Perception of Management and Internal Audit Staff on the Importance of Internal Audit Efffectiveness...

iv

Mekelle University

College of Business and Economics

Department of Management

A Thesis on Perception of Management and Internal Audit Staff on the

Importance of Internal Audit Efffectiveness Measures in Bahir Dar and

Mekelle Universities

By

Aderaw Gashayie

Email: [email protected]

Submitted in Partial Fulfillment of the Requirements for the

Masters Degree of Business Administration/MBA in Finance

Principal advisor: Aregawi G/Michaeal (Asst.Prof.)

Co-advisor: Getnet Baye (Lecturer)

May, 2011

Mekelle, Ethiopia

v

DECLARATION

This is to declar that this thesis on the title “Perception of Management and Internal Audit

Staff on the Importance of Internal Audit Effectiveness Measures in Bahir Dar and Mekelle

Universities” submitted in partial fulfillment of the requirements for the award of the Masters

degree of Business Administration in Finance to the College of Business and Economics, Mekelle

University, through the Department of Management, done by me,Mr. Aderaw Gashayie, Id.No.

CBE/PRO43/02 is an authentic work carried out by me. The matter embodied in this project work

has not been submitted earlier for award of any degree or diploma and all sources are acknowledged.

Name: Aderaw Gashayie

Signature

Place and date of submission: Mekelle University, May 2011

vi

CERTEFICATION

vii

TABLE OF CONTENTS

Page

Abstract …………………………………………………………………………………………vi

List of tables ………………………………………….…………………………………..............vii

Acronyms ………………………………………………….…………….……………………...viii

Acknowledgements …………………………………………………………...…………………ix

CHAPTER ONE: THE PROBLEM AND ITS APPROACH

1.1 Background of the study ………………………………………………………….……1

1.2 Statement of the problem ………………………………………...…………………….3

1.3 Objective of study…………………………………....…………………………….…....4

1.4 Significance of the study……………………………………….……………………….5

1.5 Delimitations of the study……………………………………………………….…….. 5

1.6 Limitation of the Study…………………………………………….………………….. 6

1.7 Research methodology……………………………………………….………………....6

1.7.1 Procedure……………………………………………………………………..6

1.7.2 Population…………………………………………………...………………..7

1.7.3 Census………………………………………………………………………...7

1.7.4 Instrument design………………………………….……………………….....7

1.7.5 Validity and Reliability of instruments……..…………...........……………..…..7

1.7.6 Statistical analysis …………………………………….………………………8

1.8 Organization of the study ……………………………………………………….……...9

1.9 Operational definitions ………………………..………………….….…………………9

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1 Theoretical framework for the study ……………………………………………..…....11

2.1.1 Definition of IA…………………………………………………………………11

2.1.2 Objectives of IA………………………………………………………………....12

2.1.3 Roles of internal auditor ……………………………………………………........13

2.1.4 Types of internal audits services..……………………………………………..….14

viii

2.1.5 The internal audit process …………………………………………………..…...15

2.1.6 Higher education auditing environment………………….……………………....18

2.2 Empirical framework for the study

2.2.1 Prior research studies on audit effectiveness measures and its impact on internal

audit effectiveness…………………………………………..………………………20

2.2.2 Dimensions of internal audit efeectiveness measure……………….…………....27

2.3 Conceptual frameworks for internal audit effectiveness measures …………………….33

CHAPTER 3: PRESENTATION AND ANALYSIS OF DATA

3.1 Summary statistics of the respondents………………………………………………....36

3.2 Hypothesis testing and data analysis……………………………………………….....37

3.2.1 Procedures for data analyses………………………………………………....37

3.2.2 Testing hypothesis one………………………………………………………39

3.2.3 Testing hypothesis two……………………………………………..…….......41

3.2.4 Testing hypothesis three……………………………………………………..43

3.2.5 Testing hypothesis four ……………………………………………………..46

3.2.5 .1 Testing hypothesis four factor one ……………………………….47

3.2.5 .2 Testing hypothesis four factor two………………………………. 50

3.2.5 .3 Testing hypothesis four factor three …………………………….. 52

3.2.5 .4 Testing hypothesis four factor four……………………………… 55

3.2.5 .5 Testing hypothesis four factor five………………………………. 57

CHAPTER 4: SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS

4.1 Summary ……………………………………………………………………………...61

4.2 Conclusion ……………………………………………………………………………63

4.3 Recommendations…………………………………………………………………….64

BIBLIOGRAPHY…………………….……..,.………………………………………...………..66 APPENDICES ……………………………………………………………..……………………70

ix

ABSTRACT

The purpose of this study was to predict managements’ and audit staffs’ perceptions on the importance of

selected factors utilized to evaluate internal audit effectiveness in Bahir Dar and Mekelle Universities. In this

study, reasonable and meaningful findings and recommendations, auditee’s response and feedback,

professionalism of the internal audit department, adherence to audit plan ,and absence of surprises were used

as a criteria to predict managements’ and audit staffs’ perception (difference/similarity) on the importance of

internal audit effectiveness measures. To this end, the study conducted in Bahir Dar and Mekelle

Universities. By census methods, I obtained the data from 10 presidents, 43 directors and 8 intrnal auditors.

Questionnaire was the instruments used for data collection. The data collected through the questionnaire were

analyzed using precentage, z-test for proportion and one way ANOVA.Findings from the data analysis

indicated that all the three groups were significantly different in perceptions on the importance of these five

factors to use as criteria in evaluating internal audit effectiveness. The implication of this finding was that

auditors evaluated on the wrong /erroneous criteria or on a different set of criteria than that of adopted by

internal audit staffs. Following the findings and conclusions drawn, it is recommended that presidents,

directors and audit staffs need awareness training in general on internal auditing and in particular, on

importance of internal auditing effectiveness measures to narrow the perceptual difference on internal audit

effectiveness measures and to increase internal audit effectiveness in the university environment. Further study

on full scale of dimensions need to be conducted.

x

LIST OF TABLES

No. Descripition

Page No

Fig 1 Summary of selected emperical studies 25

3.1 Respondents profile 36

3.2 The value for each item, and maximum and minimum value for one factor 38

3.3 The maximum and minimum value for all factors and items included in

each factor

38

3.4 Z-scores measuring audit staffs’ perception on importance of factors

for evaluating internal audit effectiveness

40

3.5 Z-Scores measuring directors’ perceptions on importance of factors

for evaluating internal audit effectiveness.

42

3.6 Z-Scores measuring presidents’ perceptions on importance of factors

for evaluating auditing effectiveness

43

3.7 Summary of the first three hypotheses 46

3.8 Meaningful and reasonable findings and recommendations as perceived

by the three groups

47

3.9 Tukey HSD post hoc multiple comparison 48

3.10 Adjusted Tukey HSD homogeneous subsets 49

3.11 Auditee's response and feedback as perceived by the three groups 51



3.14 Professionalism of the internal audit department as perceived by the

three groups

53



3.17 Importance of adherence to audit plan as perceived by the three

groups

55



3.20 Absence of surprised as perceived by the three groups 57



3.23 Summary of hypothesis four for the five factors 59

xi

ACRONYMS

ACUA =Association of College and University auditors

AICPA-American Institute of Certified Public Accountant

ANOVA-ANalysis of Variance

BDU-Bahir Dar University

CIPFA-The Chartered Institute of Public Finance and Accountancy

ECA=executive chief auditor

IA-Internal Audit

IC-Internal Control

IIA-Institute of Internal Auditor

MOE –Minstry of Education

MU-Mekelle University

SAS1=score for audit staff one

SD1=score for Director one

SOX=Sarbanes-Oxley Act

Sp1=score for president one

SPPIA- Standard Professional Practice of Internal Auditing

µAS1=mean of audit staff one

µD1= mean of director one

µp1=mean of president one

µ-Population parameter=mean (symbol)

mµD1=mean of mean for director one

mµP1=mean of mean for president one

mµSAS1=mean of mean for audit staff one

xii

ACKNOWLEDGEMENTS

I would like to express my heartfelt gratitude to my principal advisor, asst.prof. Aregawi G/Michael,

whose deep concern, constructive comments and suggestions have contributed tremendously to the

successful accomplishements of the study.

My appreciation also goes to my co-advisor, Getnet Baye (MBA) who gave me valueable comments

and to others who have displayed kind of collaboration while conducting this study.

To my wife, W/ro Abebech Nigussie, I extend my love and gratitude for the many sacrifices she has

made over the past two years. Her encouragement, understanding and support have been my most

important source of inspiration for successful accomplishements of the MBA program.

1

CHAPTER ONE

THE PROBLEM AND ITS APPROACH

This part describes background of the study, statement of the problem, hypotheses tested in the

study, objective of study, significance of the study, delimitations of the study, limitation of the Study,

research methodology, organization of the study and operational definitions.

1.1 Background of the study

Higher education institutions are fundamental for the creation of vital human resources, such as

teachers, healthcare professionals, lawyers, engineers, managers, businesspersons, and researchers

for socio-economic development of a nation (Teshome, 2003).

However, higher education institutions worldwide facing new challenges and problems which

require reforms in their management and governance styles. The major challenges and problems

facing higher education institutions includes the rise of new stakeholders, internal factors,

globalization and the rapid pace of knowledge creation and utilization which are among the recent

developments. While higher education institutions have responded rather slowly in the past to

changing circumstances, there is now an urgent need for them to adjust rapidly in order to fulfil their

missions and the needs of stakeholders (Jowi, 2003).

Similarly, higher education institutions in Ethiopia are facing these challenges and problems. Public

higher education institutions can function effectively only when inherent risks/challenges that may

prevent mission accomplishment have been properly identified, assessed and managed (Ministry of

Education [MOE], 1997).

Management is responsible for maintaining an adequate system of internal control system to manage

risks that challenge higher education institutions. Internal audits are key components of the

organization [university] control structure. Internal audit is the ultimate risk management tool for

managers (Pickett, 2010).

2

Effective internal auditing has a significant role in the management of higher education institutions.

Effective internal auditing has become progressively more varied in scope and objective to assist all

levels of management in assuring internal and external constituencies that financial resources are

being properly managed and accounted for and that the institution is complying with applicable

policies and laws (Association of College and University Auditors [ACUA], 1992).

Specifically, according to Pickett (2010) internal audit provides assurance, consulting and

investigation services to management, the board and the audit committee in terms of reviewing the

adequacy of systems of internal control to promote and facilitate the development of effective

systems of risk management and internal control, which remain the responsibility of management. Thus, internal audit provide advice on addressing problems that remain the responsibility of

management.

Over the past years, the effectiveness of internal audit has become a subject of interest in the

internal auditing literature(AICPA,1970; Bethea ,1992 ;Clark et al. ,1981 ;Dessalegn & Aderajew

,2007;Glazer & Jaenicke, 1980;Traver ,1991). According to Dittenhofer (2001) to assess internal

audit effectiveness, considering four dimensions (identification of auditee goals and objectives,

identification of measure, quantification of measure and actual measurement) are important but

quantification of measures are difficult. One difficult literature issue that has emerged, relative to

internal audit effectiveness, is to quantify proper and sound measures of the IA department’s

effectiveness measures. Similarly, Sarens (2009, pp.1-7) has raised the question “when can we talk

about an effective IA function measures quantification?” in his editorial about future perspectives of

IA research. Looking at the existing literatures, there is no unique answer to this question.

Quntification of IA effectiveness measures are complicated since different authors have related IA

effectiveness measures to different matters such as IA procedures, outputs and outcomes.

However, as pointed out by preceding scholars’, considering how stakeholders perceive internal

auditing is an important factor in measuring internal audit effectiveness. For example, Barrett (1986,

pp.30-35) notes, “effectiveness can be described but it is difficult to quantify and therefore,

effectiveness is determined by the perception of clients and auditees.” According to Kondalkar

(2007), people who are in different work settings have different objectives and uses different

performance measurement standards as a result they have different perceptions on measurements.

3

In the higher education institutions environment, presidents and directors are two of the most

important clients and auditees of the internal audit department that took different positions.

While maintaining effectiveness, internal audit staff needs to meet or exceed the expectations of

university management. In particular, in the ever-changing higher education institutions, internal

audit staffs and managements need internal audit effectiveness measures to evaluate whether internal

audit services is as expected or not. However, in the Ethiopian context, research on university

managements’ and audit staffs’ perception on the important criteria used to judge internal auditing

effectiveness in the university environment has been none existent.

1.2 Statement of the problem

It has been observed that an expectations gap arises when audit customers (for example senior

management) do not recognize the value of the internal audit (IA) function. In order to function

effectively, internal auditors and the customers of audit services should possess a similar

understanding of what makes internal auditing a value-adding activity. Failure to reach this

understanding could result in the perception that internal audit simply is an obstacle to achieving

organizational objectives. The difference in perceptions’ of different groups of managements and

audit staffs towards to the importance of internal audit effectiveness affects internal audit

effectiveness measures. This can result in underused audit services and ignored audit

recommendations (Flesher & Zanzig, 2000).

As highlighted by Dessalegn and Aderajew (2007), audit findings and recommendations would not

serve much purpose unless management is committed to implement them. Implementation of audit

recommendations is, therefore, highly relevant to audit effectiveness (Sawyer, 1996). The extent to

which managers consider internal auditors’ work valuable and decide to exploit it influenced internal

auditors on their achievement of corporate objectives (i.e. their effectiveness). In such view, the

effectiveness of IA depends on the quality of effectiveness measure perceived by the auditees.

Given the central role of auditees’ perceptions in relation to IA effectiveness measure, this study was

to predict university managements’ (presidents and directors) and internal auditing staffs’ percepition

on the importance of internal auditing effectiveness criteria in Bahir Dar and Mekelle universities.

4

More specifically, the study attempts to obtain reliable responses for the following research question:

1. Is there statistically significant difference between the scores of internal auditing staffs

perception on the importance of five selected factors used to evaluate internal auditing

effectiveness?

2. Is there statistically significant difference between the scores of directors’ perception on

the importance of five selected factors used to evaluate internal auditing effectiveness?

3. Is there statistically significant difference between the scores of university presidents’

perception on the importance of selected five factors used to evaluate internal auditing

effectiveness?

4. Is there statistically significant difference among mean scores of internal auditing staffs,

directors and presidents’ perception on the importance of five selected factors used to

evaluate internal auditing effectiveness?

1.3 The objective of the study

The general objective of this study was to predict managements’ (presidents and directors) and

internal auditing staffs’ percepition on the importance of internal auditing effectiveness criteria in

Bahir Dar and Mekelle universities. In order to meet the study objective, the following four null

hypotheses were formulated and tested against the alternative hypothesis that says, “Significance

difference was observed” in this investigation:

1. H1: There is no statistically significant difference between the scores of internal auditing

staffs’ perception on the importance of five selected factors used to evaluate internal

auditing effectiveness.

2. H2: There is no statistically significant difference between the scores of directors’

perception on the importance of five selected factors used to evaluate internal auditing

effectiveness.

3. H3: There is no statistically significant difference between the scores of university

presidents’perception on the importance of selected five factors used to evaluate internal

auditing effectiveness.

5

4. H4: There is no statistically significant difference among mean scores of internal auditing

staffs, directors and presidents perception on the importance of five selected factors

used to evaluate internal auditing effectiveness.

1.4 Significance of the study

This study is expected to give the following benefits:

• Helps predict universities internal audit staffs’ and managers’ view on internal audit

effectiveness criterion.

• Internal auditing professionals and professional organizations for formulating training

programs for internal auditors to improve the focus and delivery of their services to auditees

and customers.

• University internal auditors use the results of this study to better coordinate and direct their

work efforts and reports.

• Ministry of Education and Ministry of Finance and Economic Development may use the

result to design appropriate internal audit effectiveness measures.

• Throwing light on what has been a gray area about internal audit effectiveness measures

since little has been known about it.

• Encouraging others to undertake further study in internal audit effectiveness measures.

1.5 Delimitations of the study

Although other stakeholders (Ministry of Education and Board of Dierctors) have a role on internal

audit effectiveness measures, this study delimited to presidents, directors, and internal auditing staffs

of Bahir Dar and Mekelle universities.

Based on availability of literature and its manageability, the measurement criterias delimited to the

five dimensions (reasonable and meaningful findings and recommendations, auditee’s response and

feedback, professionalism of the internal audit department, adherence to audit plan and absence of

surprises).

