CHAPTER-ONE

1. INTRODUCTION
1.1. Background of the study
Auditing in ancient time is land owner assign some individual to control or manage in assets
and assigned percent some evidence orally causing report in ancient time) to the owner of the
land. This is auditing in ancient time, but now auditing is systematic process of obliging and
elevating evidence about information to determined establish criteria or is a professional and
experienced person can gather economic evidence and investigate how they prepared,
comparing with the previous plan and finally on the variation from the plan and report the
result presented to the client of audit information. The current day audit is more widely in
scope and levels of responsibility than the ancient year. The current day internal audit
efficiency and effectiveness, improving performance by showing different problems live
embattlement, completion and fraud. It is advisable for the hospital to have internal audit
control. The objective of internal audit is to assess the management of the hospital in the
effective discharging of the respective responsibility.
Internal audit is very significant to the hospital and it has following importance reduce risk of
fraud, improve efficiency and effectiveness, assessing control over the production of asset
and management ability. Therefore, the hospital mass follow the audit procedure for
obtaining the above benefit. So, this research is live a direction internal audit practice in
Mizan-Aman Hospital in Aman town.

1.2.

Statement of the problem

Internal audit is one key areas of hospital in hospitals, but the following problems in MizanAman hospital in Aman town. There is lack of audit trading and there are in efferent audit
performance between auditors that leads to reduce the efficient and effectiveness of the hospital,
lack of experience sharing with the other hospital, auditor does not share experience with the
other auditor has good performance by doing these the auditor of the hospital over come
mistuned standing, mistakes and increase levels of performance level of the hospital, in other
problem associated with internal audit drafted government rules, principles, standards and

polices on internal audit those rules and principles, standards are carelessness in reading the audit
manual, and also lack of segregation of duties among auditor with audit type (compliance,
financial and performance) which is performed only audit staff these results no separation of
power (duty) and also cash collection among auditors.
Mizan-aman hospital is the following value added by examining the above problem. Improve to
the hospital efficiency and effectiveness, improving the hospital financial report and obtain back
ground information about purchase and stores. Determining resources necessarily to perform the
audit financial resource, material resources, improving performance by solving different problem
live embattlement corruption and fraud.

1.3.

Objective of the study

1.3.1. General objective

The general objective of this study is to assess internal audit practice in mizan-aman hospital in
Aman town.

1.3.2. Specific objective

The specific objective of this study is
-

The specific objective of the study is employees of the hospital

Reducing irregularities which mean not following the GAAP and GAAs.
To examining the management fraud which mean fraudulent preparation of financial

statement
To indentify the problem associated with employee training and explain internal audit.
To identify the role of internal audit in areas monitoring the effectiveness of internal
control

1.4.

Significance of the study

The reason donning this research is to indentifying that exist in mizan-aman hospital internal
audit activity. After indentifying the problems the hospital has proper authorization of translation
and activities, physical control over asset and records, adequate separation of duties and
checking the departmental audit level performance. The other, importance of this study may be
used for other hospital as are fernce to search what problems they have and also used for other

potential research as a source material and it is significant for as to gain knowledge and
experience on the research area.

1.5.

Scope of the study

Basically the study is concerned with internal auditing practice in Mizan-Aman hospital. The
research is emphasized on now internal auditing principle is applicable in practice. In addition to
the study focused on internal auditing system and application of the system in general and its
application in particular mizan-aman hospital.

1.6.

Limitation of the study

There are some problems that limit this research study among there the following are some
limitation.
-

Lack of information
Lack of resource, like intermit access, reference, etc
Lack of finance and enough time
Lack of experience
Lack of voluntary person to fill the questionnaires
Is the objectives of auditor to assist the No
internal control system of they hospital?
Yes
No
Total

respondent
4
3
7

of % of respondent
57%
43%
100%

From the above table indicates 43% of the respondent is the objective of auditor is not assist
internal control and 57% of the respondent is says that the objective of auditor is assist the
internal control.

