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Internal Audit Functions and its Effect on Financial Performance

by Mark Wanyama (Author) Dr. Fredrick Odoyo (Author) Dr. B. Bogonko (Author)

Scientific Essay 2018 19 Pages

Business economics - Investment and Finance

Excerpt

ABSTRACT

The purpose of this study was to investigate the internal audit functions and its effect on financial performance of Rift valley bottler’s limited, Eldoret. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization meet its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance process. This study was guided by Agency theory. This study adopted a correlation research design, with open and closed ended questionnaire. The target population was 40 employees with a sample size of 40 persons. The respondents were mainly employees from finance, human Resource and procurement departments. The data collected was analyzed using multiple linear Regression Analysis model to show the effectiveness of internal audit functions on financial performance of the Company. The study measured the variables of internal audit functions which are, risk management, internal controls and governance in form of financial accountability. Findings showed that Internal auditing is an independent, objective assurance and consulting activity designed to add value, improve an organization’s operations and helps an organization meet its objectives. This study recommends that organizations like Rift Valley Bottlers should always conceive and adhere to the internal audit functions in a positive way so as to improve its financial performance.

KEY WORDS: Internal Control, Risk Management, Budget Performance, Financial Accountability, Financial Performance.

INTRODUCTION

The global professionalization of internal audit started with the establishment of the Institute of Internal Auditors in the United States in 1941 (Brink 1991; Courtemanche, 1991, Sawyer, 1996). In 1941, two internal auditors, Robert B. Milne and John B. Thurston, concluded that a new professional body focusing on internal audit was needed for further professionalization (Brink, 1991).

The purpose of the Institute of Internal Auditors is described by one of its founders, Robert B. Milne in 1945 (Flesher, 1996). The Institute is the outgrowth of the belief on the part of internal auditors that an organization was needed in the structure of American business to develop the true professional status of internal auditing. Although its roots are in accountancy, its key purpose lies in the area of management control.

Currently, the Institute has around 96 institutes over the world. The institute of Internal Auditors is a recognized professional body with a bi-monthly internal auditing magazine, a certification program to Certified Internal Auditor (CIA) and many seminars and training opportunities, as well as its own research foundation with research on the history, developments and future of internal auditing. In the first statement in 1947 the emphasis was on accounting and financial matters. The early Statement of Responsibilities of Internal Audit (1947) described internal audit as an independent appraisal activity within an organization for the review on the accounting, financial and other operations as a basis for protective and constructive service to management.

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. The premises of the new definition, explained in publications covering the main changes (Chapman & Anderson, 2002, Krogstad et al., 1999), are: Internal audit is not only characterized as an independent, but also as an objective activity.

A similar study was done in Uganda (Makerere University) and the main purpose was to find out whether internal audit functions could influence financial performance of public universities and the findings and recommendations showed that much needed to be done in terms of research to fill the gap. Financial performance is variously defined and in this study, it is confined to how financial resources are controlled and utilized through efficient budget management and accountability to achieve organizational goals. However, most companies have continued to experience incidences of budget deficits, unpaid utilities and NSSF and tax arrears, unaccounted for funds, non compliance with the policies and procedures and mismanagement of funds. Companies have continued to register financial losses due to mismanagement even when there are guidelines for the utilization of funds. Qualified audit staffs need to advise management on issues of budget performance and financial accountability.

Another study was done in Kenya on the relationship between effectiveness of internal audit function and financial performance of companies listed on NSE. The study concluded that effective internal audit function has a positive influence on financial performance of companies listed at the NSE. The study recommended that companies should employ skilled and competent professional internal auditors to strengthen the internal controls and minimize on fraud. With efficient internal controls, cases of fraud, embezzlement and cash mismanagement will be controlled hence supplementing on the level of profits in the company. This study did not empirically show to what extend can the internal audit functions minimize fraud and improve the profits of the companies quoted on NSE securities. Therefore, this study sought to investigate the internal audit functions and its effects on financial performance of Rift Valley Bottlers Limited, Eldoret, Kenya.