Taking the time and the finance required in carrying out the data collection process in to

consideration, the study was delimited to Bahir Dar and Mekelle universities in Ethiopia. The

6

selection of the universities as a setting for the study was based on the researcher’s experience as a

student in these two universities.

Though there are many background variables that affect perceptions of individuals in organizations,

this study was delimited to work setting /job setting/position.

1.6 Limitation of the study

This study had the limitations in assuming the possible outcomes or findings in the very first place

as there are no studies that look the audit staffs, directors and presidents’ perception on the

importance of selected criteria used to evaluate internal auditing effectiveness within the Ethiopian

context. Therefore, after all statistical analysis was undertaken, the conclusion for this study was

given and infered only to the specified universities about other internal audit criterias.

1.7 Research methodology

This part describes the methodology of inquiry used in this study. The basic research design used for

this study was a non-experimental survey design. The data collections accomplished with

questionnaire.

1.7.1 Procedure

A complete list of managerial and audit staffs positions in Bahir Dar University and Mekelle

University were compiled. The questionnaires were distributed in the third week of March 2011 and

returned by the second week of April 2011. A repeatedly personal follow-up was made for those

surveys not returned by the last day of appointement. Earl Babbie (1973) has indicated that a 70%

return rate is considered very well for survey studies, 60% return is good but 50% return is worth

analysis. The goal for this study was 70% or greater and actually 95% returned. All returned surveys

were checked for errors, omissions and inconsistencies prior to entry into a computerized statistical

program for analysis and one survey was not found worth analysis and rejected. The SPSS version-

16 was used for this study.

7

1.7.2 Population

The population base for this research study was managements and audit staffs of Bahir Dar and

Mekelle Universities. The population of interest was totally 61 of which 10 presidents, 43 directors

and 8 internal audit staff of these institutions.

1.7.3 Census

In this study, since the population was relatively small, the study used census survey methodology. A

complete list of all presidents, directors and audit staffs obtained from each respective universities

and the likelihood that the target population represented was 100%.

1.7.4 Instrument design

According to Mullins (2004), effectiveness scale instrument was the only instrument used to collect

data that reflected the perceptions of presidents, directors and internal audit staff concerning the

importance of factors used to evaluate internal auditing effectiveness. The scale was designed based

on the criteria used by Albrecht et al. (1988). The criterias were reasonable and meaningful findings

and recommendations, auditee’s response and feedback, professionalism of the internal audit

department, adherence to audit plan and absence of surprises.

The five point likert scale was designed based upon the above criteria and separated into two

sections as shown in appedix 2. Section I of the scale contained background information for the

study. Section two of the scale contained a set of fifteen items about five selected factors used to

evaluate audit effectiveness.

1.7.5 Validity and Reliability of instruments

This instrument will be subjected to a small “pilot test” (n=5)before circulating the questionnaire

widely, a small number of test responses were sought, in order to gauge the validity and realibility of

the questions, the overall “sense” of the questions, and the time required to complete the

questionnaire. Feedback from this was used to refine and update the questionnaire before printing.

Important to any instrument of this nature was validity and reliability.

8

Validity

Two types of validity were considered and addressed in this study. “Face validity” is to what degree

the instrument looks like it measures what it is supposed to measure. This was one type of validity

addressed in this study. More importantly, “Content Validity” addressed the degree to which an

instrument actually measures what it purports to measure. This issue is important to survey research

(Litwin, 1995). If an instrument does not measure what it was designed to, findings will be

misleading and impossible to interpret accurately.

To obtain acceptable content-validity, the researcher used a panel of five judges. Individuals serving

as judges were knowledgeable of auditing practices, procedures and concerns but were not part of

the research population. Each judge was asked to rate the items for relevance and appropriateness

on a five-point scale. This process provided ratings for the fifteen items separately and the

instrument as a whole. Judge were also asked to comment on the time taken to complete the scale,

“bad” items, and to add items they ‘strongly’ feel included on the instrument. This procedure was

accepted by the reseacher and used many times over the years (Litwin, 1995).

Reliability

Consistency of measurement is a concern in all studies, particularly survey-research. Internal

consistency was a major concern in this study. It was conducted a test of internal consistency/

reliability on this instrument. This was done in a pilot test (N=5). The split-half reliability correlation

method was employed and it was found that the realibility of the instrument is 86% as shown in

apendix1. Therefore, this was consistent with Nunnaly (1978) who rported there is not a generally

agreed cut-off but usually 0.7 and above is acceptable. Once a coefficient was calculated for half of

the instrument, the Spearman-Brown Correction Factor was used to determine reliability for the

total instrument. Ferguson (1998) opined this to be an effective method to establish reliability of

tests or surveys.

1.7.6 Statistical analysis

Both inferential and descriptive analyses were used in this study. First, Hypotheses one, two and

three were tested using the z-test for population proportions. The proportion of respondents

addressing the importance of effective measures was tested to determine if it is significantly different

from the population as a whole. To test hypothesis four, the single-factor analysis of Variance

9

(ANOVA) was used with the appropriate “post-Hoc” test. The procedures are often used in

inferential research and are robust enough to deter type-one errors (Ferguson, 1998). The 95%

confidence level is significant for this study.

It should be noted that as with any research initiative, the study unable to control how data

distributions looked once data is collected. It is hoped the data would be relatively “normally

distributed’ with equal variance. These are basic assumptions for “parametric statistics”. However, if

descriptive analyses revealed large skewing of data, it should be necessary to revert to other

procedures. If this became necessary, “non-parametric” tests would be employed. This method of

analysis was recommended in situations such as this (Moore & McCabe, 1993).

1.8 Organization of the study

This study was organized into four main chapters. Chapter one provides the problem and its

approach. Chapter two deals with review of related literature. Chapter three provides the

presentation and analysis of the data and finally the summary, conclusion, and recommendations of

the study were presented in chapter four.

1.9 Operational definitions

According to Leary (2001), operational definitions define concepts by specifying precisely how they

are measured or manipulated in the context of a particular study. Operational definitions are

essential for replication, as well as for non-ambiguous communication among scientists.

Thus, in this research study, the following definitions were used:

1. Directors: Middle level managers which includes Business Manager /process owners/case

teams/deans/directors/responsible for supervision of low-level managers and directly

responsible and accountable to the vice president.

2. Higher education: education in the arts and sciences offered to undergraduates and

graduate students who attend degree programmes through any of the delivery modes

(Higher Education Proclamation No. 650/2009).

3. Internal audit effectiveness: the outcome/the impact that outputs have in meeting perceived

need or achievement of goals and objectives using the factor measures. Effectiveness is

about the extent to which an entity’s predetermined objectives have been achieved.

10

4. Internal auditing: An independent appraisal of the diverse operations and controls within

an organization to determine whether acceptable policies and procedures are followed,

established standards are met, resources are used efficiently and economically, and the

organizations objectives are being achieved (Sawyer, 1983).

5. Internal Control -- organization, policies, and procedures – are tools to help program and

financial managers achieve results and safeguard the integrity of their programs .

6. Measure - a parameter used to quantify the efficiency and/or effectiveness of past action.

7. Null hypothesis - A hypothesis about a population parameter. The purpose of hypothesis

testing is to test the viability of the null hypothesis in the light of collected data.

8. Perception: The dynamic and complex way, in which individuals select information (stimuli)

from the environment, interpret and translate it so that a meaning is assigned which will

result in a pattern of behaviour or thought (Mullins, 2004).

9. Presidents: The Top-level managers responsible for managing the day-to-day operations of

a university that includes President or Vice Presidents. The President is the chief executive

officer of the institution. The president shall be appointed by the Minister of Education or

by the head of the appropriate state organ from a short list of nominees provided by the

Board.The president is usually appointed by the university’s Board of directors on a

continuing, delegating basis (Higher Education Proclamation No. 650/2009).

11

CHAPTER TWO

REVIEW OF RELATED LITERATURE

This chapter presents an overview of the literature that relates to the topic under investigation and

consists three separate subsections. The first subsection describes theoretical framework of internal

auditing (definition of IA, objectives IA, role of IA, internal auditing process, the types of internal

audits in university environment and higher education internal audit environment). The second

subsection deals with the emperical framework of the study, that is, prior research studies on audit

effectiveness measures. The final subsection presents the research model for the study.

2.1 Theoretical framework for the study

2.1.1 Definition of IA

Simmons (1999) assertted that internal audit professionals should look to the standards for the

professional practice of internal auditing (SPPIA) for guidance on and understanding of the auditor’s

role and the nature of internal auditing. According to Moeller (2004, P.165) in the 2001 international

conference of the institute of internal auditors, the board of directors approved an updated

definition of internal auditing as follows:

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. Internal audit is concerned with controls that ensure reliability and integrity of financial and operating information, effectiveness and efficiency of operations, safeguarding of assets and compliance with laws, regulations and contracts).

There have been other attempts to define internal auditing. CIPFA (1997, P.81) described internal auditing as

An independent and objective appraisal service within an organization: Internal audit is an assurance function that primarily provides an independent and objective opinion to the organization on the degree to which the internal control environment supports the achievement of the organization’s objectives. In addition, internal audit’s findings and recommendations are beneficial to line management in the audited areas. Internal audit can also provide an independent and objective consultancy service specifically to help line management improve the organization’s internal control environment. The service applies the professional skills of internal audit through a systematic and disciplined evaluation of the policies, procedures and operations that management put in place to ensure the achievement of the organization’s objectives, and through recommendations for improvement. Such consultancy work can contribute to the opinion which internal audit provides on the internal control environment.

12

United kigdom Government Internal Audit Manual (2006, P.131) defined internal auditing as An independent and objective appraisal service within an organization: Internal audit primarily provides an independent and objective opinion to the Accounting Officer on risk management, control and governance, by measuring and evaluating their effectiveness in achieving the organization’s agreed objectives. In addition, internal audit’s findings and recommendations are beneficial to line management in the audited areas. Risk management, control and governance comprise the policies, procedures and operations established to ensure the achievement of objectives, the appropriate assessment of risk, the reliability of internal and external reporting and accountability processes, compliance with applicable laws and regulations, and compliance with the behavioural and ethical standards set for the organization.Internal audit also provides an independent and objective consultancy service specifically to help line management improve the organization’s risk management, control and governance. The service applies the professional skills of internal audit through a systematic and disciplined evaluation of the policies, procedures and operations that management put in place to ensure the achievement of the organization’s objectives, and through recommendations for improvement. Such consultancy work contributes to the opinion which internal audit provides on risk management, control and governance.

There are many similarities in the above definitions of internal auditing. Most revolve around the

view of internal audit as an independent service to the organization reviewing systems of internal

control. These definitions signify that internal audit has undergone a paradigm shift from an

emphasis on accountability about the past to improving future outcomes to help auditees operate

more effectively and efficiently.

2.1.2 Objectives of IA

In the revised statemaent of responsibilities of internal auditing issued by the institutet of internal

auditors (1990, P.86) as part of standard fromework, the section on objectives states:

The objective of internal auditing is to assisst all members of management in the effective discharge of their responsibilities by furnishing them with analysis, appraisal, recomandations and pertinent coments concerning the activities revised. The internal auditor is concerned with any phase of business activity where he can be of service to management .This involves going beyond accounting and financial records to obtain a full understanding of the operations under review.

Concerning these objectives, Sawyer (1996) noted four benefits managers have gained from internal

auditing assisstance. Those benefits were:

1. Providing managers with the bases for judgement and action; 2. helping managers by reporting weaknesses in control and performance and in

recomanding improvements; 3. providing counsel to managers and board of directors on the solutons of business

problems ;and

4. Supplying information that is timely, reliable and useful to all levels of management.

13

Additionally, the statement set forth the types of services that should be performed and the kinds of

activities carried on by the internal audit function in attaining the overall objectives:

1. Reviewing and appraising the soundness, adequacy and application of accounting,

financiaal and other operating controls,and promoting effectiveness control at

reasonable cost;

2. Ascertaining the extent of compliance with estabulished policies,plans,procuders,laws

and regulations which could have a significant impact on operations and reports;

3. Reviewing the means of safguarding assets and as apprapriate veryfing the existance

of such asets;

4. Appraising the economy and effeciency with which resources are employed; and

5. Reviewing operations or programes to estabulished objectives and goals and whether

the operatins or programs are being carried out as planned.

2.1.3 Roles of internal auditor The IA role is unique because the IA is an agent that monitors the actions of another agent

(management), both of whom are employed by the same principal (Adams, 1994). The author

discussed the role of agency theory in explaining the role of internal auditing within different

organizations. He proposed that agency theory can be used as a framework to explain several

phenomena within the internal auditing profession. IA plays an important role in evaluating the

effectiveness of control systems, and contributes to an ongoing effectiveness of the organization.

Before the enactment of (SOX) 2002, internal audit services were focusing on detection not

prevention. Flesher and Zanzig (2000) found evidence that some audit customers do not recognize

the value of IA, and may even restrict the IA role to internal control evaluation over traditional areas

such as accounting and finance. IA was moving from a confrontational approach to collaborating

with management and moving from a control approach to a risk-based approach and they were

focusing on consulting services (Roth, 2002).

The Sarbanes-Oxley Act (SOX) of 2002 has increased not only the need for IA, but also their stature

in the eyes of those who hire them as well as those who aspire to be them. The IA roles are

increasing dramatically due to Sarbanes-Oxley compliance (Karl, 2003). IA today do not just focus

on financial information as typically been a priority at many firms but nowadays, IA have a much

broader responsibility. Management today are reliant upon IA not just to reduce the cost of external

14

auditing, but to provide assurance, confidence and trust that the internal controls (ICs) are operating

effectively and that the business itself is efficient (Al-Twaijry et al., 2003). IA seem to serve best

where they can skillfully walk the line between providing advice to management and, at the same

time, provide assurance to others(Burns et al., 1994).

Lara and Peter (2007) study on Maltese internal audit unit, identifies organizational and cultural

barriers that are keeping the IA out of reach of its potential benefits. IA plays a crucial role in the

spread of “best practices” through their own developed company wide network (risk and control

communication). Management often benefits from IA as a benchmarking source for the

effectiveness and efficiency of their risk assessment and internal control practices. Communication

role contributes to the creation or further improvement of risk and control awareness.

IA role in risk management from a comparison studies between the Belgian and US Company

revealed that IA proactive involvement in the development and improvement of ICs are considered

as an important aspect of their pioneering role. IA plays a valuable role because they actively

enhance risk and control awareness on behalf of the management. Internal control is an integral part

of IA responsibilities, because certain management levels do not realize that they are responsible for

internal controls (Gerrit & Ignace, 2006).

The divergence of interpretation of the audit role is explored in terms of the way we may in practice

move away from the standard definition. Internal auditing is performed in a variety of ways, each

with its own approach and style. Accordingly, it is important that a formal definition is devised and

agreed since it will have a vital impact on the perceived role of the audit function. Management

often asks auditors exactly what they are responsible for, and a variety of responses may be received.

Some auditors feel that they should police the organization while others are convinced they must

check the accuracy of accounting records. Still others feel obliged to search out poor value for

money or new and improved ways of using resources. Much depends on the audit charter and

management expectations. One must have a model developed by the profession, which represents

the true scope of internal auditing. In this study, management is clearly responsible for controlling

risks to ensure objectives are met, while the scope of audit work is based on reviewing risk

management and controls.In general internal audit plays the following eight roles: control oversight

role, decision support role, risk management support role, communication role, governance role,

system involvement role, technical role and management intimidation role.

15

2.1.4 Types of internal audit services

The types of internal audits in university conduct of their institution’s organizations, functions,

programs, activities and funds have been identified by individuals and professional associations who

have focused their research on internal auditing. ACUA (1992) identified five general classifications

of audit services:

1. Financial auditing: The review and testing of reliability and integrity of financial

information and the systems, which deliver this information. Internal audit staff support

of external auditors is generally grouped in this classification.

2. Operational auditing: The review of the economy, efficiency, and effectiveness of

administrative operations.

3. Compliance auditing: The review and testing of the organization’s compliance with

statutory, regulatory, and internal policy requirements.

4. Information technology auditing: The review and testing of computer systems which

process financial and non-financial information to assure the integrity of that

information.

5. Investigative (Fraud) Auditing: The review of activities targeting irregularities, their

magnitude and rate of occurrence.

2.1.5 The internal audit process

The internal auditing process generally followed by most internal auditors consists of four elements:

Planning, Fieldwork, Reporting, and Follow-up.