CHAPTER-TWO
2. Literature review

Definition:- auditing is a systematic process of obtaining and evaluating evidence above

information to determine and report on the degree of crosspiece information and establish
criteria.
Internal audit is an independent objectives assurance and consulting acidity designed to add
value and improve an organization, operation. It help an organization accomplish its
objective by be ringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management. Control and governance process internal auditing is
catalyst for improving an organization effectiveness and efficiency by providing insight and
recommendation based on analysis is and assessment of data and business process. With
commitment to integrate and accountability internal audit provides value to governing bodies
and senior management as an objective sources or an independent advice. Professionals
called internal auditor are employed by originations to perform the internal auditing activity,
the scope of internal auditing with an organization is broad and mar involve topics such as
the efficiency of operation, the reliability of financial report, deterring and investigating
fraud, safeguarding frequently involves measuring compliance with the entitys policies and
procedures. However, internal auditors are not responsible for the execution of company
activities, they advice management and board of director regarding how to better execute
their responsibility. As a result of their board scope of involvement, internal auditors may
have a variety of higher education and (internet) professional background.
Audit describes the role of management in the preparation of financial statement,
management is responsible to for the preparation of financial statement and auditor is
responsible for the responsible assurance of detective material misstatement and expressing
opinion.
Audit also over come the following problem: such as irregularity, there is destination theft
asset, often called defalcation or employees fraud and fraudulent preparation of financial
statement called management fraud.
The management assertion about the financial formation must be existence or occurrences,
completeness right and obligation evaluation and avocation presentation and disclosure.

Audit gas with the planning and designing, accumulates evidence test and controls
transaction, use to perform procedures and test of detailed of balance final complete the audit
and is issue an audit report. Describe the financial statement cycles approach to segmenting
the audit and use this approach as basics for further study.
Describe how the auditor develops general and specific audit objective from management
assertions.

2.2. Types of auditing

Can be classified in different ways

Classified bused an objectives of audit

Classified bused an organizational stricture of the enterprise under audit
Classification based on thing and scope of audit procedures

2.2.1. Classification based on objective of audited

Independent financial audited: its objective is to ascertain in weather the financial

statement (balance sheet and profit and loss account) of an enterprise are reliable. Know
the type of audit are used for investor, trade creditors, banks and financial institution

government authorities etc.

Internal audited:- is an audited conducted on behalf of the management of an enterprise
with the objective of assisting the management to discharges its responsibility effectively,
an internal audited examination and evolution involves various activity of an enterprise: An internal audited may conduct to ascertain whether the enlisting controls are
adequate and effective
An internal audited may be conducted to ascertain whether the prescribed policies
and procedures are being followed.
An internal audited may be conducted to examine whether the asset of the
entropies are properly safeguarded.
An internal audit may be conducted to examine whether the resources of the

enterprise are being used economically and efficiently.

Cost audit:- this an audit of cost accounting records
Task audit: audit of the accounts of certain income tax assessment whose turnover or

receipts exceeds the specified limits

Government audit: is conducted primary to ensure that financial transactions of the
government are executed with proper sanctions and authorities.

2.2.2. Classification based on original structure on audit

2.1.

Audit of companies:- the management are responsible for the proportion of

financial statement and the share holders want to know the reliability of the
financial statement by independent author and draft his opinion.

2.2.
2.3.

Audit of partnership firms

Audit of sole proprietor concerns

2.2.3. Based on time and scope of audit procedures

Continuous audit: a situation where the audit work is carried on almost of throughout

the remade to be covered by the audit.

Final audit: situation where the audit work is commenced only after the expiry of the

period to be covered by the audit.

Interim audit: normally to financial statement or other data to be audited pertain to a

ful accounting year.

Balance sheet audit: audit appears in balance sheet, profit and loss account and

conducting detail examination of entries (voucher and related accounts).

(komal Gupta 2002, 7-14).
Advantages of audit
Is tools of control over those who handle resources belonging to others
Is tools it acts as a means of protection aquarist misuse of funds and reduces the

possibility of errors of fraud tools for ensuring credibility of economic information

Tools for improving economy and efficiency in we of resource
Tools for certain special purposes
To potential investors, creditors, employees and other third parries it provide greater
reliability of financials statement as providing a data base for taking investment,
credit and other decisions
(Kumay Getu 2002, 11-170.

2.3. Objective of internal audit

The objective of internal auditing adding value to the organization improving the
effectiveness and organizational operation, to provide assistance in the form of analysis,
evaluation, recommendation and advice. In general there are the following objectives of
internal audit: To properly disclose the documented information accurately and reliable to
management and other governing bodies
To check whether the control risk to the organization are identified and minimized

 To felicitates the early dictation and privation of fraud

To determine whether the organizational goal are effectively achieved
To determine whether resource are used efficiently and economically
(effectively).

