating in strict confidentiality. The purposes of the
study are disclose in the introductory part of the questionnaire. Furthermore, I will attemptit’s to be best to
avoid misleading or deceptive statements in the questionnaire.

References
ArensLoebbecke 2000, Auditing an Integrated Approach (8 th Ed), Pennsylvania State Publisher: prentice
Hall, upper saddle river NJ

Arefayne and Yohannes (2010). The internal control system of Ethiopia Pharmaceuticals manufacturing SH.
Co, Addis Ababa

Bereket, DaneilandMukerem( 2013). The internal audit practice of commercial bank Of Ethiopia. Addis Ababa

Bogg and Devies, (1980). Role of internal audit. New Delhi:Printice hall of India Private limited Company

Cecilia Nordin Van Gansberghe, (2003). Internal audit findings its place in public Financial Management,
Washington DC: World Bank

Institution of internal auditors/ IIA/, (2004), Revolutionizing Internal Auditing, Bosten, Masatusset, USA:
CQU press

Institution of internal auditors/ IIA/ research foundation, (2008), Australia: RMIT publishing co.

Institution of internal auditors/ IIA/ research foundation, (2010), South Africa:

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Kamal Gupta.(1996). Fundamentals of auditing. New Delhi: Tata McGraw-Hill

Robert Moeller, (2005).Brink’s modern internal auditing (5 th Ed). USA: Wiley

RolandasRupsys, (2005).Internal audit reporting relationship .USA

Samuel Mulugeta,(2008). Internal audit practices of Ethiopian public enterprises, Addis Ababa: AAU

Whittingon,O.Ray& Kurt Pany(2013). Principles of Auditing and Other Assurance Services (19th Ed). USA:
Published by Irwin/McGraw-Hill

Van GansbergheC.N(2005) Internal Auditing:Finding its place in Public Finance Management.Washington,

DC

Ray and Kurt Pany (2001).Principles of services. Hill New York

Tesema&Abebe(2005), conducted research on titled “current asset management practice in commercial bank
of Ethiopia”, Addis Ababa

Elalu (2012), “budgeting and its impact on performance of commercial bank of Ethiopia”, Addis Ababa.

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 BST College
Department of Business Administration

Dear Respondent,

The purpose of this questionnaire is to collect primary data for conducting a study on the topic,

"An assessment of Internal Audit practice in the Case of commercial bank of Ethiopia." as partial
fulfillment to the completion of the Master’s Degree in Business Administration at Select College. In this
regard wekindly request you to provide us reliable informationthat is to the best of your knowledge so that the
findings from the study would meet the intendpurpose. We strongly assure you of confidential treatment of
your answers and would like toextend our deep-heart thanks in advance for being a volunteer to devote your
valuable time infilling this form.

Instructions

 There is no need to write your name.

 You are cordially requested to choose the answer from the list or write your answer briefly on the space
provided.

 Please try to return the questioner form with the given time.
 Please put tick mark (√) on the box for your response.

THANK YOU FOR YOUR COOPERATION!!!

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 Questionnaire will be filling by Employees

I. PART I. PERSONAL PROFILE

1.1 Sex
Male Female

1.2 Academic Status

Diploma Degree
Master’s Degree and above

1.3 Work Experience

Below 5 years 5-10 years

11-15 years above 15 years

1.4 Responsibility/ Position -----------------------------------------------------------------------------------

II. Questionnaire for employees

1. Assessing the risk faced
Very Strong Adequate Need Poor
strong improvement

1 How do you evaluate the activities of the

company internal auditors on identification
of problem areas and delays?
2 How do you evaluate the internal auditor
on the risks appropriately identifying and
managing

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3 How do you evaluate the quality if internal
audit plan in terms of comprehensiveness?
4 How do you evaluate the quality of internal
audit in terms of clarity?
5 How do you evaluate the quality of internal
audit in terms of coverage of priority area?
6 How do you evaluate the quality of internal
audit plan in terms of time lines?
2. Information and communication practices of the internal audit.
Very Strong Adequate Need Poor
strong improvement

1 How do you evaluate the activities of

internal auditors on the demonstration of
professionalism?
2 How do you evaluate the activities of
internal auditors on the demonstration of
constructiveness?
3 How do you evaluate the activities of
internal auditors on the demonstration of
positive approach?
5 How do you rate the objectiveness of
internal auditors regarding his/her
Evaluation of information and
communication?
6 How do you evaluate the information
gathering activities of the internal
auditors?

3. Assessing the control role of the internal auditors?

Very Strong Adequate Need Poor
strong improvement
1 How do you evaluate the internal
auditors on the quality of the
company's control process?
2 How do you evaluate the internal
auditors on the continues
improvement on the company's
control process?
3 How do you evaluate the controlling
activities of the internal auditors on
the disruption of daily activities
minimized as much as possible?
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4 How do you evaluate the controlling
activity of the internal auditors on
assessing the problems and their
sources?

4. The activities of the internal auditor on the degree of compliance with

rules and regulations?
Very Strong Adequate Need
strong improvement Poor

1 How do you evaluate contribution of

internal auditors on the employee's
action in compliance with polices?
2 How do you evaluate the contribution
of internal auditors on the employee's
action in compliance with applicable
laws and regulations?

3 How do you evaluate the internal

auditor activities on the addressing of
the very purpose from which it is
established?

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 BST College
Department of Business Administration

I. Interview check list for Auditors

1. How internal auditing practices are performing and what are audit report requirement?
2. How do internal auditors prevent error and fraud?
3. How do you communicate your skill with other working units?
4. How does the bank evaluate its efficiency of internal audit operations?
5. How effective is the internal audit in assessing the risk faced by the bank?

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