Statement of the problem

In the aftermath of corporate scandals and the global financial crisis, corporate governance has received significant attention from regulators and the public. Regulatory responses have focused on increasing disclosure requirements relating to corporate governance and this has, in turn, driven increased awareness and demand for internal assurance on corporate governance processes, including internal control and risk management.

In the context of the globalization of business operations and the increasing use of information technologies, complexity of business transactions, and business risk, the role of internal audit function is becoming increasingly important and the range of tasks performed by internal auditors is growing.

Ideally Internal audit function as part of the company internal control system, the internal audit assesses the efficiency, effectiveness, economy, and fairness of the realization of tasks, provides consulting services to the Company’s Management, and promotes the effectiveness of risk management with the aim of creating added value and enhancing business growth.

Currently, Rift valley bottler’s limited is not doing well in terms of financial performance and also growth. This can be proved by the current retrenchment process of Staff going on due to the current economic conditions, Mergers with other Strong investment Companies like Centum Investment in order to strengthen their financial stability, the Company also is not expanding as required of any business enterprises and therefore this may be as a result of lack of good governance practices. Various studies have been done on the effect of internal audit on corporate governance and financial performance of different Organizations but none has been done in Rift valley bottler’s limited Company in Eldoret town. Therefore this study examines internal audit functions and its effect on the financial performance of Rift valley bottler’s limited Company.

Research Hypothesis

H01: There is relationship between internal control and financial performance of Rift valley bottlers limited Eldoret.

H02: There is a relationship between budgetary control and financial performance of Rift Valley bottlers limited Eldoret.

H03: There is a relationship between risk management and financial performance of Rift valley bottlers limited Eldoret.

H04: There is a relationship between financial accountability and financial performance of Rift Valley bottlers Eldoret.

Theoretical framework

Agency theory and the internal audit were propounded by Adams (1994) is one of the theoretical frameworks that guided this study. Agency theory is widely used in the accounting literature to explain and predict the appointment and performance of external auditors and financial consultants.

Adams said that, agency theory gives a useful theoretical framework for the study of internal auditing function. The agency theory proposes and predicts that the existence of internal audit also helps to explain the role and responsibilities assigned to internal auditors by the organization and that agency theory explains how the internal audit function might be affected by organizational change. Agency theory provides a basis for rich research, which can benefit both the academic fraternity and internal auditing profession. This theory is related to this study and helps to explain the role and responsibilities of internal auditors which if used will help to improve financial performance in many organizations in Kenya.

Conceptual framework

Financial performance of an organization is considered to be an outcome of internal audit function of internal control, risk management, and governance. These factors can cause both positive and negative environments for financial performance in terms of budgeting performance and financial Accountability.

Independent Variables Dependent Variables

Source: Researcher (2016)

RESEARCH DESIGN AND METHODOLOGY

The study investigated the internal audit function and its effect on financial performance of Rift valley Bottlers limited. The study adopted a correlation research design. Both qualitative and quantitative methods of data collection and analysis were used. The respondents were selected from different departments that included; Human Resource, Finance and Audit department, Procurement department, Sales department and processing department. Target Population was 40 respondents mainly being employees of the company.

The study used self-administered questionnaires as research instruments. Both open and close ended questions were designed for the respondents who were mainly employees of the company.

Data was collected using both primary and secondary data collection techniques. Primary data was gathered basically through structured questionnaires which were administered to respondents within the departments in the company. Secondary data was gathered through the company’s financial reports, audited reports, other publications, text books, journals etc.

DATA ANALYSIS, PRESENTATION, INTERPRETATION AND DISCUSSION

This chapter presents the report of the data gathered from the field as well as an analysis of the same. In the first part of the chapter, a report of the data according to the questionnaire responses coded by the researcher using the SPSS computer package is done. The analysis was done conforming to the requirements of quantitative research paradigms. The interpretation and analysis were done based on the real life situation as observed in the company

Level of education

Figure 4.3 shows the level of education of the respondents.