The first fieldwork standard for conducting internal audits is that the audit work be adequately

planned. In planning, internal auditors should define the audit’s objectives and the scope and

methodology to achieve those objectives. Reider (1994, p.21) stated, “The purpose of the planning

phase is to determine whether a situation needs improvement. Whether it is significant, and what

should be done about it.”

In addition, McDaniel (2000) listed ten activities, which comprise the planning phase of the audit:

1. Reviewing the risk assessment results and comments.

2. Reviewing audit objectives and prior audits

3. Obtaining and reviewing relevant information including the mission

statement and goals and objectives of the auditable entity.

16

4. Performing an analytical review

5. Meeting with the audited/client

6. Interviewing key management and staff members

7. Identifying and following the key processes instrumental in the

accomplishment of the entities goals and objectives

8. Identifying potential risks associated with key processes

9. Evaluating potential risks without controls considered in place

10. Designing the audit program to address high-risk areas identified.

Further, in this planning phase internal auditors should look for the kinds of management controls

that will help reduce or mitigate risks. Improprieties stemming form inadequate controls in high

risks areas can be catagorized under the four generally accepted elements of management: Planning,

Organizing, Directing, Controlling.

Sawyer (1983) identified violations of four generally accepted elements of management as:

1. Improper planning results in not setting or updating goals or standards, not prescribing a

system of review and approval, developing plans that are incompatible with company

objectives, not providing for the measurement of the performance needed to carry out plans.

2. Improper organizing results in failing to establish unity of objectives within organizational

units of the enterprise, failing to provide equality of authority and responsibility, failing to

establish clear lines of responsibility which extend from the top of the organization to the

lowest level of supervision, failure to delegate authority so as to permit decisions to be made

at the lowest practicable level of management.

3. Improper directing results in not training or instructing subordinates, not providing for

coordination of plans, objectives, policies and procedures of the unit with those of the

company and interfacing units, not making sure that people read and understand

instructions.

4. Improper Controlling results in not providing schedules and budgets for each job, not

fixing responsibility for work performed, not providing for feedback on the quality and

acceptable of the work performed, not comparing results with expectations and investigating

variances.

Following the planning phase of the audit, the necessary fieldwork is performed to accomplish the

audit objective. Fieldwork is performed to accomplish the audit objective. Fieldwork primarily

17

carries out the basic instructions in the audit program. Essentially, it is directed toward measurement

and evaluation. Measurement cannot be objective unless standards of measurement have been

established and units of measurement have been identified. Without standards, audit results are

subjective opinions instead of objective conclusions (Sawyer, 1983).

Generally accepted auditing standard provide four basic forms of fieldwork: Observation, Inquiry,

Inspection, andConfirmation. The data gathered thought these procedures must be evaluated and

interpreted. The results of audit fieldwork provide the support upon which internal auditors base

their opinions as to the unit being audited. After completion of fieldwork, a final report is issued.

Elements that are generally included in comprehensive internal audit reports include the following:

Introduction, Background, Summary, Scope and opinion, Findings and recommendations, and

Exhibits (ACUA, 1992). Also according to McDaniel (2000), the final audit report issued should

address:

� High risks not appropriately addressed/mitigated to allow for the successful

accomplishment of key goals and objectives of the entity reviewed.

� Strategies, solutions and alternative systems/procedures necessary to permit the

accomplishment of the predetermined goals and objectives.

� Agreed upon timetable for implementing necessary changes identified.

Reports are the auditor’s opportunity to get management’s undivided attention and to show how

auditors can help them.

Standards for the Professional practice of Internal Auditing and generally accepted Government

Auditing Standards require internal auditors to follow up on known material findings and

recommendations from previous audits. They should do this to determine whether the

auditee/client has taken timely and appropriate corrective actions.

Audit fieldwork activities include examination of documents, interviews with applicable personnel

and observations of the auditee’s operations. The data gathered through these procedures must be

evaluated and interpreted. Reider (1994, p.21) stated, “The purpose of the planning phase is to

determine whether a situation needs improvement, whether it is significant, and what should be

done about it.”

18

The audit report represents or symbolizes the internal auditing department and constitutes the

output of the college or university internal audit staff. The purpose of the report is to bring the

results of the audit, including findings and recommendations, to the attention of those having an

interest in or responsibility for the findings (Reider, 1994). Audit reports need to be supported by

sufficient documentation to ensure the credibility of reported results.

Follow-up audit work is needed to determine if corrective action has been taken and if

recommendations have produced the intended results. This information is of particular interest to

management and board members. Audit follow-up is also useful in targeting future audit work.

2.1.6 Higher education auditing environment

As the 20th Century closes, the higher education environment is faced with numerous challenges of

change that university internal auditors need to be aware, in order to be effective, some of the higher

education literature has focused on these challenges.

Elliott (1994) addressed the challenges facing urban universities in the delivery of higher education

to the “New Majority” made up of women, minorities, displaced workers, senior citizens and career

professionals. Horne (1995) noted that criticism has increased from politicians, government officials

and others about the time faculty spends in the classroom the value of research, and the quality and

preparedness of students. Mercer (1993) described the growing concern among legislators, parents,

and students about the amount of tuition that higher education is charging and how this concern is

causing compus leaders to seek new ways of keeping costs in line to reduce the need for tuition

increases, and/or to find other sources for finding.

Petrson et al. (1997, P.xix) in planning and Management for a Changing Environment – A

Handbook on Redesigning Postsecondary Education stated:

In this new context, higher education instructions need critically examine their programs and processes, adapting where possible and reorganizing and restructuring where necessary. Most critical to the long-term effectiveness of higher education is thoughtful attention to the design of institutional processes for planning, management, and governance. The ability of colleges and universities to adapt successfully to the challenges they face depends a great deal on an institutions collective ability to learn successfully implement appropriate change, and continuously improve the core technologies of the organization.

19

Further, relative to the environmental challenges facing higher education Rowley et al. (1997, P.7)

stated:

the move of the country since the 1980s toward more conservative politics, whether temporary or not, is signaling a diminution of the days of government largesse, especially in national funding of research, stat- supported growth and the subsidy of tuition under the umbrella of accountability and efficiency. Governments are increasingly interested in cutting perceived waste and in balancing budgets.

These challenges of change will directly affect the work of internal auditors. Management is

responsible for maintaining an adequate system of internal control to manage risks to the

organization. Internal audit will provide assurance services to management, the board and the audit

committee in terms of reviewing the adequacy of these systems of internal control. Internal audit

will also provide a consulting role in helping promote and facilitate the development of effective

systems of risk management and internal control. In addition, and subject to the availability of

resources, audit will seek to respond to management’s requests for investigations into matters of

fraud, probity and compliance. Internal audit will provide advice on addressing these problems,

which remain the responsibility of management. Furthermore, internal audit shall have no

responsibilities over the operations that it audits over and above the furnishing of recommendations

to management. The results of consulting and ad hoc projects requested by management will be

used to inform internal audit’s position on assurances where appropriate (Pickett 2010).

Johnson’s (1992) study on internal auditing in higher education contained a reference to a

publication by the public accounting firm listed key audit areas of the Twenty-First century

university as:financial auditing,operational auditing,compliance auditing,information technology

auditing,investigative (Fraud) Auditing.

Because of the changes taking place in the higher education environment, Bruegman (1995) has

advocated that higher education change to the corporate model as an administrative /participatve

organizational model based on the following reasons:

1. The present organization of higher education institutions is too complex and unmanageable,

2. Higher education’s rigid decentralized culture has created a fragmented, specialized

administrative structure.

3. Colleges and universities are drowning in policies, procedures and paper because there are so

many layers of supervision. This stifles entrepreneurship.

20

4. Higher education’s core mission – teaching – is being diluted.

5. Today’s organizations have produced no leaders.

2.2 Empirical framework for the study

2.2.1 Prior research studies on internal audit effectiveness measures and its

impact on internal audit effectiveness.

The subject of auditing effectiveness and factors used to evaluate auditing effectiveness has been

discussed in the internal auditing literature. In the mid-1970s the American Institute of Certified

Public Accountants (AICPA) issued Statement on Auditing Standards (SAS) No. 9 titled the Effect

of an Internal Audit Function on the Scope of the Independent Auditor’s Examination. The

purpose of this publication was to provide guidance to external auditors who relied on the work of

internal auditors in the performance of an institution’s annual audit. The statement made it a

requirement that external audit function evaluates internal audit in terms of three criteria: (1)

objectivity, (2) Competence, and (3) performance.

Clark et al. (1981) conducted a study of internal auditor objectivity. Participants in the study included

25 partners and managers of international public accounting firm who were asked to indicate their

perceptions of the importance of five criteria:

1. Internal audit department independence:

2. The level to which the internal audit staff reported;

3. The internal audit department’s ability to investigate any area within the organization;

4. Top management support of internal audit; and

5. Adequacy of the scope of audits

Although the consensus of ranking was in the order of the five criteria listed above, the study

provided evidence that more specific evaluative criteria may be needed to assure consistent

assessment of internal audit staff objectivity.

In a 1990 exposure draft issued jointly by the AICPA and Canadian Institute of Chartered

Accountants of the external auditor’s consideration of the internal audit function in a financial

statement audit, the following factors were recommendation for consideration when evaluating the

quality and effectiveness of the internal auditors’ work:

21

1. The scope of work is appropriate to meet audit objectives,

2. Audit programs are adequate,

3. Working papers adequately document the work performed,

4. Conclusions are appropriate; and

5. Reports be consistent with the result of work performed (AICPA. 1990).

Glazer and Jaenicke (1980) constructed a framework approach to evaluating the internal audit

function based on criteria set forth in the Standards for the Professional practice of Internal

Auditing. The evaluation was a compliance review against the criteria defined in the Standards. The

five major performance measures specified were: (1) independence (2) Professional proficiency, (3)

Scope of audit work, (4) management of the internal auditing department and (5) performance of

audit work (Institute of Internal Auditors, 1978).

Salmon and Chadler (1981) considered the compliance to standards approach to evaluating an

internal audit function to be an incomplete analysis of effectiveness. They suggested that a review of

the audit function take into consideration such elements as:

1. Environmental characteristics

2. Infrastructure

3. Audit process

4. Audit management and

5. A review of the audit function

Farbo (1985) investigated the effectiveness of the internal audit function within universities by

comparing and contrasting the importance of selected internal audit attributes as perceived by the

internal audit director, his/her immediate superior and the institution’s external or independent

auditors at both public and private institutions.

The study was conducted through use of a survey questionnaire. The concept of effectiveness

evaluated was modeled as a function of internal audit attributes: (1) audit objectivity, (2) auditor

competence, and (3) auditor performance or productivity. The sample consisted of individuals

associated with the internal audit department of western region members of the Association of

College and University Auditors. The survey was sent to the internal audit director his/her

immediate superior and the institution/s external auditor. Statistical analysis included Kendall’s

22

Coefficient of Concordance with 0.05 level of significance, 2-tailed test of significance and

Spearman’s Rank Correlation Coefficient with0.05 level of significance, a two-tailed test of

significance. A split –plot analysis of variance was computed for each of the five major performance

areas defined as elements of auditor performance.

Findings indicated significant agreement among perceptions of audit objectivity and auditor

competence attributes, as identified by the audit director, immediate supervisor and external auditor.

The statistical strength of agreement, ranged considerably. In addition, findings revealed a significant

difference between perceptions of the audit performance attribute relative to audit professional

proficiency for audit directors and their supervisors in 25 public institutions. Comparisons of the

mean responses for the three other major performance factors (independence, due professional care,

quality assurance and improvement program) did not identify significant differences.

Albrecht et al. (1988) examined the attributes of America’s most effective internal audit departments.

To select the sample, the researchers requested the Board of Directors and members of the

Research Committee of the Institute of Internal Auditors to identify the most effective and

respected internal audit departments known to them. This process resulted in thirteen companies

participating in the study. Interviews, using a structured interview guide, were conducted with the

chief executive officer, chief fiscal officer and operating management of each company. The findings

from the study was the identification of fifteen factors used as criteria to judge the effectiveness of

internal auditing departments. They further classify these factors into three distinct kinds of criteria

as follows:

1. Feedback effectiveness or effectiveness as perceived by others and best exemplified

by the factors by auditees’ response and feedback as an effectiveness measure.

2. Qualitative or indirect and judgmental measures of effectiveness. The factors ranked

as most important of this kind were reasonable and meaningful findings and

recommendations, professionalism of the Internal Audit Department, and Absence

of surprises.

3. Quantitative or direct and objective measures of which the factor adherence to audit

plan ranked as the most important of this kind of criteria.

The researchers compared the responses of top management representative and found the there was

agreement on the overall order of perceived importance of these factors.

23

Traver (1991) studied differences in perceptions of audit directors and their immediate supervisors

of the importance of factors, which have an impact on audit effectiveness. The sample consisted of

326 audit directors who were members of the Association of College and University Auditors. Two

hundred thirty-five responded. In addition, the 235 immediate supervisors of those auditor directors

who responded were included in the study. Subjects were asked to complete a researcher created

questionnaires of twenty-four questions utilizing six factors: professionalism, objectivity, scope,

independence, performance, and audit management. The statistical test used to compare mean

responses of the audit directors and their immediate supervisors was the t-test.

Findings showed significant difference on perceptions of importance between audit directors and

their immediate supervisors for all factors. The study concluded that further work is indicated to

unify the view of perceived importance between audit directors and their immediate supervisors.

Azad (1992) examined the perceptions of college and university auditors’ concerning the importance

of selected factors for the successful performance of operational auditing. The factors studied were

categorized in eigth attribute group: Independence, audit plan, audit program, audit supervision,

continuing education, training, audit report and audit follow-up.

A survey questionnaire of twenty-nine factors categorized in the eight-attribute groups associated

with operational auditing in university was used to gather the data. The survey questionnaires were

mailed to 328 members of the Association of College and University Auditors. Two hundred and

seven responded. Mean ratings and standard deviations for the importance of each factor were

calculated.

Results indicated that all factors perceived by internal auditors as most important for the successful

performance of operational auditing relative to each attribute category were:

1. Reporting to the audit committee

2. Establishing the audit objectives

3. Establishing steps for evidence accumulation

4. Reviewing audit reports

24

5. Attending professional conferences and seminars for continuing professional

educational purposes

6. Training in operational auditing

7. Communicating material facts accurately and unequivocally and

8. Responding by the auditee in writing to the audit report in a timely manner

Bethea (1992) examined the perceptions of chief internal auditors of the importance of audit

funding levels and 12 selected audits and training attributes with regard to the roles and

responsibilities of internal auditing in higher education. The selected audit and training attributes

included organization reporting status, scopeofwork, staffcertification, independence, objectivity,

continuing education, training, audit planning, audit programs, audit supervision, professional

organization and academic culture.

The sample consisted of 363 chief internal auditors within the Association of college and University

Auditors. Both public and private institutions located in several regions throughout the United

States and a few institutions outside the United State were included in the study. The test used to

evaluate the 10 null hypotheses was the split-plot analysis of variance. The test was a two-tailed test

at a .05 level of significance.

The findings indicated private institution audit funding levels are higher than public institutions, thus

indicating a stronger commitment to the audit functions. There were significant differences among

chief internal auditors of the perceived importance of 10 of the 13 selected audit attributes. The

attributes showing no significant differences were Audit planning, audit supervision and professional

organization. In addition, public institutions were found to offer more training than private

institutions.

Dessalegn and Aderajew (2007) investigated to identify factors that affect the effectiveness of

internal audit services. The factors were internal audit quality, management support, organizational

setting, audit attributes.

The study was conducted by case -study method by distributing questionares to audit personnels and

identified the following major findings:

25

• Internal audit quality and management support strongly affect

internal audit effectiveness.

• Organizational setting and audit attributes do not have strong impact

on audit effectiveness.

Ahmad et al (2009) identified five key factors that contribute to the effectiveness of internal audit

functions. According to their importance the factors are internal audit quality, support of top

management, adequate resources, cooperation from auditor and interaction with audit committee. A

survey questionnaire for 200 internal audit staff in symposium was distributed and 99 were collected.

The prior research studies on internal audit effectiveness measures and its impact on internal audit

effectiveness is summarized in figure 1.

Figure 1: summary of selected empirical studies.

N0

.

Author and date,Research

(R) Standard(S),

suggestion Factors

target group/countr

y

Findings on

perceptions

Difference(D)/

Similar(S) on importance

factors 1 AICPA(1970s)

,S

1. objectivity, 2. Competence, and 3. Performance.