2.4. Components of internal audit code of ethics

A principle consists essential guidance for the profession and practice of internal auditing. It is
also ideal standard of ethical conduct stated in philosophical terms and are not enforceable
among there standards, the following the same of them:A. Integrity:- is a prerequisite for all those who act in the public interest. Integrity requires
that the auditor is not affected and is not seen to be affected, by conflict of interest.
Conflict of interest may arise from personal, financial, business employment and other
relationships which the audit engagement team.
B. Objectivity:- is a stage of mind that excludes bias, prejudice and compromise and that
gies fair and impartial consideration to all matters that are relevant to the tasl in hand,
disregarding those that are not. The need for auditors to be objective arises from the fact
that money of the important issues implied in the preparation of financial statement do
not relate to question of fact but rather to questions of judgment.
C. Independence : Independence is freedom from situations and relationship which make it
probable that a reasonable and informed their party would conclude the objectivity either
is impaired or could be impaired. Independence relates to the circumstance surrounding
to the audit, including the financial, employment, business and personal relationship
between the auditors and the audited entity its connected parties.
D. Confidentially:- as a result of professional and business relationship and should not
disclosed any such information to third parties without proper and specific authority
unless there is a legal or professional right or duty to disclose. Professional and business
relationships should not be used for the personal advantage of the professional account
or third party.
E. Competency: an auditor has a continuing duty to maintain professi9onal knowledge and
skill at the level required to ensure that a client or employer receives competent
professional service based on current development in practice, legislation and techniques
unprofessional accountant (Auditor) should act diligently and in accordance with
professional service.

F. Accounting principles:- a member shall not express opinion or state affirmatively that the
financial statement or other financial data of an entity represent in conformity with
GAAP or states that he/she is not aware of a material modification that should be made to
such statements or data in order this to be in conformity with GAAP. If such stamtenst
(data) contain any departure from an accounting principle.
(Alin A. Arrens)

2.5. Types of internal audit

Compliance audit:- this of audit is conducted to check weather the organization unit is following
the various rules, regulation and polices set by higher authorizes and also auditing weather the
account is following the rules and regulation set by the company controller. This type of audit is
conducted by the auditor employed by the organization.
Performance (operational) audit:- this type of audit is carried so as to examine whether the
organization is using resource in efficient and effective manner. It is review of any part of the
organization procedures and methods for the purpose of evaluating effective and efficiency. It
tries to evaluate the organizational structure competent operation, production department or
marketing department and any other areas in which the auditor is qualified the result of this type
of audit is subjective rather than objective.
Financial audit:- this type of audit examines whether the financial statement are prepared
in avoidance with established criteria (which mean accordance with GAAP) and it also
carried out of check the accuracy, reliability and fairness of financial statement (income
statement, statement of stockholders, cash flow statement balance sheetetc.).
Information system audit:- it review the automated information system of the
organization and evaluates the system inputs, process, look put, system security, system
retrieval and computes quality.

2.6. Internal duties and responsibility

Internal auditor is require to give on annual opinion to the audit committee on the adequate and
effectiveness the whole system of internal controls with in the university and the extent to which
the governing authority may relevant it.
Auditors are responsible to give some modification on the drifted policies procedures and
objectives of the organizations by deciding with the managements and giving consultants.

To know the employees of the organizations has separate of duty segregation power and has
good quality proficiencies and experience. Discussion of the audit plan and making stratify for
the auditor program.
Internal auditor is accountability of compliance with standard (fund and economic ministry,
1998, 3-17).
Internal audit shall develop on over al audit strategy taking account integralities of available
resource knowledge of the university the work of external auditors and internal assurance
provider the university risk management process and internal auditor on assumption of risk.
Based on the over all audit strategy internal audit will undertake medium term and annual
programs of work to provide the required assurance. This will be drawn up by internal audit in
consolation with the president and the approval of the audit committee.
(http://www.dcu.ie/internslaudit/duties.shtml)

2.6.1. Technical responsibility

Performing assigned taxes with in internal audit review/projects or business *i.e. operational
audit of independent agent in accordance with departmental audit program and participate on a
silicate audit).
Gain an understanding of client risk, control and area of operational improvement.
Obtain analysis and appraise evidential data in order to evaluate the adequacy and effectiveness
of internal control.
Assist in identification of internal control gap and deficiencies as well as efficiency and
effectiveness opportunities.
Assist in development of recommendations for improved and enhanced controls and business
efficiencies to clients.
http:en.wikipedia.org/wiki/internal audit.

2.6.2. Other professional responsibility:

Develop extent professional oral and written communication in order to establish working
relationship with client personal and communicate engagement result.
Exercise professional segment on engagement and assist in development of proactive solution
and recommendation (internet).