Figure 4.3: Level of education

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The results indicate that 20(50%) of the respondents had reached bachelor’s level while 18(45%) had reached diploma level. Certificate level were 2(5%) of the respondents. These results reveal that majority of the respondents were Bachelors degree holders.

Internal Control

The study sought to find out the internal controls found in the Rift valley Bottlers Limited Company. Results are discussed as follows :

Table 4.1 Internal controls

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Looking at staff adherence control systems 22(55.0%) of the respondents agreed, 13(32.5%) strongly agreed, 3(7.5%) were undecided while 2(5.0%) strongly disagreed. From the results it is revealed that the majority 87.5% agreed that staff adhered to controls in place.

On finding out if there is proper monitoring of internal control systems in the company 16(40.0%) of the respondents agreed that there was proper monitoring of internal control systems, 11(27.5%) strongly agreed while 13(32.5%) were undecided. The results reveal that companies have proper monitoring of internal control systems.

Accuracy of information in any organization is very important in measuring internal control in an organization, the study sought to find out if accuracy of information was emphasized in the company. From table 4.1 it is seen that 17(42.5%) of the employees agreed that accuracy of information is emphasized in their company, 11(27.7%) strongly agreed, 6(15%) undecided, while 12(30.0%) strongly disagreed. Table 4.1 also shows that record of assets is not maintained with 19(47.5%) of the respondents strongly disagreed, 11(27.5%) strongly agreeing while 10(25.0%) agreed, 10(25.5%) undecided.

Finding also shows that 18(45.0%) of the employees agreed that assets register is regularly updated 4(10.0%) strongly agreed 12(30%) undecided, while 18(45.0%) strongly disagreed revealing that assets register is regularly updated. The study went further to find out if assets were kept in custody of authorized personnel from table 4.1 majority of the respondents 19(47.5%) agreed that assets were kept in custody of authorized personel,16(40.0%) strongly agreed while only 5(12.5%) strongly disagreed.

It is also seen that most of the employees 22(55.0%) strongly agreed that the company has measures to safeguard assets from fire, 14(35.0%) agreed while 4(10.0%) strongly disagreed.

On investigating whether Rift Valley Bottlers Limited Company had clear levels of approval and authorization the findings showed that 23(57.5%) agreed that there were clear levels of approval and authorization and 17(42.5%) strongly agreed. These therefore imply that there are clear levels of approval and authorization in the company.

Looking at the company identifying risks in terms of sources of risks, it was found from table 4.2 that majority of employees 21(52.5%) agreed that company identified risks in terms of sources risk, 11(27.5%) strongly agreed while 6(15.0%) strongly disagreed revealing that the Company identifies risks in terms of sources. Results also shows that the company has a risk communication strategy with 18(45.0%) of the employees agreed, 17(42.5%) strongly agreed while only 5(12.5%) were undecided.

On investigating if the company analyzed risks in terms of consequences most of the employees 23(57.5%) agreed that it analyzed, 11(27.5%) strongly agreed, 4(10.0%) strongly disagreed while 2(5.0%) were undecided implying that coca cola company analyzed risks in terms of consequences.

Risk Analysis

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Table 4.2 also shows that the company analyzed its risks in terms of reputation impact with 12(30.0%) strongly agree and the same number of the respondents also agree on the same.9)22.5%) of the respondents were undecided and 7(17.5%) strongly disagree that company does not analyzed its risks in terms of reputation impact. The company analyzed its risks in terms of achievement of objectives majority of the respondents 13(32.5%) were undecided, 11(27.5%) agree, 10(25.0%) strongly disagree and 6(15.0%) strongly agree.