USA All are equally

important

2 Clark et al

(1981), R

1. Internal audit department

independence:

2. The level to which the internal audit staff reported;

3. The internal audit department’s ability to investigate any area

within the organization;

4. Top management support of

internal audit; and

5. Adequacy of the scope of audits

Partner vs

Managers.

USA

Importance

decrease

As we go down.

3 AICPA and

CICA (1990),

S

1. The scope of work is appropriate to meet audit objectives,

2. Audit programs are adequate, 3. Working papers adequately

document the work performed,

4. Conclusions are appropriate; and 5. Reports be consistent with the

result of work performed

USA and

Canada

All are equally

important.

4 Glazer and

Jaenicke(198

0),suggestio

n

1. Independence 2. Professional proficiency, 3. Scope of audit work, 4. management of the internal

auditing deparment and

5. performance of audit work

USA All are equally

important.

5 Salmon and

Chadler

1. Environmental characteristics 2. Infrastructure

USA All are equally

important

26

(1981),

suggestion

3. Audit process 4. Audit management and 5. A review of the audit function

(addetional

Consideration

For No 4).

6 Farbo (1985) 1. Audit objectivity,

2. Auditor competence, and

3. Auditor performance or

productivity.

Internal

External

Audits

CEO.

USA

S except audit

professional

proficiency.

7 Albecht et

al (1988),

R

1. Reasonable and meaningful

findings and recommendations

2. Auditee’s response and feedback 3. Professionalism of the internal

audit department

4. Adherence to audit plan 5. Absence of surprises

Top

managements

USA

S on all

factors.

8 Traver

(1991),R

1. Professionalism 2. Objectivity 3. Scope 4. Independence, 5. Performance, and 6. Audit management

Internal

audit heads

And CEO.

USA

D on all

factors.

9 Azad

(1992),R

1. Independence, 2. Audit plan 3. Audit program 4. Audit supervision 5. Continuing education 6. Training 7. Audit report and 8. Audit follow-up.

Internal

auditors.

USA

All are equally

important.

10 Bethea(1992)

,R

1. Organization reporting status 2. Scope of work 3. Staff 4. Certification 5. Independence 6. Objectivity 7. Continuing education 8. Training 9. Audit planning 10. Audit programs 11. Audit supervision 12. Professional organization and 13. Academic culture

Chief

internal

auditors of

private and

public

institutions

.

USA

D except audit

planning, audit

supervision and

professionalism

.

11

Dessalehn

and Aderajew

(2007),R

1. Internal audit quality 2. management support 3. organizational setting ,and 4. audit attributes

Internal

audit

personnel

Ethiopia

The first two

has strong

impact but the

last two do not

have strong

impact on

Internal audit

effectiveness.

12

Ahmad et al

(2009),R

1. internal audit quality, 2. support of top management, 3. adequate resources, 4. cooperation from auditor ,and 5. interaction with audit committee

Internal

audit staff.

Malaysia

Importance

decrease

As we go down.

27

From the above empirical studies, the researcher concludes a promising research area on audit

staffs’, directors and presidents’ perception on the importance of internal audit effectiveness

measures/criteria used to jugde internal audit effectiveness. These scholars were not using

effectiveness/outcome criteria (only they used process/outcome criteria) to evaluate internal audit

effeciveness and at same time, they did not consider stakeholders /managements and internal audit

staffs simultaneously as study group.

2.2.2 Dimensions of internal audit efeectiveness measures

In recent years, researchers and practitioners have widely discussed the need for internal auditors of

adding more value to their companies operations, and contributing to the achievement of corporate

objectives. Rickard (1993, pp.21-23) stated that,

I think it is quite clear that the performance indicators [measures] for internal audit that have been developed over the years fall into the category of administrative performance. They are workload oriented, introspective, and provide only a snapshot of how efficiently the resources of internal audit are used. They provide no information about the impact of internal audit work on the operation of the organization.

Some eleven years later Blackburn (2004, P.22) provides a similar argument stating that, However, the trouble with these targets [efficiency and effectiveness measures] is that the operational goals chosen may not reflect the overall purpose of internal audit. That is:to provide assurance to the management, the audit committee and the board on the system of internal control and risk management; and to assist management to improve its operations, risk management and internal control.So if we rephrase "was the internal audit function effective?" as "to what extent did the internal audit function provide us with assurance? What evidence do we have of improvements in operations, risk management and internal control?” We are closer to what we would like to know but the answers may not be as readily quantifiable.

This seems to indicate that in the period from the early nineteen nineties up to the present day little

progress has been made in moving internal audit performance measurement forward beyond the

traditional measures which based mainly on budget and a simple time recording system. (Blackburn,

2004).

This new perspective has focused increasing attention on issues such as performance evaluation and

effectiveness of internal auditing (Dittenhofer, 2001). Several parties advocated the need to assess

internal auditing (IA) effectiveness, though, at present; there is not a shared framework of reference

to this scope (for instance Desalegn & Aderajew, 2007; Dittenhofer, 2001; Sawyer, 1995; Barrett,

1986). Recently, Sarens (2009, pp.1-7) have raised the question “when can we talk about an effective

IA function?” in his editorial about future perspectives of IA research. Looking at the existing

28

literatures, there is no unique answer to this question. Different authors have related IA

effectiveness to different issues, focusing on IA processes, outputs and outcomes.

Certain authors’ related IA effectiveness measures with the quality of IA procedures, such as the

level of compliance with IIA standards or the ability to plan, execute and communicate audit

findings (for instance Fadzil et al., 2005; Spraakman, 1997). However, this approach suffers from a

major limitation as it is based on the hypothesis that IA activity is effective if IA procedures are

carried out properly, without considering the needs of the main stakeholders in each individual audit

(Lampe & Sutton, 1994). This is in contrast with the current trend that stresses the relevance of

value-added activities and indicates stakeholders’ satisfaction as one of the critical performance

categories for IA activities (see, for instance, the Practice Advisory 1311-2).

A second stream of research relates IA effectiveness to the output of IA activities (Frigo, 2002),

looking for instance at the ability of IA to respond to auditees’ needs (see, for instance, Frigo, 2002;

Ziegenfuss, 2000; Barrett, 1986). In this context, a recent work by Ziegenfuss (2000) has highlighted

that the survey results of auditee satisfaction and the percent of recommendations that are

implemented are the performance measures considered by the CAE to be most suitable to evaluate

IA effectiveness.

Finally, a few authors went further, relating IA effectiveness measures to the outcome of the audit

activities (i.e. the impact of a certain output of the audit process). According to Boland and Fowler

(2000, pp.417-44) define what is meant by an outcome, and go on to explain why measuring

outcomes is inherently difficult,

Hence it is necessary to define an additional term, namely "outcome", defined here as the impact that outputs have in meeting [this] perceived need. This is generally thought of in qualitative terms that imply that outcomes are difficult, in themselves, to measure. Furthermore, the process is also frequently complicated by the length of time it takes for such impacts to be identified. Finally the impact of outcomes arising from the actions of other agencies, working in related policy areas, adds further complexity.

Dittenhofer (2001, pp.443-50.24) states that the measurement of internal audit effectiveness must

consider aspects that relate closely to the intended outcome of the audit process. He argues that, when evaluating the effectiveness of the internal auditing operation, a positive response would be given when the internal auditor: (1) audits the achievement of the auditees’ objectives and finds no

29

problems, and no problems surface following the audit; or (2) audits and finds problems; and recommends solutions to the problems; and the solutions resolve the problems.

The logical extension of this statement being that internal audit effectiveness, or outcomes can be measured by:

1. recording control failures, or surprises 2. Implementation of Recommendations 3. the amount of cost savings generated as a result of internal audit work 4. Measurement Targetry and Dysfunctional Behaviour 5. stakeholders and their needs and expectations 6. Role of Internal Audit.

1. Recording control failures, or surprises that occur after the audit, because either they were not

identified in the first place, or the recommended solution failed to prevent the problem. Whilst

this is intuitively attractive, Boland and Fowler's identification of the problems in measuring

outcomes are particularly relevant. Firstly it may be difficult to attribute events to specific

individual control failures, or surprises may be qualitative and therefore difficult in themselves

to define. Secondly how long after the audit review or implementation of actions is it

appropriate to take such measures? Thirdly how is it possible to isolate the internal audit

contribution (and so measure its performance) when failures may occur due to the actions or

inactions of staff or management, or be caused by changing environmental conditions not

present at the time the review was undertaken?

Rickard (1993, P.21) argues that to be useful, internal audit activities should aim to improve performance [of the organization] by;improving management's understanding of the function, program or product which is the subject of the inquiry; developing the knowledge, skill and appreciation of controls to be used; assisting management in the development of options for addressing problem areas and the implementation of recommendations, and so on.

This description draws on the work of Sawyer in his model of Process Consultancy. This stresses the

helping relationship between consultant (auditor) and client (manager) whereby the role of the

consultant is to, Create a relationship with the client that permits the client to perceive and understand and to act upon the process events that occur in the client's internal and external environment in order to improve the situation as defined by the client (Sawyer, 1983, pp.41-44).

The measurement of the outcome of such a role that can be attributed to the consultant is however

inherently difficult.This inherent difficulty is reflected in the lack of evidence from the literature of

outcome measures actually used, even if some are discussed. However, one measure that is used

almost as a substitute or proxy for outcome is the implementation of recommendations made.

30

2. Implementation of recommendations

Implementation of recommendations is a frequently quoted performance measure for internal audit,

but is at the same time frequently criticised as a measure. Blackburn (2004, P.35) argues that such a

measure is an indicator of an effective internal audit function. This measures both the

responsiveness of management and the skill of internal audit in agreeing improvements that

management is prepared to action.

Two objections are commonly raised to this measure.These are:

1. The potential for dysfunctional behaviour: If internal auditors

know that they are measured against this, they may join management

to avoid agreeing actions if they are difficult to implement, or will

accept that actions have been implemented without obtaining

sufficient positive evidence to support this.

2. The lack of direct contro1: Management implementation rates are

likely to be outside the control of internal audit.

Chambers (2003, P.19) repeates the views of Boland and Fletcher, ...time delay is likely to be too great to make it a useful measure of internal audit performance. So it might be more practical to measure in accordance with the listing of performance measures but stopping short of trying to evaluate whether or not an implemented audit recommendation was successfu1.

In Salierno (2000) a number of the critic surveyed are critical of the measure for a range of reasons;

it could prove misleading; the qualitative differences among recommendations are not accounted for

using this measure; this often proves difficult to measure and is subject to factors beyond the control

of the internal audit function; responsibility for the implementation of recommendations does not

rest with internal audit and so it should not be used as a measure of internal audit's performance.

3. Cost savings

Another potential outcome measure, the amount of cost savings generated because of internal audit

work, is another seemingly controversial area for measurement, with a range of arguments for and

against its use.

Seaman (1995) make similar arguments for using a financial value upon the work undertaken by

internal audit as a performance measure within the context of a value added approach. This view is

supported in a more recent survey conducted by Cashen and Aldhizer III (2002) who identify that

the third most prevalent measure used by internal audit departments who demonstrate a high value

added service emphasis is future savings generated by audit recommendations. Tilley (1999) in his

31

survey of Australian entities also identifies savings arising from recommendations as one of the most

frequently cited measures.

However, this may overstate the popularity or relevance of this as a measure, as Seaman (1995) cites

that, "If the audit comment refers to an operational matter that involves efficiency or effectiveness it

can admittedly be more difficult to show the value." Taking this in the context of the modern role to

be performed by internal audit covering all aspect of the business it makes the application of this

measure more trivial. This is perhaps reflected in the Tilley study which whilst identifying cost

savings as among the most popular measures, it was still only cited by 15% of the respondents. In

the Cashell and Aldhizer study 58% of respondents cited this measure.

Chambers (2003, P.39) argues that, Measuring cost savings is only a partial measure as the time delays and uncertainty as to what might otherwise have happened make such measures unreliable. It will however never be possible to account for the total value of the audit function to the business as a whole in terms of cost savings. The impact on costs of many accepted and implemented audit recommendations is indeterminable as we can often never know what would have happened if management had not so acted.

Ewert (1997, pp.54-57) goes further and suggests that the internal audit budget is analogous to an

insurance premium, This is not to suggest that the audit department's budget should be cost justified by a quantified list of economic benefits. Approving the internal audit budget and plan is simply a risk management decision. An informed discussion of costs, services, and coverage, normally with the audit committee, would satisfy the cost/benefit criteria.

4. Measurement targetry and dysfunctional behaviour

The use of measures to create performance targets and the potential for this to introduce

dysfunctional behaviour within an audit environment is reviewed by Otley and Pierce (1996) in the

context of time budget pressures. Whilst having an external audit focus this study highlights a

number key points that need to be considered generally and in an internal audit context.

The study provides strong evidence that the perceived attainability of budgets is linked closely to the

incidence of dysfunctional behavior. The dysfunctional behaviors studied were those that lead to

either a reduction in the quality of the work undertaken, or the under reporting of time. It is argued

that to attain maximum motivational benefits from budgetary targets they should be set at tight yet

attainable levels. However this level is likely to vary between individuals and so adverse as well as

favourable variances will occur - both outcome potentially encouraging dysfunctional behaviour.

32

This means that there is an inherent conflict between the planning / motivational functions of

budgets and the control function.

The relevance to this study however is in highlighting two factors. Firstly is the design of the

measures themselves in recognising the potential for such behaviour to be present. Secondly is in the

design of the overall framework that should provide checks and balances to ensure possible

dysfunctions are minimised, or counter balanced by other measures.

5. Customers / Stakeholders

The literature is relatively consistent in defining the range of customers and stakeholders of internal

audit. However there is some diversity of view as to who the key stakeholder is. Cosmas (1996)

provides the most comprehensive list that is representative of that suggested in many articles. This

is: • The Board / Audit Committee • Executive Management • Operating Management • External Audit • Control Agencies

The analysis recognises that this list may vary depending upon the size and context of individual

organisations; and that each stakeholder will have different needs and expectations. Others extend

the list to include suppliers, partners, and the community / society. From a marketing perspective

this is important as it enables market segmentation and so products and services can be designed

and delivered in a tailored fashion. Interestingly however, Ewert (1997,pp54-57) argues that,

"catering for too many customers may be the root of some of the conflicts in perception, needs and

expectations that still plague the internal audit profession." His view is that internal audit should

recognise only one customer, and that is the organisation as a whole so that internal audit activity is

directed at serving the good of the organisation as whole rather than individual parts of it. It is clear

that in designing performance measures it is important to determine who the target of the measure is

and what response to the measure is required, and this means that in designing a measure and a

framework a clear understanding of stakeholders and their needs and expectations is required.

6. Role of internal audit

The final variable to consider for outcome is the role adopted by internal audit within the

organization, and to some extent the role adopted by the organization itself. Daft (1997) identifies

two management paradigms. The first is the traditional paradigm, which is characterized by control,

efficiency, rules and bottom line profit. The second is the modem paradigm that is characterised by

empowerment, creativity, teamwork, collaboration, and top line effectiveness.

33

The impact of this distinction is perhaps best illustrated by the articles on the impact of Total

Quality Management (TQM) on internal audit by Hawkes and Adams (1994). This article illustrate

that if the organisation itself adopts a TQM philosophy - the most visible expression of Daft's

modem management paradigm - then the role internal audit plays, hence the measures of

performance required, will change. Hawkes and Adams (1994) illustrate a range of scenarios for

internal audit ranging from the traditionalist model of independent systems efficiency focus, through

independent supportive reviewer, participative and supportive adviser, to participative catalyst for

change.

Clearly the stance or role adopted by the internal audit unit will affect upon the measures of

performance to be chosen. Applegate et al (1997,pp62-67) illustrate one "quality attributes" model as

an alternative to more traditional performance measures that may be appropriate in organisations

that follow this philosophy. However not all organisations do, and so it is important to consider the

role played by internal audit in choosing an appropriate framework, and measures.

From the above statements it is clear that outcomes address a wide range of aspects, i.e. all the

elements on which audit activities have an impact. These include both efficiency and effectiveness of

the audited processes, and corporate performances. At a process level, for example, the impact of IA

activities has been related to cost savings generated by the implementation of suggested

recommendations (Cashell and Aldhizer III, 2002). At a corporate level, outcome can address the IA

contribution to corporate performance, such as profit, growth, or share price; or its role in the

avoidance of corporate failures by ensuring sound corporate governance.

2.3 Research model for internal audit effectiveness measures

The theoretical and empirical literatures have recorded systematic variations on managements’ and

audit staffs’ perception on the importance of internal audit effectiveness criteria to evaluate internal

audit effectiveness. To test this variation, the following conceptual model was developed by the

study.

34

Figure 2: Perception of management and internal audit staff on measurement

criteria

To test this conceptual model, the fifteen important internal audit effectiveness criterias that was

used by Albrecht et al. (1988) was used. The reason why this criteria was selected is that first it is

comprehensive as compared to others. For instance, this criterion contains both qualitative and

quantitative dimensions. Second while most studies conducted by scholars evaluate internal audit

performance by using process and output indicaters (for instance, following audit standards), only

albrechet et al. (1988) tried to evaluate internal audit performance by using outcome/effectiveness

measures. However, albrecht et al. (1998) studies considered only from the percpectives of

stakeholders especially managements. Thus, the model indicated above was developed by the

researcher to fill this gap. The different group of management and audit staffs’ perception on the

importance of internal audit effectiveness measure affects internal audit effectiveness as showen in

the model.

Albrecht et al. (1988) used fifteen factors which catagarized in to five major factors each contains

again three criterias. The criterias are:

35

1. The usefulness of audit information provided by internal auditing.

2. Internal auditing’s recognition of the institution’s significant problems.

3. Internal auditing’s ability to provide independent reviews.

4. The auditees’ acceptance of audit findings and implementation of

recommendations.

5. The auditees’ assessment of internal audit services.

6. The internal auditing department gaining the cooperation of management.

7. The participation of internal auditor’s in professional organizations.

8. The participation of internal auditors in continuing education programs.

9. The practice of professional ethics by internal auditors.

10. Internal auditing ensuring that riskier areas receive higher audit priority in the

audit plan.

11. Completion of the annual audit plan by internal auditing.

12. The development of a long-range plan by internal auditing to cover all

significant areas.

13. The need for internal auditing to alert management to potential problems

befor they occur.

14. Internal auditing’s early warning of problems in operations and control.

15. Internal auditings’s ability to establish appropriate audit priority based upon a

formalized risk assessment by internal auditing.

The fifteen items were designed to provide three-item groupings of the five factors used to judge

internal audit effectiveness. The fifteen items were randemly distributed on the questionairre to

increase realability of the response and the five factors serving as the bases for the items in this scale

are:

1. Reasonable and meaningful findings and recommendations 1,6,11

2. Auditee’s response and feedback 5,10,15

3. Professionalism of the internal audit department 2,7,12

4. Adherence to audit plan 4,9,14

5. Absence of surprises 3,8,13

The item statements are grouped by their relationship to one another based on Albrecht et al (1988).

36

CHAPTER 3

PRESENTATION AND ANALYSIS OF DATA

Introduction Under this chapter, results of data analysis based on the questionnaires survey were presented. The

first subsection presents summary statistics of respondents who participated in the study. Subsection

two involved testing of four hypotheses mentioned in section 1.3 by using z-test for proportion and

one way ANOVA.

3.1 Summary Statistics of the Respondents In this study, the targeted respondents were presidents, directors and audit staffs of Bahir Dar and

Mekelle Universities. They were chosen since they occupy the position in their respective

universities. Total answered questionnaires received were 59 out of 61(96.72%) of respondents.

Although, the total number of questionnaires received were 59, only 58 observations were used

which represent a net response rate of 95%. Respondents were eager to participate with 15% of

respondents being presidents, 71% directors and 14 % of internal auditing staffs from the total

census.

Table 3.1: Profile of the respondents

Gender % Age % Education level % Work experience %

Male 100 21-25(N=2) 3 Bachelor(N=8) 14 <1 years(N=1) 2

Female 0 26-30(N=10) 17 Masters(N=23) 40 1-5 years(N=7) 12

31-35(N=18) 31 PHD(N=27) 46 6-10 years(N=17) 29

36-40(N=12) 21 11-15 years(N=19) 33

>40(N=16) 28 16-20 years(N=8) 14

> 20 years(N=6) 10

Table 3.1 shows the profile of the respondents. The overall distribution of males in the census was

100 percent, with 100% of males within the universities in top positions. In this analysis,

respondents age ranged from 21 – 41 and above. The age of the respondents were grouped into five

categories. In reference to respondents working experience indicates that the duration of work

experience ranging from less than 1 year to more than 20 years. The highest duration of work

experience are between 11 to 15 years (33%) followed by 6 to 10 years are (29%). Apparently the

37

least year of work experience among the respondents is less than 1 year (2%). On the other hand,

education level of the respondents revealed that higher percentage level of respondent’s education is

PHD, which accumulates 46% and 40%, has master degree qualification. The least percentage (14%)

of respondents has academic qualification of Bachelor Degree level.

3.2 Hypothesis testing and data analysis The hypothesis testing was done based on the four (4) hypotheses that were determined in Chapter

1 of this research. The hypothesis was developed based on the research model that shown in part

2.3. Two test has been used namely z-test and one-way analysis of variance. The z- test is being

carried out to determine the significant difference between the scores of university presidents,

directors and audit staffs of the perceived importance of five selected factors used to evaluate

internal auditing effectiveness as measured by the questionnaire. One-way analysis of variance was

carried out to explore statistically significant difference among mean scores of presidents, directors

and internal auditing staffs on the perceived importance of five selected factors used to evaluate

internal auditing effectiveness as measured by the questionnaire. However, before the testing

hypothesis four, data was tested for data compatibility for the ANOVA assumptions. The results of

normality and homoginity of data distribution was displayed in appendix 1.

3.2.1 Procedures for data analyses

Firstly, to address hypotheses one, two and three, scores were converted to two categories for the

five factors/criteria used to evaluated internal audit effectiveness based on measurement scale

provided on questionnaire in part two. Each item contributed to a total score for each of the

respondents. The total score obtained indicated to what degree these selected factors were important

as a whole. The highest score a respondent could have was 15 and the lowest score was three.

Therefore, the median, would be nine [(3+15)/2] indicating average importance. Table 3.2 and 3.3

shows the value for each item, and maximum and minimum value for one factor and the maximum

and minimum value for all factors and items included in each factor.

38

Table3.2: the value for each item, and maximum and minimum value for one factor

No The value for one item No. of items for

one factor

Scale

1 Greate importance=5 3 15

2 Above average=4 3 12

3 Average importance=3 3 9

4 Below average importance=2 3 6

5 No importance=1 3 3

Table3.3: The maximum and minimum value for all factors and items included in each factor

Factor

Code Factors

Items in the

questionaire

Max

Min

1

Reasonable and meaningful findings and

recommendations

1,6,11 15 3

2 Auditee’s response and feedback 5, 10, 15 15 3

3 Professionalism of the internal audit

department

2,7,12 15 3

4 Adherence to audit plan 4,9,14 15 3

5 Absence of surprises 3,8,13 15 3

The scale provides a total score concerning the importance of internal auditing factors used for

measuring internal audit effectiveness based on the 5 selected responses. Each response is an

increment, which adds to respondent's total score. Having many measurements to provide an overall

measurement for a dimension (importance of factors) is statistically more desirable than one

measurement. It increases reliability of the Scale (Borg & Gall. 1989).

More specifically respondents with average scores more than nine (median) were considered above

average importance; those below the median were considered below average importance. The scores

for the groups (presidents, directors and audit staffs) were converted in this fashion and tested

independently (each group separately) using the z distributions to ascertain if the population

proportions can be expected to exist in the three populations are significant. Confident intervals

were also computed at the 95% level.

39

Secondly, to test hypothesis four, mean scores of presidents, directors, and internal auditing staffs

were calculated and input into a single-factor analysis of variance (ANOVA) model to ascertain if

there was a significant difference between the mean scores.

All items and factors come from Section two of the questionnaire. Each factor was measured by

three items, totaling fifteen items for that section. Respondent mean scores for each factor were

calculated by adding the items (for each separate factor) and providing a total score. This resulted in

five total scores for each respondent. Mean scores for the three groups were derived from these

total factor scores.

3.2.2 Testing hypothesis one

Hypotheses one stated that there was no statistically significant difference between the scores of

audit staffs of the perceived importance of the selected five factors used to evaluate internal auditing

effectiveness as measured by the questionnaire. The analysis of the five factors individually indicated

that audit staffs proportionally perceived the individual factors above average importance to use for

evaluating internal audit effectiveness. When the z-test of population proportions was used to test

siginificance difference between the scores of audit staffs on these factors, only two factors

(reasonable and meaningful findings and recommendations, and professionalism of the internal audit

department, and the factors as a whole) found to be significant, that is, audit staffs did not agree on

the benefit to use these factor as acriteria to evaluate internal audit effectiveness. Audit staffs had

insignificant difference on the remaining three factors (auditee's response and feedback, adherence

to audit plan, and absence of surprises), that is they agreed on the benefit of these factors to use as

criteria for evaluating internal audit effectiveness.

The analysis of factors as a whole indicated that the statistics results of factors as whole exceed the

critical value (z = 1.96) needed to reject the null hypotheses.There was significant difference in

perception between audit staffs, that is, there was no agreement on the benefits of these two factors

to use as criteria for evaluating internal audit effectiveness. Table 3.4 shows the results of the

analysis.

40

Table3.4: Z-scores measuring audit staffs’ perceptions on importance of factors for fvaluating

auditing effectiveness

Factors %below %above Z critical Z observed Two tailed probability

1 .17(N=1) .83(N=5) 1.96 2.68 0.00740

2 .33(N=2) .67(N=4) 1.96 1.06 0.28920

3 .14(N=1) .86(N=6) 1.96 3.06 0.00222

4 .37(N=3) .63(N=5) 1.96 0.77 0.44120

5

.29(N=2)

.71(N=5)

1.96 1.42

0.15560

Whole

.26(N=9)

.74(N=25)

1.96 3.37

0.00076

86% of audit staffs’ respondents rated the factor of professionalism of the internal audit department

as the first above average important factor used for evaluating internal auditing effectiveness.

Conversely, 14% of the audit staffs’ viewed the factor of professionalism of the internal auditing

department as a criterion of below average importance for judging auditing effectiveness. This

negative view of the professionalism factor by audit stafs may be explained by those audit staffs’ lack

of understanding of the relationship of professionalism to the overall performance of the internal

auditing program.

83% of audit staffs’ respondents rated the factor of reasonable and meaningful findings and

recommendations as the second above average important factors used for evaluating auditing

effectiveness. On the other hand, 17% of the audit staffs viewed the factor of reasonable and

meaningful findings and recommendations of the internal auditing department as a criterion of

below average importance for judging internal auditing effectiveness.

71% of audit staffs’ respondents rated the factors of absence of surprises as the third above average

important factors used for evaluating auditing effectiveness. A reason which may explain why audit

staffs’ rated the factors of absence of surprises to be the third above average important factor is that

audit staffs’ understand the benefit of risk management. Audit staffs’ alert presidents to potential

problems before the occurance of problems.In contrast 29% of the audit staffs’ viewed the factors

of absence of surprises of the internal auditing department as a criterion of below average

importance for judging auditing effectiveness. This is because internal auditers play a watchdog role

and as the result this is not useful to measure internal audit effectiveness.

41

67% of audit staffs’ respondents rated the factors of auditee's response and feedback as the fourth

above average important factors used for evaluating auditing effectiveness. On the contrary 33% of

the audit staffs’ viewed the factors of auditee's response and feedback of the internal auditing

department as a criterion of below average importance for judging auditing effectiveness.

63% of audit staffs’ respondents rated the factor of adherence to audit plan as the fifth above

average important factor used for evaluating auditing effectiveness. Alternatively, 37% of the

presidents viewed the factor of adherence to audit plan of the internal auditing department as a

criterion of below average importance for judging auditing effectiveness. The explanation for factors

auditee's response and feedback, and adherence to audit plan for being below average may be that

presidents may not consider feedback information from audited units and others' views about

auditing to be important in their evaluations of internal auditing effectiveness

Lastly, 74% of audit staffs’ respondents rated the all factors of measuring internal audit effectiveness

as the above average important factor used for evaluating auditing effectiveness. Alternatively, 26%

of the presidents viewed all factors of measuring internal audit effectiveness of the internal auditing

department as a criterion of below average importance for judging internal auditing effectiveness. As

the result of this hypothesis one is rejected, that is, audit staffs are not agree on the benefit of these

factors to evaluate internal audit effectiveness.

3.2.3 Testing hypothesis two

Hypotheses two states that there is no statistically significant difference between the scores of

directors of the perceived importance of the selected five factors used to evaluate internal auditing

effectiveness as measured by the questionnaire. The analysis for the five factors indicated that

directors proportionally perceived the individual factors and the factors as a whole to be of above

average importance. Z-test for proportion showed that directors have significant difference on all

factors to use as criteria to judge internal audit effectiveness. Individual factors and factors as whole

exceed the critical value (z = 1.96) needed to reject the null hypotheses. It is concluded that directors

do not agree on the importance of these factors for evaluating internal audit effectiveness; the null

hypothesis was rejected. Table3.5 shows the results of the analysis.

42

Table 3.5: Z-scores measuring directors' perceptions of the importance of factors for evaluating auditing effectiveness


1

.09(N=3)

.91(N=32)

1.96 4.44

0.00001812

2

.13(N=5)

.87(N=34)

1.96 3.34

0.00084000

3

.19(N=6)

.81(N=26)

1.96 2.4

0.01640000

4

.14(N=5)

.86(N=32)

1.96 3.20

0.00138000

5

.23(N=7)

.77(N=24)

1.96 1.97

0.04880000

Whole

.15(N=26)

.85(N=148)

1.96 14.08

0.00000200

Of the five factors, reasonable and meaningful findings and recommendations was rated by 91% of

the directors as being the first above average important factor for judging internal audit

effectiveness. Reasonable and meaningful findings and recommendations are the essence of the

quality of the work produced by internal auditors and may explain why directors perceived this

factor to be first in importance for evaluating auditing effectiveness. This factor also carries the

implication of value-added to the entity. Alternatively, 9% of the directors viewed the factor of

reasonable and meaningful findings and recommendations of the internal auditing department as a

criterion of below average importance for judging auditing effectiveness.

The Auditee's response and feedback were rated by 87% of directors’ respondents to be the second

above average important factors for evaluating internal audit effectiveness. A reason that may

explain why directors rated the factors of auditee’s response and feedback to be the second above

average important factor for judging internal audit effectiveness is that directors provide valuable

comment as input for quality internal auditing. In contrast, 13% of directors viewed the factors of

auditee's response and feedback of the internal auditing department as a criterion of below average

importance for judging auditing effectiveness.

Also worth mentioning is that 86% of directors participants viewed the factor of adherence to audit

plan as being third above average important factor for evaluating internal auditing effectiveness. An

explanation for directors rating the factor adherence to the audit plan as the third above average

43

important factor for judging effectiveness may be that they are clients to the internal audit function

and as a result tended to give more attention to planning aspects of the internal audit department.

Otherwise, 14% of the directors viewed the factor of adherence to audit plan of the internal auditing


81% of directors’ participants viewed the factor of professionalism of the internal audit department

as being fourth above average important factor for evaluating internal auditing effectiveness. The

directors’ closeness to the audit department, as a client, may also explain their selection of the

professionalism of the internal audit department as the fourth important criteria for judging

effectiveness of internal auditing. Directors may have perceived that auditors must be professionals.

Conversely, 19% of the directors viewed the factor of professionalism of the internal auditing


77% of directors’ participants viewed the factor of absence of surprises of the internal audit

department as being fifth above average important factor for evaluating internal auditing

effectiveness. Directors expect auditors to alert them to potential problems before the occurance of

problems. In contrast, 23% of directors viewed the factors of absence of surprises of the internal

auditing department as a criterion of below average importance for judging auditing effectiveness.

Finally, 85% of directors’ respondants perceived factors as a whole to be of above average important

criteria for evaluating internal auditing effectiveness. Alternatively, 15% of directors viewed all

factors of measuring internal audit effectiveness of the internal auditing department as a criterion for

judging internal auditing effectiveness is below average importance.

3.2.4 Testing hypothesis three

Hypotheses three states that there is no statistically significant difference between the scores of

university presidents of the perceived importance of the selected five factors used to evaluate

internal auditing effectiveness. Table 3.6 highlights the z-test results.