The company also had ability to assess risk in terms of potential impact with most of the respondents having 18(45.0%) strongly agree, 9(22.5%) agree and the same number of the respondents also strongly disagree. Only 4(10.0%) were undecided whether the company also had ability to assess risk in terms of potential impact. Looking whether the company has ability to prioritize risks it faces, majority of the respondents 20(50.0%) agree, 13(32.5%) strongly agree and only 7(17.5%) strongly disagree that the company does not have ability to prioritize risks it faces

Impact of risk management

Summarized below are results on the impact of risk management of several variables.

Table 4.2 Impact of risk management

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It is seen from table 4.2.1 that Rift valley Bottlers Limited company agreed 20(50.0%) carried out a comprehensive and systematic identification of risks, 10(25.0%) strongly agreed, 7(17.5%) were undecided on whether the company carried out a comprehensive and systematic identification of risks or not while 3(7.5%) strongly disagreed.

On company considering sources of strategic risks when identifying risks, it is seen that18 (45.0%) of the employees strongly agreed, 12(30.0%) agreed, 7(17.5%) undecided and 3(7.5%) strongly disagreed. Revealing that, the Company considered sources of strategic risks when identifying risks in the company.

The findings shows that 16(40.0%) of the employees strongly agreed that the company internal audit staff takes all necessary measures to control risks in auditing process, 15(37.5%) agreed, 6(15%) undecided while 3(7.5%) strongly disagreed revealing that coca cola company measures to control risks in auditing process. It is seen that management view of key business risk facing the company was known by internal auditors with 19(47.5%) agreeing to it, 13(32.5%) strongly agreed while 8(20.0%) were undecided.

Financial accountability

The study sought to assess the financial accountability of rift valley bottlers and findings recorded in table 4.3.

Table 4.3 Financial Accountability

The study assessed the financial accountability of rift valley bottlers results are summarized in table 4.3.

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From the findings it is seen that 17(42.7%) of the employees strongly agreed that every financial transaction at Rift valley bottlers transact with complete and accurate record, 8(20%) agree and the same number of the employees also strongly disagree. The remaining 7(17.5%) of the employees were undecided whether they transact with complete an accurate record.

The study sought to find out from the employees if they supported the accounting procedures used in Rift valley bottlers and revealed that 14(35%) agreed that they supported the accounting procedure used, 19(32.5%) strongly agreed, 8(20%) strongly disagreed while 5(12.5%) were undecided. From the results, it is revealed that employees of Rift valley bottlers strongly agreed to support the accounting procedure used.

Investigating whether all stakeholders are always satisfied with company expenditures, Majority of the respondents 16(40%) strongly agreed, followed by 13(32.5%) agreed and 11(27.5%) undecided whether all stakeholders are always satisfied with company expenditures.

It is seen that 14(35.0%) of the respondents agreed that management periodically produces balance sheet to show the organizations cash inflows and out flows. 11(27.5%) strongly agreed, 8(20%)strongly disagreed and the remaining 7(17.5%) were undecided whether the management periodically prepare balance sheet. From the results obtained, it illustrates that employees in Rift valley Bottlers Company agreed that management periodically prepares balance sheet.

The researcher wanted also to find out whether the employees verify and validate the internal audit in their financial statement. It was found that most of the employees 20(50%) strongly agree that they validate and verify financial statements, 14(35%) agreed and the other 4(10%) were undecided whether the employees verify and validate their financial statements.

To investigate on the value for money audits carried out regularly, most of the employees 11(27.5%) strongly agreed, agree and the same number of the employees strongly disagree. The minority of the employees 7(17.5%) of the employees were undecided whether value for money audits are done regularly or not.

On finding out if the employees tenders in company are reviewed with value of money. Majority of the respondents 12(30%) strongly agreed and the same number also was undecided. 9(22.5%) strongly disagree and the remaining 7(17.5%) agree that all tender bids in the company are reviewed with value for money.