Table 3.6: z-scores measuring presidents' perceptions on the importance of factors for evaluating

internal auditing effectiveness


1 .11(N=1) .89(N=8) 3.71 0.00020000

44

1.96

2

.12(N=1)

.88(N=7)

1.96 3.4

0.00068000

3

.29(N=2)

.71(N=5)

1.96 1.42

0.15560000

4

.14(N=1)

.86(N=6)

1.96 3.06

0.00222000

5

.12(N=1)

.88(N=7)

1.96 3.4

0.00068000

Whole

.15(N=6)

.85(N=33)

1.96 6.4

0.000002oo

The data displayed indicated that though more favorable toward some than others, presidents

perceive the five factors to be generally of above average importance to be used as a criteria for

evaluating internal audt effectiveness. To see the magnitude of importance of these factors as

criteria, Z test for proportion is used and the results showed that presidents have significant

difference, which contradict the findings of Albrecht et al (1988), on the importance of four factors

(reasonable and meaningful findings and recommendations, auditee’s response and feedback,

adherence to audit plan and absence of surprises) to use as a criterion for measuring internal audit

effectiveness. Presidents have insignificant differece, which supports the findings of Albecht et al

(1988), on the importance of professionalism of the internal audit department for evaluating internal

audit effectiveness. Based on the results obtained, the null hypothesis was rejected; and it is

concluded that there is a significant difference between presidents.

While presidents’ respondents perceived all five factors to be of above average importance, 89% of

them rated the factor of reasonable and meaningful findings and recommendations as the first above

average important factors used for evaluating auditing effectiveness. On the other hand, 11% of the

presidents viewed the factor of reasonable and meaningful findings and recommendations of the

internal auditing department as a criterion of below average importance for judging auditing

effectiveness.

88% of presidents’ respondents rated the factors of auditee's response and feedback, and Absence of

surprises as the second above average important factors used for evaluating auditing effectiveness. A

reason that may explain why presidents rated the factors of absence of surprises and auditee’s

response and feedback to be the second most important factor is that the top administration does

not want surprises and their saying as input for quality internal auditing is very important

45

respectively. Presidents expect auditors to alert them to potential problems before the occurance of

problems.In contrast 11% of the presidents viewed the factors of auditee's response and feedback,

and absence of surprises of the internal auditing department as a criterion of below average

importance for judging auditing effectiveness. In the case of auditee's response and feedback factor,

it appears that these presidents may not consider feedback information from audited units and

others' views about auditing to be important in their evaluations of internal auditing effectiveness

86% of presidents’ respondents rated the factor of adherence to audit plan as the third above

average important factor used for evaluating auditing effectiveness. Alternatively, 14% of the

presidents viewed the factor of adherence to audit plan of the internal auditing department as a

criterion of below average importance for judging auditing effectiveness. The explanation for this

factor for being below average may be that presidents may not consider feedback information from

audited units and others' views about auditing to be important in their evaluations of internal

auditing effectiveness

71% of presidents’ respondents rated the factor of professionalism of the internal audit department

as the fourth above average important factor used for evaluating auditing effectiveness. Conversely,

29% of the presidents viewed the factor of professionalism of the internal auditing department as a

criterion of below average importance for judging auditing effectiveness. This negative view of the

professionalism factor by presidents may be explained by those presidents’s lack of understanding of

the connection or relationship of professionalism to the overall performance of the internal auditing

program. Specifically, for example, they may not understand the connection between an auditor's

code of ethics and the integrity of the internal auditing department. Presidents need to understand

that internal auditors view themselves as professionals.

Lastly, 85% of presidents’ respondents rated the all factors of measuring internal audit effectiveness

as the above average important factor used for evaluating auditing effectiveness. Alternatively, 15%

of the presidents viewed all factors of measuring internal audit effectiveness of the internal auditing


The first three hypothese tested above were summarized in table 3.7.

46

Table3.7: summary of the first three hypotheses.

Sig=Significant Insg=insgnificant

3.2.5 Testing hypothesis four

Hypotheses four states that there is no statistically significant difference between the mean scores of

presidents, directors and internal auditing staffs of the perceived importance of the five selected

factors used to evaluate internal auditing effectiveness. First let us see data copatability and then I

test the hypothesis.

Data’s compatibility for one way ANOVA The ANOVA models was used to address the (H4) by investigating the significant differences

among presidents, directors and internal audit staffs on the importance of internal audit

effectiveness measures to assess internal audit effectiveness measures. Field (2005) suggested that,

four (4) basic assumptions should be assessed before running the analysis of variance. The

assumptions are as follows.

Factors

Ranks on importance of factors in judging internal audit effectiveness by using z

scors(sig at p( .05)=1.96)

Audit staffs Directors Presidents

Z-scores Sig Rank Z-scores Sig rank Z-scores sig Rank

1 2.6 Sig 2 4.44 Sig 1 3.71 sig 1

2 1.06 Insg 4 3.34 Sig 2 3.40 sig 2

3 3.06 Sig 1 2.40 Sig 4 1.42 insig 5

4 0.77 Insg 5 3.20 Sig 3 3.06 sig 4

5 1.42 Insg 3 1.97 Sig 5 3.40 sig 2

Whole 3.37 Sig 14.08 Sig 6.40 sig

47

1. Normally distributed data: The prerequisite to use anova is the fullfilment of

normality assumption. According to Andy (2005) this assumption is tested by

looking the frequency distribution in histogram and calculating the z-scores of

skewness and kurtosis at significant level .01(p=2.58) if populatin is less than 200.

According to him an absolute value greater than 2.58 is significant at 2.58, that is, a

data greater than this value is not assumed normally distributed. Accordingly the data

was tested and found normally distributed. See the detail in apendex 1.

2. Homogeneity of variance: according to Morgan (2004) to run ANOVA it should

be tested for homogeneity of variances to assure that variances are same throughout

the data. Given the Levene’s test has a probability greater than 0.05 reasonable and

meaningful findings and recommendations, auditee's response and feedback,

professionalism of the internal audit department, adherence to audit plan ,and

absence of surprises , it is assumed that the population variances are relatively equal.

For detail see apendex 1

3. Interval data: Field (2005) suggested that the data should be measured at least at the

interval level to run in ANOVA. This means that the distances between points of a

scale should be equal at all parts along the scale. According to him, five point lekert

scales assumed interval scale.

4. Independence: this assumption is that data from different participants are

independent, which means that the behaviour of one participant does not influence

the behaviour of another. In this study the behaviour of presedents, directors and

audit staffs are not influnced each other.

3.2.5.1 Testing hypothesis four factor one

When the single factor analysis of variance was employed to determine if a significant difference

existed between presidents, directors and internal auditing staffs regarding factor one(Importance of

Meaningful and Reasonable Findings and Recommendations) as table 3.8 shows F(2,55)=4.819,P

<.05)it was found that a significant difference is existed.

Table3.8: meaningful and reasonable findings and recommendations as perceived by the three

groups

SOURCE Sum of Squares Df Mean Square F P-value

Between Groups 1.644 2 .822 4.819 .012

Within Groups 9.382 55 .171

Total 11.026 57

48

Sufficient evidence was found to reject the null hypothes. Presidents, directors and internal auditing

staffs

have

signific

ant

differe

nce on

the

import

ance of

meanin

gful

and

reasonable findings and recommendations to use as criteria to evalute internal audit effectiveness.

The F ratio only tells us the presence of significant difference among three groups but it does not

indicate where the differnce exactly was? To address this, Tukey HSD post hoc comparison was performed.

Table3.9: Tukey HSD post hoc multiple comparison

*significant at the 0.05 level.

As Tukey HSD post hoc multiple comparisons on table 3.9 evidenced that the siginificance

difference on the importance of meaningful and reasonable findings and recommendations to use as

(I) job position in

the university

(J) job position in

the university

Mean

Difference

(I-J) Std. Error P-Value

95% Confidence Interval

Lower Bound Upper Bound

Presidents Directors .41415* .15203 .023 .0479 .7804

audit staffs .57375* .20069 .016 .0903 1.0572

Directors Presidents -.41415* .15203 .023 -.7804 -.0479

audit staffs .15960 .15963 .580 -.2249 .5441

audit staffs Presidents -.57375* .20069 .016 -1.0572 -.0903

Directors -.15960 .15963 .580 -.5441 .2249

49

criteria to evalute internal audit effectiveness found between presedents and directors(p<.05), and

presedents and audit staffs(p<.05)not between directors and audit staffs(p>.05). But as Morgan etail

(2004) this significant difference may be created by the differences in the population size (N1=9,

N2=41, N3=8). This again tested by adjusted Tukey HSD homogeneous subsets. The result was

indicated in table3. 10.

Table3.10: Adjusted Tukey HSD homogeneous subsets

Table 3.10 shows an adjusted tukey that is approprate when population sizes for different groups are

not similar (n=9, n=41, n=8). There is not a statistically significant difference (.626) between audit

staffs and directors because their means are both showen in subset 1. In subset 2 the directors and

presidents means are showen indicating that they are not significantly different (P=.05). By

examining the two subsets boxes, we can see that the audit staffs (M=3.1663) is different from

presidents (M=3.74) because these two means do not appear in the same subset. Therefore, the

significant difference between presidents and directors are atributable to population size difference

whereas the significant difference between presidents and audit staffs are atributed to differences in

the perceptions on the importance of meaningful and reasonable findings and recommendations to

use as criteria to evalute internal audit effectiveness. Based on the results the null hypothesis relative

to this factor was rejected.

The three elements included in the factor of "reasonable and meaningful findings and

recommendations” were: (I) the usefulness of audit information provided by internal auditing; (2)

internal auditing's recognition of the institutions significant problems; and (3) Internal auditing's

ability to provide independent reviews. This third element infers the internal auditor's freedom to

report all findings.

job position in the university N

Subset for alpha = 0.05

1 2

audit staffs 8 3.1663

Directors 41 3.3259 3.3259

Presidents 9

3.7400

P-value

.626 .050

Means for groups in homogeneous subsets are displayed.

50

There are several reasons that might explain this significant difference. To begin with, internal

auditors attached more importance to "reasonable and meaningful findings and recommendation" as

a criterion for evaluating audit department effectiveness because this factor provides evidence that

internal auditors are following internal auditing standards. Internal auditors are authorized to make

evaluations of their institution's activities. According to the Standards for the Professional Practice

of Internal Auditing, one purpose of these evaluations is to furnish managers with recommendations

for improvements. Meeting standards are very important to internal auditors.

Another rationale that might explain audit staffs attachment of more importance to this factor is that

through reporting meaningful findings and recommendations, audit staffs are provided with an

opportunity to get management's undivided attention. Reporting significant audit results and

recommendations gives audit staffs an avenue for presenting and selling their products to the

president and other top management team members. To audit staffs way of thinking, the reasonable

and meaningful findings and recommendations contained in the audit report are symbols of their

contributions that resulted in changes that made their institution better overall.

Further, internal audit staffs might have perceived more importance to the ability to provide

independent reviews than directors. Again, in order to comply with the Standards, audit staffs

believe that their departments should be independent, objective and able to render impartial and

unbiased judgments in connection with audit work.

An explanation for presidents perceiving the factor of reasonable and meaningful findings and

recommendation as being of more importance than directors may be, because presidents generally

favor receiving only executive summaries of reports or reports of the most significant audits.

Because of this it is questionable whether directors are in a position to evaluate accurately the quality

of audit findings and recommendations.

3.2.5 .2 Testing hypothesis four factor two The one way ANOVA was coducted to explore if there is no significant difference between

presidents, directors and internal audit staffs in their perceptions on the importance of auditee’s

response and feedback to judge internal audit effectiveness. As table3.11 result shows F (2, 55)

51

=3.832, P<.05), it was found that presidents, directors and internal audit staffs differ significantly in

their perceptions on the importance of auditee’s response and feedback to judge internal audit

effectiveness .The analysis were sufficient to reject the null hypothesis four regarding factor two.

Table 3.11: auditee's response and feedback as perceived by the three groups


Between Groups 2.506 2 1.253 3.832 .028


Total 20.491 57

* significant at the 0.05 level.

As table 3.11 shows mean squares (1.253) for between groups and the mean squares (.327) for

within groups and F(2,55=3.832,p<.05) indicat only the presence of significance difference among

three groups in their perceptions on the importance of auditee’s response and feedback to judge

internal audit effectivenes but does not indicate where the difference exactly existed.

To locate where the difference existed Tukey HSD post hoc multiple comparison should be

conducted. As Tukey HSD post hoc multiple comparisons on table 12 evidenced that the

siginificance difference on the importance of auditee’s response and feedback to use as criteria to

evalute internal audit effectiveness found between presedents and directors(p<.05) not between

presedents and audit staffs(p>.05),and directors and audit staffs(p>.05).

Table 3.12: tukey HSD post hoc multiple comparison

(I) job position

in the

university

(J) job position

in the

university

Mean Difference

(I-J) Std. Error P-value



Presidents Directors .55805* .21050 .028 .0510 1.0651

audit staffs .63125 .27786 .068 -.0381 1.3006

Directors Presidents -.55805* .21050 .028 -1.0651 -.0510

audit staffs .07320 .22102 .941 -.4592 .6056

audit staffs Presidents -.63125 .27786 .068 -1.3006 .0381

Directors -.07320 .22102 .941 -.6056 .4592

*. The mean difference is significant at the 0.05 level.

52

But as Morgan et al (2004) this significant difference may be created by the differences in the

population size (N1=9, N2=41, N3=8). This again tested by adjusted Tukey HSD homogeneous

subsets. The result indicated in table 3.13.

Table: 3.13 Adjusted Tukey HSD homogeneous subsets

job position in

the university N


1


Directors 41 3.0720

Presidents 9

3.6300

P-value

.949


Table3.13 shows an adjusted tukey that is approprate when population sizes for different groups are

not similar (n=9, n=41, n=8). There was not a statsitically significant difference (p=.949) between

audit staffs and directors because their means are both showen in subset 1. Therefore, the significant

difference between presidents, directors and audit staffs are caused by differences in the group size

but not on perception difference on the importance of auditee’s response and feedback to evalute

internal audit effectiveness. Based on the results the null hypothesis relative to this factor was not

rejected.

The auditee’s response and feedback of the internal auditing department factor used in this study

included elements such as the auditee’s acceptance of audit findings and implementation of

recommendations, the auditee’s assessment of internal audit services and the internal auditing

department gaining the cooperation of management.

The main reason that may explain three groups agreement in perceptions on the importance of

auditee’s response and feedback as a criterion for evaluating audit department effectiveness factor is

that both groups understand cooperations of management, management’s assessement of audit

services and proper implementation of audit findings are important for effective internal auditing

departments.

53

3.2.5 .3 Testing hypothesis four factor three Factor 3 of Professionalism of the internal audit department was analyzed using the ANOVA

process as well. This analysis revealed as in Table 3.14 a significant difference between the three

groups F (2, 55=13.475, p < .05) regarding the importance of Professionalism of the internal audit

department to judge internal audit effectivenes. Based on these results the Null hypothesis was

rejected. That is there is significant difference among three groups regarding this factor but the F-

test does not indicate where the difference exactly existed among three groups in their perceptions

on the importance of professionalism of the internal audit department to judge internal audit

effectivenes.

Table 14: professionalism of the internal audit department as perceived by the three groups


Between Groups 8.600 2 4.300 13.475 0.000


Total 26.151 57

*significant at the 0.05 level

To locate where the difference existed Tukey HSD post hoc multiple comparison should be

conducted and the result showed that the siginificance difference existed between presidents and

internal audit staffs (p<.05), and directors and audit staffs (p<.05) as showen in table 3.15.

Table3.15: tukey HSD post hoc multiple comparison

(I) job position

in the

university

(J) job position

in the

university

Mean Difference




Presidents Directors .06591 .20794 .946 -.4350 .5668

audit staffs -1.06056* .27449 .001 -1.7217 -.3994

Directors Presidents -.06591 .20794 .946 -.5668 .4350

audit staffs -1.12646* .21834 .000 -1.6524 -.6005

audit staffs Presidents 1.06056* .27449 .001 .3994 1.7217

Directors 1.12646* .21834 .000 .6005 1.6524


54

But as Morgan etail (2004) this significant difference may be caused by the differences in the



Table 16: Adjusted Tukey HSD homogeneous subsets



directors and presidents because their means are both showen in subset 1. In subset 2, the audit

staffs mean only are showen, indicating that it was significantly different from both directors and

presidents (P=1). By examining the two subsets boxes, we can see that the audit staffs (M=3.875)

are significantly different on perception on the importance of internal audit effectiveness from both

presidents (M=3.63) and directors (2.7485) because presidents’ and directors’ means appear in the

same subset (subset 1) whereas audit staffs apear in other subset (subset 2). Therefore, the

significant difference between presidents and audit staffs that supports the findings of Traver (1991),

and directors and audit staffs are atributed to differences in the perceptions on the importance of

professionalism of the internal audit department to use as criteria to evalute internal audit

effectiveness. Based on the results the null hypothesis relative to this factor was rejected. The

ANOVA process results relative to null hypothesis four also revealed a significant difference

between the three groups on their perceptions of the importance of the professionalism factor. It

was found that internal audit staffs perceived this factor as more important than do presidents and

directors. Based on the test results, the null hypothesis relative to this factor was rejected.



1 2

Directors 41 2.7485

Presidents 9 2.8144


P-value .958 1.000


55

The professionalism of the internal auditing department factor used in this study included elements

such as the internal auditor's participation in professional organizations and continuing education

programs as well as the practice of professional ethics.

There are reasons that may explain this significant difference in perceptions between directors and

presidents with that of internal audit staffs. The main reason is that professionalism of the internal

auditing department to many internal audit staffs in higher education is promoted through , a code

of ethics, a statement of responsibilities, standards for the professional practice of internal auditing,

certification of internal auditors and a continuing education program.

Internal audit staffs consider these separate guides to be the criteria that internal auditing

practitioners should look to for definitions and interpretations of professionalism, professional

proficiency and professional judgments. The Code of Ethics for internal auditors is set forth in

Section 240 of the Standards. Its basic purpose is to establish professional standards of conduct.

Continuing education is another element that is important to professionalism in the internal auditing

department. For example, technological changes in the higher education environment have made it

clear that internal auditors must learn to keep abreast of new knowledge. This recognition is also

reflected in the Standards, which emphasizes the internal auditor's need to maintain technical

competence as well as certification through continuing education. Failure to keep current with

changes will adversely affect the usefulness of internal auditors (Lembke, et aI., 1974).

3.2.5 .4 Testing hypothesis four factor four Factor four was "Adherence to audit plan." The ANOVA analysis F (2, 55=8.374, p< .05) revealed

that no significant difference exist between the three groups concerning Factor 4 as showen in table

3.17. Based on the analysis the null hypothesis was rejected. That is there is significant difference

between groups but the “F” ratio could not indicate where the difference lies.

Table3.17: importance of adherence to audit plan as perceived by the three groups

SOURCE Sum of

Squares Df

Mean

Square F P-Value

Between Groups 7.274 2 3.637 8.374* 0.001

56

Within Groups 23.887 55 434

Total 31.160 57


To find where the difference existed Tukey HSD post hoc multiple comparison should be


directors (p<.05), and directors and audit staffs (p<.05) as showen in table3.18.

Table 3.18: Tukey HSD post hoc multiple comparison

(I) job position

in the

university

(J) job position

in the

university

Mean Difference





audit staffs .19833 .32022 .810 -.5730 .9697


audit staffs -.66402* .25472 .031 -1.2776 -.0505

audit staffs Presidents -.19833 .32022 .810 -.9697 .5730

directors .66402* .25472 .031 .0505 1.2776


But as Morgan et al (2004) this significant difference may be caused by the differences in the



Table 3.19: Adjusted Tukey HSD homogeneous subsets



1 2

Directors 41 3.2110

audit staffs 8

3.8750

Presidents 9

4.0733

P-value 1.000 .751


57

Table 3.19 shows an adjusted tukey that is appropriate when population sizes for different groups

are not similar (n=41, n=8, n=9). There was not a statsitically significant difference (p=.751)

between audit staffs and presidents because their means are both showen in subset 2. In subset 1,

the directors’mean only are showen, indicating that it was significantly different from others (P=1).

By examining the two subsets boxes, we can see that the directors (M=3.2110) is different from

both presidents (M=4.0733) and audit staffs (3.8750) because presidents’ and audit staffs’ means

appear in the same subset (subset 2) whereas directors appear in other subset (subset 1). Therefore,

the significant difference between directors and audit staffs, and directors and presidents are

attributed to differences in the perceptions on the importance of adherence to audit plan to use as

criteria to evalute internal audit effectiveness. Based on the results the null hypothesis relative to this

factor was rejected.

The Adherence to audit plan of the internal auditing department factor used in this study included

elements such as ensuring that riskier areas receive higher audit priority in the audit plan, completion

of the annual audit plan by internal auditing and the development of a long-range plan by internal

auditing to cover all significant areas.

The main reason that may explain this significant difference in perceptions between internal audit

staffs and presidents with that of directors is that directors are not frequantly in contact with internal

auditors since internal auditors who conduct traditional audits do not consider directors as clients.

Again not cosidering directors as clients resulted in developing plans that are incompatible with

company objectives, not providing for the measurement of the performance needed to carry out

plans.

3.2.5 .5Testing hypothesis four factor five

Factor 5 measures the importance of "Absence of surprises" in evaluating internal auditing

effectiveness. Table 3.20 ANOVA analysis F (2, 55=11.945, P < .05) revealed significant difference

exist between the three groups regarding this factor. The null hypothesis could be rejected.

Table 3.20: absence of surprised as perceived by the three groups


Between Groups 6.972 2 3.486 11.945 0.000


58


Between Groups 6.972 2 3.486 11.945 0.000


Total 23.025 57


To identify where the difference existed, Tukey HSD post hoc multiple comparison should be


directors (p<.05), and presidents and audit staffs (p<.05) as showen in table 3.21. Table 3.21: Tukey HSD post hoc multiple comparison

(I) job position

in the

university

(J) job position

in the

university

Mean Difference





audit staffs .94875* .26251 .002 .3164 1.5811


audit staffs -.01052 .20881 .999 -.5135 .4924

audit staffs Presidents -.94875* .26251 .002 -1.5811 -.3164

Directors .01052 .20881 .999 -.4924 .5135


As Morgan etail (2004) this significant difference may be due to by the differences in the population

size (N1=41, N2=8, N3=9 and tested by adjusted Tukey HSD homogeneous subsets to assure that

the significant difference is occurred only by absence of surprises. The result indicated in table 3.22.

Table 3.22: Adjusted Tukey HSD homogeneous subsets



Subset for alpha = 0.05(p)

1 2

Directors 41 2.7807


Presidents 9

3.7400

P-value

.999 1.000

59



audit staffs and directors because their means are both shown in subset 1. In subset 2, the

presidents’ mean only are showen, indicating that it was significantly different from others (P=1).

By examining the two subsets boxes, we can see that the presidents (M=3.7400) is different from

both directors (M=2.7807) and audit staffs (2.7912) because directors’ and audit staffs’ means appear

in the same subset (subset 1) whereas presidents apear in other subset (subset 2). Therefore, the

significant difference between directors and presidents, and audit staffs and presidents are atributed

to differences in the perceptions on the importance Absence of surprises to use as criteria to evalute

internal audit effectiveness. Based on the results the null hypothesis relative to this factor was

rejected.

The absence of surprises of the internal auditing department factor used in this study included

elements such as the need for internal auditing to alert management to potential problems befor they

occur, internal auditing’s early warning of problems in operations and control, and internal

auditings’s ability to establish appropriate audit priority based upon a formalized risk assessment by

internal auditing.

The main reasons that may explain this significant difference is that presidents are well aware about

the importance risk management while others are not. That is alerting management to potential

problems, early warning of problems befor occurance and prioritizing risk audit area by making risk

assessement is considered as task of internal auditors by presidents. Incontrast, directors and audit

staffs do not consider this as task of internal auditors.

The different group’s perceptions on different factors were summarized in table 23.

Table 3.23: Summary of hypothesis four for the five factors

Factors Difference on the importance of internal audit effectiveness criteria among three groups

F-test Post-hoc tukey test Adjusted HSD tukey

IAS and D IAS and P D and P IAS and D IAS and P D and P

60

1 D N D D N D N

2 D N N D N N N

3 D D D N D D N

4 D D N D D N D

5 D N D D N D D

D=significant difference IA=internal audit staffs P=presidents N=no significant difference D=directors

CHAPTER 4

SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS

The purpose of this research was to examine managements’ and audit staffs’ perception on the

importance of five selected factors used to evaluate internal auditing effectiveness in Bahir Dar and

Mekelle Universities.

The target populations were 10 presidents, 43 directors and 8 internal audit staffs of Mekelle and

Bair Dar universities. The list was obtained from each univerisity and the individuals who occupy the

positions of presidancy, dean, directorships and internal audit was considered as targets of the study.

61

The data were gathered through the internal audit effectiveness scale distributed to presidents,

directors and internal audit staffs of these universities and the returned survey scales provided the

data used in the research analysis and it was analysed by z-test and one way ANOVA. The analysis of the data provided the basis for rejecting or not rejecting the hypotheses statements.

The researcher provided explanation and rationale for the differences and similarities in the data

analysis and presentation section of the study. In this section the reasearcher tried to summarize,

conclude and recommend based on the data.

Z-test statistical procedures for independent samples were performed to analyze null hypotheses

one, two and three. One-way analysis of Variance and the tukey post-hoc test were applied to test

null hypothesis four.

In this study, the following null hypotheses were tested:

H1: There is no statistically significant difference between the scores of internal auditing

staffs of the perceived importance of five selected factors used to evaluate internal

auditing effectiveness as measured by the questionnaire.

H2: There is no statistically significant difference between the scores of directors on the

perceived importance of five selected factors used to evaluate internal auditing

effectiveness as measured by the questionnaire.

H3: There is no statistically significant difference between the scores of university presidents

on the perceived importance of selected five factors used to evaluate internal auditing

effectiveness as measured by the questionnaire.

H4: There is no statistically significant difference among mean scores of presidents, directors

and internal auditing staffs on the perceived importance of five selected factors used to

evaluate internal auditing effectiveness as measured by the questionnaire.

4.1 Summary

From statistical analysis coducted in chapter three, the researcher obtained the following major

findings and summarized in the order of hypotheses as follows.

Hypotheses one: The z- test was carried out to determine the significant difference between the

scores of university audit staffs of the perceived importance of five selected factors used to evaluate

62

internal auditing effectiveness as measured by the questionnaire and found that the above average

and below average category of audit staffs significantly differ on the importance of two criteria

(Professionalism of the internal audit department, and Reasonable and meaningful findings and

recommendations) to use as criteria to evaluate internal audi effectiveness. In the opinion of a

majority of the audit staffs, the five selected factors used for evaluating auditing effectiveness were

of above average importance overall. The percentage of scores for audit staffs falling in the above

average importance dimension with regard to the selected factors used to evaluate auditing

effectiveness were significantly larger than the percentage of scores following the below average

importance category. Within Audit staffs scored the most significant difference was observed on the

factor of professionalism of the internal audit department of the five selected factors for evaluating


Hypotheses two: The z- test was conducted to determine the significant difference between the

scores of university directors of the perceived importance of five selected factors used to evaluate

internal auditing effectiveness as measured by the questionnaire and found that the above average

and below average category of directors significantly differ on the importance of five factors/criteria

to use as criteria to evaluate internal audi effectiveness. In the opinion of a majority of the directors,

the five selected factors used for evaluating auditing effectiveness were of above average importance

overall. The percentage of scores for directors falling in the above average importance dimension

with regard to the selected factors used to evaluate auditing effectiveness were significantly larger

than the percentage of scores following the below average importance category. Within directors

scored the most significant difference is observed on the factor of reasonable and meaningful

findings and recommendations of the five selected factors for evaluating internal audit effectiveness.

Hypotheses three: The z- test was performed to determine the significant difference between the

scores of university presidents of the perceived importance of five selected factors used to evaluate

internal auditing effectiveness as measured by the questionnaire and found that all presidents

believed that all factors have above average importance to use as criteria for evaluating internal audit

effectiveness. Presidents had significant difference which contradict the findings of Albecht et al

(1988) on the importance of four factors (reasonable and meaningful findings and

63

recommendations, auditee’s response and feedback, adherence to audit plan and absence of

surprises) to use as a criterion for measuring internal audit effectiveness. Presidents had insignificant

differece that supports the findings of Albecht et al (1988) on the importance of professionalism of

the internal auditing departments.

In the opinion of a majority of the presidents, the five selected factors used for evaluating overall

auditing effectiveness were of above average importance. The percentage of scores for presidents

falling in the above average importance dimension relative to the five selected factors used to

evaluate auditing effectiveness were significantly large than the percentage of scores falling into the

below average importance category. Within presidents scored the most significant difference was

observed on the factor of reasonable and meaningful findings and recommendations of the five

selected factors for evaluating internal audit effectiveness.

Hypotheses four: A single factor analysis of variance (ANOVA) statistical procedure with Tukey

HSD post-hoc analysis was employed to test this hypothesis relative to each factor. There was a

significant difference in the response scores of presidents, directors and internal auditing directors

relative to the importance of the five selected factors used to evaluate auditing effectiveness. The

results for each factor were:

1. Audit staffs Perceptions/opinions was significantly different from presidents on the

importance of reasonable and meaningful findings and recommendations to use as criteria to

evaluate internal audit effectiveness. While presidents perceived reasonable and meaningful

findings and recommendations as significantly more important, audit staffs perceived as less

important criteria to evaluate internal audit effectiveness.

2. All groups had similar perceptions on the importance of auditee’s response and feedback as

criteria for evaluating internal audit effectiveness.

3. Audit staffs Perceptions/opinions were significantly different from both presidents and

directors on the importance of professionalism of the internal audit department to use as

criteria to evaluate internal audit effectiveness. While audit staffs perceived professionalism

of the internal audit department as significantly more important criteria, presidents and

directors perceived as less important criteria to evaluate internal audit effectiveness. The

64

significant difference between presidents and audit staffs supports the findings of Traver

(1991).

4. Directors Perceptions/opinions were significantly different from both presidents and Audit

staffs on the importance of adherence to audit plan to use as criteria to evaluate internal

audit effectiveness. While directors perceived adherence to audit plan as significantly more

important criteria, presidents and audit staffs perceived as less important criteria to evaluate


5. Presidents’ Perceptions/opinions’ were significantly different from both directors and Audit

staffs on the importance of absence of surprises to use as criteria to evaluate internal audit

effectiveness. Absence of surprises was perceived by presidents’as significantly, as more

important criteria but directors and audit staffs perceived it as less important criteria to

evaluate internal audit effectiveness.

4.2 Conclusion Based on the findings obtained from this research endeavor, the following conclusions were drawn:

� Audit staffs themselves do not agree on the importance of professionalism of the internal audit

department, and reasonable and meaningful findings and recommendations for evaluating


� Directors themselves do not agree on the importance of all five factors (reasonable and

meaningful findings and recommendations, auditee's response and feedback, professionalism of

the internal audit department, adherence to audit plan and absence of surprises) for evaluating


� Presidents themselves do not agree on the importance of four factors (reasonable and

meaningful findings and recommendations, auditee's response and feedback, adherence to audit

plan and absence of surprises) for evaluating internal audit effectiveness.

� There is theoretical knowledge gap between audit staffs and presidents. Especially audit staffs do

not understand the importance of reasonable and meaningful findings and recommendations for

measuring internal audit effectiveness.

65

� All three groups have similar perception on the importance of auditee's response and feedback

to use as creteria for evaluating internal audit effectiveness.

� Presidents and directors do not understand the benefits of professionalism of the internal audit

department for assessing internal audit effectiveness.

� Directors do not understand the benefits of adherence to audit plan for assessing internal audit

effectiveness.

� Directors and audit staffs do not understand the benefits of absence of surprises for assessing


4.3 Recommendations

Based on the findings and conclusions drawn, the following recommendations are forwarded in

order to increase the benefit of internal audit effectiveness criteria for the two uniersities.

This study revealed that three groups do not view the importance of all factors at the same level of

significance as criteria for evaluating internal auditing effectiveness. Although the differences in

perception on these factors may in part be attributable to the other background factors like age, sex,

educational level and experience, it represents an area that internal audit staffs and managements

need to pay attention. These significant differences have two implications.

The first implication is that the evaluation system of internal audit function based on the wrong or

erroneous criteria. The second implication is that without consensus of factor importance between

these three groups, the audit function may be evaluated on a different set of criteria than that of

adopted by internal audit staffs’ to perform their audit roles. To assist in overcoming this difference

in perceptions, it is recommended that Internal auditors

� Understand the profession well and then create internal audit awareness program

for their directors and presidents about the current theory and practice of internal

auditing.