From the study, it is indicated that 16(37.5%) of the respondents agreed that on accounts activities monitored, 13(32.5%) were undecided, 7(17.5%) strongly agreed and 4(10%) strongly disagree. This reveals that majority of the respondents agreed that accounts activities are monitored and supervised to ensure value for money.

On finding out whether advances given accountability are slow, Most of the employees 18(45%) strongly disagree, 15(37.5%) strongly agreed, 4(10%) were undecided and the remaining 3(7.5%) agreed that advances give in accountability are very slow.

Budget performance

From the table below, the researcher wanted to find out the budget performance among the employees in the company.

Table 4.4 Budget performance

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From table 4.4 it revealed that majority of the employees 14(35%) were undecided whether the company budget covers all sectors, 13(32.5%) of the respondents strongly agreed. 7(17.5%) of the employees agree that the company budget covers all sectors and the minority 6(15%) strongly disagree that the company does not cover all budget sectors.

On investigating whether the planned funds are not realized as expected, 14(35%) of the respondents undecided, 13(32.5%) strongly agreed, 7(17.5%) agreed and 6(15%) strongly disagree that planned funds are not realized as expected. Therefore the results show that employees in the Rift valley bottlers company are not sure whether the planned funds are realized as expected.

The Researcher also wanted to find out from the employees if diversion of funds occurs when the proposed amount of funds is not realized. From the results in table 4.4 above, it indicates that most of the employees 16(40%) strongly agree, 14(35.5%) agree and the other 10(25%) were undecided whether diversion of funds occur when the proposed amount of funds is not realized.

Investigating on whether funds are spent as planned, majority of the employees 20(50%) strongly disagreed, followed by 10(25%) undecided, 8(20%) agree and 2(5%) strongly agreed that funds are spent as planned. The result reveals that funds are not spending as planned.

Findings on whether management had a tendency to spend funds on items that are beneficial to themselves. 18(45%) strongly agreed, 13(32.5%) agreed, 7(17.5%) strongly disagreed and 2(5%) were undecided. The results therefore indicates that majority of the employees in Rift valley bottlers company has a tendency to spend funds for their own benefits.

The study sought to find out whether there are some situation of over expenditure on some votes in the company, majority of the respondents 14(35%) agree 26 (40%) strongly agreed and the other 10(25%) were undecided whether there are over expenditures on some votes in the company. Still from table 4.4 results shows that 20(50%) of the respondents strongly disagree that management do not monitor objectives against budget. 10(25%) were undecided, 8(15%) agree and 2(5%) strongly agree. The results illustrates that the management of Rift Valley Bottlers Company do not monitor objectives against objective and budget.

Hypothesis testing

To test the null hypothesis it was found necessary to specify the dependent variable and independent variables.

Table 4.5: Pearson Correlation between internal Controls and financial performance

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Correlation is significant at the 0.05 level (1-tailed).

The findings indicates that the p value for all variables were less than 0.05 (p<0.05) showing a relationship between internal control and financial performance of Rift valley bottlers. Therefore we reject the null hypothesis that states that there is no significant relationship between Internal Control and financial performance in an organization and accept the alternate. Therefore in order to improve on financial performance, there is need to develop an internal control function plan. Mullins (2003) also found out that there is strong positive relationship between internal audit functional and financial performance.

Table 4.6: Pearson Correlation between Risk management and financial performance

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Correlation is significant at the 0.05 level (1-tailed).

The correlations above between Risk management and financial performance shows a relationship between the whole variables with their p values less than 0.05 (p<0.05), therefore we reject the null hypothesis that states that there is no relationship between risk management and financial performance. These results concur with several other studies which draw the link between good risk management practices with improved financial performances (Smith, 1995; Schroeck, 2002). In particular, these studies propose that prudent risk management practices reduce the volatility in banks’ financial performance, namely operating income, earnings, firm’s market value, share return and return on equity. Schroeck (2002) proposes that ensuring best practices through prudent risk management result in increased earnings.

SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

This study investigated internal audit functions and its effect on financial performance in Rift Valley bottlers limited Eldoret, Kenya. In summary, the following results were obtained, 20(50%) of the respondents had bachelor’s degree and the majority 34(85%) were married in rift valley bottlers limited.

In relation to proper monitoring of internal control systems in the company 16(40.0%) of the respondents agreed that there was proper monitoring of internal control systems, Accuracy of information in any organization is very important in measuring internal control in an organization, the study sought to find out if accuracy of information was emphasized in the company. From the analysis it observed that majority 17(42.5%) of the employees agreed that accuracy of information is emphasized in their company .The discussion also showed that records of assets were not maintained with 19(47.5%) of the respondents strongly disagreed, the findings also shows that 18(45.0%) of the employees agreed that assets register is regularly updated. The study went further to find out if assets were kept in custody of authorized personnel with the majority of the respondents 19(47.5%) agreed that assets were kept in custody of authorized personal. It is also seen that most of the employees 22(55.0%) strongly agreed that the company has measures to safeguard assets from fire, while the majority 23(57.5%) agreed that there were clear levels of approval and authorization in the Rift Valley Bottlers Limited Company.

Looking at the company identifying risks in terms of sources of risks, it was found that majority of employees 21(52.5%) agreed that company identified risks in terms of sources of risk it also shows that the company has a risk communication strategy with 18(45.0%) of the employees agreeing. On investigating if the company analyzed risks implying that Rift Valley Bottlers analyzed risks in terms of consequences. The results show that the company analyzed its risks in terms of reputation impact with 12(30.0%) strongly agree and the same number of the respondents also agreed on the same. The company analyzed its risks in terms of achievement of objectives majority of the respondents 13(32.5%), the company also had ability to assess risk in terms of potential impact with most of the respondents having 18(45.0%) strongly agree, that the company also had ability to assess risk in terms of potential impact. Investigations on whether the company had ability to prioritize risks it faced, majority of the respondents 20(50.0%) agreed that the company had the ability.

The results on comprehensive and systematic identification of risks indicated 20(50.0%) of the respondents agreed that it was carried out at the company. In addition, 18 (45.0%) of the respondents strongly agreed that, the Company considered sources of strategic risks when identifying risks in the company. The findings also showed that 16(40.0%) of the respondents strongly agreed that the company’s internal audit staff took all necessary measures to control risks in auditing process. Management view of key business risk facing the company was known by internal auditors with 19(47.5%) of the respondents agreeing to it.

The study assessed the financial accountability of Rift Valley Bottlers and the results summarized that 17(42.7%) of the respondents strongly agreed that every financial transaction had complete and accurate records. Results on employees support of accounting procedures used in Rift valley bottlers showed that majority 14(35%) agreed. On investigating whether all stakeholders were satisfied with company expenditures, majority of the respondents 16(40%) strongly agreed. Majority 14(35.0%) of the respondents agreed that management periodically prepared balance sheet that showed the organizations cash revenues and expenditures.

More findings showed that majority of the respondents 20(50%) strongly agree that the company validates and verifies financial statements. On investigating whether value for money audits were carried out regularly, most of the employees 11(27.5%) strongly agreed. On finding out if tender bids in company were reviewed with concern of value of money, majority of the respondents 12(30%) strongly agreed and the same number were undecided. The study, showed that 16(37.5%) of the respondents agreed that accounts activities were monitored and supervised to ensure value for money. finding out whether advances given delays accountability, majority of the respondents 18(45%) strongly disagree.