� Need to conduct awareness training to communicate to directors and presidents that

internal auditors subscribe to and follow a substantial body of professionalism

guidance in the performance of their duties.

66

� Improve presentation skills to better communicate the audit results and respond to

critical questions about the results.

� Align the internal auditing program with the university's mission and make sure

presidents and directors understand this. Such action would serve as an indication

that the internal audit function is linked to the business of the university and that

their work will reflect that perspective.

� Cultivate closer working relationships and personal contacts with their presidents as

a means of closing this difference.

Finally, the researcher having identified the need, recommends further research on the :

� The benefits of five internal auditing measures as perceived by all stakeholders

(Ministry of Education and Board of directors) in public and/or private colleges and

universities.

� The benefits of internal auditing criteria as perceived by presidents, directors and

audit staffs in public and/or private colleges and universities by considering different

personal background variables (age, sex, education).

� The benefits of full scope/more dimensions of internal auditing criteria as perceived

by presidents, directors and audit staffs in public and/or private colleges and

universities.

BIBLIOGRAPHY

Adams, M.B. (1994). Agency theory and the internal audit. Managerial Auditing Journal, 9 (8), pp.8-12. Albrecht, W.S., Howe, K.R., Schueler, D.R. & Stocks, K.D. (1988). Evaluating the effectiveness of internal audit

depanments. Altamonte Springs: The Institute of Internal Auditors Research Foundation. Ahmad, H., Othman, R., & Jusoff, K. (2009).The effectiveness of internal audit in Malaysian public sector.

Journal of Modern Accounting and Auditing,5(9), pp53-61. AL-Twaijry, A.A.M., Brierley, J.A. & Gwilliam, D.R. (2003). The development of internal audit in Saudi

Arabia: an institutional theory perspective. Critical Perspective on Accounting, 14(5), pp. 507-531. American Institute of Certified Public Accountants (1980). Statement on auditing standards no. 9. The effects of an

internal audit function on the Scope of the independent auditor's examination. New York: Author. Applegate, D.B. Bergman, L.G.& Didis, S.K. (1997). Measuring success: the Internal Auditor, 54 (2) pp. 62 – 67 Association of College and University Auditors (1992). What Is ACUA? Author.

67

Azad, A.N. (1992). Factors associated with effective operational auditing at colleges.Internal Auditing journal, 7(4), pp. 57-62.

Babbie, E. (1973). Survey research methods. Belmont, CA. Wadsworth Publishing Company. Barrett, M.J. (1986). Measuring internal auditing performance. Internal Auditing, 2, pp.30-35.

Bethea, P., Jr. (1992). A descriptive exploratory examination of the role and responsibilities of internal auditors in higher education. North Caroline State University.)

Blackburn, S.D (2004). How effective is your internal audit function? [Online] iz available from www.in2itive.biz accessed 23/2/11

Boland, T.& Fowler, A. (2000).A Systems Perspective of Performance Management in Public Sector

Organisations.The International Journal of Public Sector Management, 13(5), pp417 – 44

Bruegman, D.C. (1995). An organizational model for the 21st century: Adopting the corporate model for higher education, 2, 28-31.

Burns D.C. Greenspan, J.W. & Hartwell, C. (1994). The state of professionalism in internal auditing. The

Accounting Historian’s Journal, 21(2), pp. 85-116. Cashell, J.D. & Aldhizer III, G.R. (2002). An examination of internal auditors’ emphasis on value added

services. Internal Auditing journal, 17(5), pp. 19-31. CIPFA (1997). The standards of internal auditing.USA: The Chartered Institute of Public Finance and

Accountancy (CIPFA). www.cipfaproperty.net Chambers, A. (2003). Measuring internal audit performance: Internal Control Issues. Kingston upon Thames: Croner

CCH Group Ltd. Clark M.W., Gibbs T.E. & Schroeder, R.G (1981). How CPAs evaluate internal auditors. CPA Journal, 51,

pp.10-15. Cosmas, C.E. (1996) Audit Customer Satisfaction:Marketing Added Value. Altamonte springs, Florida : The

Institute of Internal Auditors.

Daft, R. (1997). Management: fourth

Edition. Orlando, Harcourt Brace

Dessalegn Gietie and Aderajew Wondim (2007). Internal audit effectiveness: An Ethiopian public sector case

study. Managerial Auditing Journal, 22(5), 470-484. Dittenhofer, M. (2001). Internal audit effectiveness: an expansion of present methods. Managerial Auditing

Journal, 16(8), pp.443-50.

Elliott, P.G. (1994). The urban campus: educaring the new maiority for the new century. Phoenix, AZ: The Oryx Press. Ewert, G.A. (1997). How to sell internal auditing. The Internal Auditor,54(5), pp.54-57. Fadzil F.H., Haron, H. & Jantan, M. (2005). Internal Auditing Practices and Internal Control System.

Managerial Auditing Journal, 20(8) pp.844-66.

68

Farbro, J. L.(1985). A comparison of the perceived effectiveness of the internal audit function between selected private and public supported colleges and universities in the western United States. University of Idaho Graduate School.

Ferguson, G. A. (1998). Statistical analysis in psychology and education. New York: McGraw-Hill. Frigo, M.L. (2002). A Balanced Scorecard Framework for Internal Auditing Departments. The Institute of Internal

Auditors Research Foundation FDRE (Federal Democratic Republic of Ethiopia). 2009. Higher Education Proclamation No. 650/2009,

Negarit Gazette, Addis Ababa. Field, A. (2005). Discovering Statstics Using Spss. London: Sage publications Ltd. Flesher, D.L. & Zanzig, J.S. (2000). Management accountants express a desire for change in the functioning

of internal auditing. Managerial Auditing Journal, 15(7), pp. 331-337. Gerrit S. & Ignace D. (2006). Internal auditors’ perception about their role in risk management:A

Comparison between Belgian Companies and US. Managerial Auditing Journal 21(1). pp. 63-80.

Glazer, A.S. & Jaenicke, H.R.(1980). A framework for evaluating an internal audit function. Altamonte Springs, FL: Foundation Auditability Research and Education.

Hawkes, L.C. and Adams, M.B. (1994). Total quality management: implications for internal audit. Managerial

Auditing Journal ,9(4), pp. 11 Horne, E. V. (1995). The diploma: time card or stamp of approval. Trusteeship, 3, pp.5. The Otley, D.T. & Pierce, B.J. (1996) Auditor time budget pressure: consequences and antecedents

Accounting. Auditing and Accountability Journal, 9(1), pp31 - 58

Institute of Internal Auditors (1978). Standards for the professional practice of internal auditing. Altamonte Springs, FL: Author.

The Institute of Internal Auditors. (1990). Standards for the professional practice of internal auditing. Altomonte Springs, FL.: Author.

The Institute of Internal Auditors (1990). Statement of responsibilities. Altomonte Springs, FL: Author. IIA. (2004). the Institute of Internal Auditors. www.iia.org.uk.

Johnson. G. G. (1992). Internal auditing in higher education institutions.Internal Auditing Journal,8(2),pp. 53-58. Jowi, J. O. 2003. Internationalization of Higher Education in Africa: Developments, Emerging Trends, Issues and Policy

Implications. Higher Education Policy, 22, pp.263-281. Karl ,E. (2003). Is Sarbanes-Oxley compromising internal audit? Business Finance. August. Kondalker,V. G. (2007). Organizational Bahaviour. New Delih: New age international Limited, publisher. Lampe, J.C. & Sutton, S.G. (1994). Evaluating the work of internal audit: a comparison of standards and

empirical evidence. Accounting and Business Research journal,24( 96), pp. 335-48.

69

Lara, B. & Peter, J. B. (2007). Benchmarking in Maltese Internal Audit units. An International Journal of finance, 14(6), pp. 750-767.

Litwin, M. (1995). How to measure survey reliability and validity. Thousand Oaks, CA: Sage Publications. Leary, M. R. (2001). Introduction to Behavioral Research Methods. New Delih: New age international Limited,

publisher. McDaniel,R. (2000). Auditing goals & obiectives. Presented at CPE seminar sponsored by the Texas Association

of College and university Auditors. Corpus Christi, Texas.

Mercer, J. (1993). Public college officials groups for ways to keep a lid on tuition. The Chronicle of Higher Education, pp. A32-A33.

Ministry of Education. (1997). The future directions of higher education. Addis Ababa: Author.

Moeller, R.R.(2004). Sarbanes-Oxley and the new internal auditing rules. Newjersey: John willey and sons, Inc. Moore, D. & McCabe, G.P. (1993). Introduction to the practice of statistics. New York: W.H. Freeman and

Company. Morgan, G. A. (2004). Spss for introductory statstics: Use and interpretation.London: Lawerence Erlbaum associates,

publishers. Mullins, J. (2004). Management and organisational behaviour. New York: W.H. Freeman and Company. Nunnaly, J. (1978). Psychometric theory. New York:McGraw-Hill

Petrson, M.W. & Dill, D.D., Mets, L.A. and Associates (1997). Planning and management for a changing envIronment:a handbook on redesigning post secondary institutions. San Francisco, CA: Jossey - Bass Inc.

Pickett, N. (2010). The internal auditing handbook. New York: John Wiley & Sons, Inc. Reider, H. R. (1994). The Complete Guide to Operational Auditing. New York: John Wiley & Sons, Inc. Rickard, P. (1993). Measuring internal audit performance .Australian Accountant journal, 63(4), pp.21-23. Roth, J. & Espersen, D. (2003). Internal Audit’s Role in Corporate Governance: Sarbanes-Oxley Compliance.

Altamonte Springs: The Institute of Internal Auditors Research Foundation. Rowley, J.D., Lujan, R.D. & Dolence, M. G. (1997). Strategic change in colleges and universities: Planning to survive and

prosper. San Francisco: Jossey - Bass Inc. Sarens, G. (2009). Internal Auditing Research: Where are we going? International Journal of Auditing, 13, pp.1-7 Seaman, J.K. (1995). Dollarizing Audits. The Internal Auditor, 52(5) pp.42-44. Salmon, E. R.,& Chadler, E.W. (1981). The framework and beyond.The Internal Auditor, 10, pp.35-39.

Sawyer, L.B., & Vincen, G. (1996). The manager and the internal auditor partners for profit. New York: John Wiley and Sons.

Sawyer, L. B. (1983). The practice of modem intemal auditing. Altamonte Springs, FL: The Institute of Internal Auditing.

70

Salierno, D. (2000). The right measures .The Internal Auditor, 57(1) pp.41-44.

Simmons, M. R. (1999). The role of internal auditing. Col1ege and University Auditor,44, pp.4-5. Spraakman, G. (1997). Transaction cost economics: a theory of internal audit. Managerial Auditing Journal,

17(7), pp. 323-330. SOX. (2002). Sarbanes-Oxley Act of 2002. One Hundred Seventh Congress of the United States of America. Teshome Yizengaw (2003). The Status and Challenges of Ethiopian Higher Education System and its

contribution to Development. Ethiopian Journal of Higher Education, 1(1), pp.35 Traver, R.O. (1991). A comparison of perceived importance of factors that have an impact on audit effectiveness in higher

education institutions. University of Illinois at Urbana-Champaign. Tilley, O. (1999). Internal audit: How does it measure up? Australian CPA,1(1),pp.34-36. United kigdom Government Internal Audit Manual (2006). Government-Internal-Audit-Manual-(UK)-

(GIAM) www.acronymfinder.com..htm Ziegenfuss, D.E. (2000). Measuring Performance. The Internal Auditor, 57(1), pp.36-40.

APPENDICES 1

Homoginity and Normality of data distribution

Test of Homogeneity of Variances

Levene Statistic df1 df2 Sig.

reasonable and meaningful finding

and recom 1.506 2 55 .231

auditees respons and feedback 1.418 2 55 .251

professinalism of the internal audit

dept 1.053 2 55 .356

adherence to audit plan 1.335 2 55 .271

absence of surprises .502 2 55 .608

71

Normality distributionStatistics

reasonable and

meaningful finding

and recom

auditees respons

and feedback

professinalism

of the internal

audit dept

adherence to audit

plan

absence of

surprises

N Valid 58 58 58 58 58

Missing 0 0 0 0 0

Mean 3.3681 3.1484 2.9141 3.4364 2.9310

Skewness .233 -.370 -.146 -.706 -.135

Std. Error of Skewness .314 .314 .314 .314 .314

P

Kurtosis

.74

-.435

1.17

-.495

.46

.398

2.24

.364

.42

.359

Std. Error of Kurtosis

P

.618

.72

.618

.8

.618

.64

.618

.59

.618

.58

Reliability Statistics

Cronbach's Alpha N of Items

.701 5

Reliability Statistics

Cronbach's Alpha Part 1 Value .152

N of Items 3a

Part 2 Value .659

N of Items 2b

Total N of Items 5

Correlation Between Forms .761

Spearman-Brown Coefficient Equal Length .864

Unequal Length .868

72

Guttman Split-Half Coefficient .861

a. The items are: reasonable and meaningful finding and recom, auditees respons and feedback,

professinalism of the internal audit dept.

b. The items are: professinalism of the internal audit dept, adherence to audit plan, absence of surprises.

APPENDICES 2

Mekelle University

College of business and economics

Department of management

Questionnaire to be filled by University managements and audit staffs

Purpose: the purpose of this questionnaire is to collect data for a study on the title “Internal Audit

Effectiveness measures in two selected Higher Education Institutions. Your institution is

selected for the study. This study is for academic purpose i.e. a work and Dissertation project

Submitted in Partial Fulfillment of the Requirements for the Master of Arts degree In Business

73

Administration program/MBA. Your cooperation to provide genuine and relevant information is

highly important and appreciated for the success of the study. I would like to assure you that your

response would be kept confidential. Hence, please feel free to give answer for all the questions

frankly and accurately. It is not necessary to write your name on the questionnaire. It takes no longer

than 10 minutes to answer the questions. I thank you for your precious time that you spend for

answering the questions.

General Instruction: questions are subdivided into two parts. Read instructions for each part and

answer accordingly.

Section I: Background information The following questions have been included to determine selected demographic factors of your institution. Please answer by filling the blank by checking (x) as appropriate or use the space provided for open-ended

questions.

1. Name of the campus: _____________________________________________.

2. Age ________________________________________.

3. Gender: 1. Male 2. Female

4. Work experience____________________________.

5. Educational level

BA/BSC Masters /second-degree PhD

Section II: effectiveness criteria Based on your opinion, indicate the importance you place on each factor when evaluating internal

audit effectiveness at your institution. Please circle the appropriate number with 1 indicating this

factor has no importance to 5 indicating this factor is of great importance.

How important is each of the following factors to you in evaluating internal audit department effectiveness at

your institution?

Factors Great importance

Above Average Importance

Average Importance

Below Average

No Importance

74

1 The usefulness of audit information provided by internal auditing.

5 4 3 2 1

2 The participation of internal auditor's in professional organizations.

5 4 3 2 1

3 The need for internal auditing to alert management to potential problems before they occur.

5 4 3 2 1

4 Internal auditing ensuring that riskier areas receive higher audit priority in the audit plan.

5 4 3 2 1

5 The auditees acceptance of audit findings and implementation of recommendations'

5 4 3 2 1

6 Internal auditing's recognition of the institution's significant problems.

5 4 3 2 1

7 The participation of internal auditors in continuing education programs.

5 4 3 2 1

8 Internal auditing's early warning of problems in operations and control.

5 4 3 2 1

9 Completion of the annual audit plan by internal auditing.

5 4 3 2 1

10 The auditee’s assessment of internal audit services.

5 4 3 2 1

11 Internal auditing's ability to provide independent reviews.

5 4 3 2 1

12 The practice of professional ethics by internal auditors.

5 4 3 2 1

13 Internal auditing's, ability to establish appropriate audit priority

5 4 3 2 1

14 The development of a long-range plan by internal auditing to cover all significant areas.

5 4 3 2 1

15 The internal auditing department gaining the cooperation of management.

5 4 3 2 1

','

16: What do you recommend for internal audit effectiveness measure in your university? Please,

suggest your idea on the blank space provided below.

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

75

______________________________________________________________________________

_______________________ .

Perception of Management and Internal Audit Staff on the Importance of Internal Audit Efffectiveness...

Documents

Transcript of Perception of Management and Internal Audit Staff on the Importance of Internal Audit Efffectiveness...