Looking at budget performance, the results illustrated that majority of the respondents 14(35%) were undecided and on whether the company budget covered all sectors majority 13(32.5%) strongly agreed. On whether the planned funds were not realized as expected, 14(35%) of the respondents were undecided. Results indicated that most respondents 16(40%) strongly agree diversion of funds occurred when the proposed amount of funds was not realized. Whether funds were spent as planned, majority of the employees 20(50%) strongly disagreed. On analyzing whether management had a tendency to spend funds on items that were beneficial to themselves, 18(45%) strongly agreed. Majority of the respondents 14(35%) agreed that over expenditure on some votes in the company occurred. Also 20(50%) strongly disagree that management do not monitor objectives against budget.

There was a relationship between internal control and financial performance of Rift valley bottlers. Therefore in order to improve on financial performance, there is need to develop an internal control function plan. Mullins (2003) also found out that there is strong positive relationship between internal audit functional and financial performance. The correlations above between Risk management and financial performance showed a relationship between the risk management variables and financial performance with their p values less than 0.05 (p<0.05). The results concur with several other studies which draw the link between good risk management practices with improved financial performances (Smith, 1995; Schroeck, 2002). In particular, these studies propose that prudent risk management practices reduce the volatility in banks’ financial performance, namely operating income, earnings, firm’s market value, share return and return on equity. Schroeck (2002) proposes that ensuring best practices through prudent risk management result in increased earnings.

Conclusions

The purpose of this study was to investigate internal audit functions and its effect on financial performance of Rift valley bottler’s limited, Eldoret. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization meet its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance process. The institute of Internal Auditors is a recognized professional body with a bi-monthly internal auditing magazine, a certification program to Certified Internal Auditor (CIA) and many seminars and training opportunities, as well as its own research foundation with research on the history, developments and future of internal auditing. The early Statement of Responsibilities of Internal Audit (1947) described internal audit as an independent appraisal activity within an organization for the review on the accounting, financial and other operations as a basis for protective and constructive service to management. It is a type of control that functions by measuring and evaluating the effectiveness of other types of control. It deals primarily with accounting and financial matters, but it may also properly deal with matters of an operating nature. The study also found out that there is a relationship between internal control and financial performance of organizations.

Recommendations

Basing on the study findings researcher recommends the following;

The study recommends organizations like Rift Valley Bottlers to always practice internal auditing of their creditors and this will improve on their financial performance.

The study further recommends that organizations should always conceive and adhere to the internal audit functions in a positive way as it is communicated by employees and follow their contents in the day to day running of the organization activities.

This study further recommends training of employees in rift valley bottlers as important motivational tool for motivating employees towards better performance.

Recommendations for further Research

This study recommends that further research should be done on internal audit functions and its effect on financial performance in Rift Valley Bottlers’ Limited Eldoret, Kenya on a high level.

Since the study used only questionnaires as a data collection tool, same study should be done by using different types of data collection tools for further authenticity.

REFERENCES

Adams, M. B. (1994). Agency theory and internal Audit , Managerial Auditing Journal, Vol.9, No.8, pp.8.

Audit Act (1994). Authorized version No. 060. No. 2 of 1994.

Brink, V. Z. (1991). Forward from Fifty. Internal Auditor (June): pp 8-13.

Chapman, C., and Anderson U. (2002). Implementing the Professional Practices Framework (Altamonte Springs, FL: The Institute of Internal Auditors, 2002).

Courtemanche, G. (1991). Outsourcing the internal audit function. Internal Auditor (August).

Institute of Internal Auditors (1999a) “Definition of Internal Auditing”, the Institute of Internal Auditors, Altamonte Springs.

Institute of Internal Auditors (1999b). A vision for the future Professional Framework for Internal Auditing. Altamonte Springs, F.L: The institute of Internal Auditing.

Rittenberg, Miller, (2005). Sarbanes-Oxley section 404 looking at the Benefits. (Altamonte Springs, FL: The Institute of Internal Auditors.

Sawyer, L. B., and Dittenhofer, M. A. (1996). Internal Auditing, 4h ed. (Altamonte Springs. FL: The Institute of Internal Auditors.

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2018
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Title: Internal Audit Functions and its Effect on Financial Performance