2.7. The difference between internal audit and external audit

Internal audit: is a function that although operating independently from other departments and
reports decency to the audit committee resides within an organization (i.e. they are company
employees). It is responsible for performing audit with in wide range of areas within a business
as directed by the annual audit plan. Internal audit look at a risk facing the business and what is
being done to manage there risks effectively to help the organizations achieve its objectives.
For example, they may look at risks the company regulation such as producing to many products
in a comprise resource avoidable etc.
External audit: are independent bodies which reside out side of the organization which it is
auditing. They are focused on the financial accounts of risks associated with fianc and are
appointed by the company shareholder. The main responsibility of external audit is to perform
the annual statutory audit of the financial account. Providing an opinion whether they are a true
and fair reflection of the companys financial position. As part of this external auditors often
examine and evaluate internal controls put in place to manage the risk which could affect the
financial accounts, to determine if they are working as intended.

o
o
o
o
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http://en.wikipedia.org/wiki/internalaudit
2.8. Advantage of internal audit
It keep safeguard of asset
It make financial information and documentation free from errors
It is very important to the external auditors by minimizing csot and time
It is very important for the organization by achieving its overall objectives
Effective internal control reduce deviation amount of the audit risk
Internal audit is useful to know the amount of persons needed in the organizations
Generally internal audit is very important to assessing the overall audit plan, program and
how it is effective
(Finance and economic minister, 1998. 58-61).

2.9. Nature of the internal audit activity

Based on a risk assessment of the organization internal auditors, management and oversight
Boards determine where to focus internal auditing efforts (the focus prioritization if part of the
annual, multiyear audit planning; usually the audit plan is proposed by the chief internal. Audit
(sometimes with several options or alternatives) to the approval of the audit committee or Board
of Directors). Internal auditing activity is generally conducted as one or more discrete
assignments. A typical internal audit assignment involves the following steps:

1. Establish and communicate the scope and objective for the audit to appropriate
management
2. Develop an understanding of the business area under review. This includes objectives,
measurements, and key transaction types. This involves review of documents and
interviews. Flowcharts and narrative may be created if necessary
3. Describe the key risks facing the business activities within the scope of the audit
4. Identify control procedures used to ensure each key risk and transaction type is properly
controlled and monitored
5. Develop and execute a risk-based sampling and testing approach to determine whether
the most important controls are operating as intended
6. Report problems identified and negotiate action plans with management to address the
problems
7. Follow-up on reported finings at appropriate intervals. Internal audit departments
maintain a follow-up database for this purpose.
Audit assignment length varies based on the complexity of the activity being audited and internal
audit resources available. Many of the above steps are integrative and may not all occur in the
sequence indicated.
By analyzing and recommending business improvements in critical areas, auditors help the
organization meet its objectives. In addition to assessing business processes, specialists called
information technology (IT) auditor review information technology controls.

IMF\s internal audit is overseen by the external audit committee (three members, all external and
with the accounting and financial expertise required); the OSCEs office of internal oversight
reports to the secretariat general and the permanent council.
http://en.wikipidia.org/wiki/intenral...audit

2.10. Role in corporate governance

Internal auditing activity as it relates to corporate governance is generally informal,
accomplished primarily through participation in meetings and discussions with members of the
Board of directors. Corporate governance is a combination of processes and organizational
structure implemented by the board o f directors to inform, direct mange and monitor the
organizations resources, strategies and policies towards the achievement of the organizations
objectives. The internal auditor is often considered one of the four pillars of corporate
governance, the other pillar being the board of directors, management and the external auditor.
A primary focus area of internal auditing as it relates to corporate governance is helping the audit
committee of the board of directors (or equivalent) perform its responsibilities effectively. This
may include reporting critical internal control problems informing the committee privately on the
capabilities of key managers, suggesting questions or topics for the audit committees meeting
agendas, and coordinating carefully with the external auditor and management to ensure the
committee receives effective information.
http://en.wikipida.org/wiki/internalaudit

2.11. Role in internal control

Integral control activity is primarily directed improving internal control. Under the COSO
framework, internal control is broadly defined as a process affected by an entity board of
directors, management and other personnel, designed to provide reasonable assurance regarding
the achievement of objectives in the following internal control categories:

Effectiveness and efficiency of operations

Reliability of financial report
Compliance with laws and regulations

Management is responsible for internal control. Managers establish policies and policies and
process to help the organization achieve specific objectives in each of these categories. Internal
auditors perform audits to evaluate and privde recommendations for improvement.
In the united states, internal auditors may assist management with compliance with the SarbanesOxley act (SOX).
Http://.wikipidia.org/wiki/internal...audit

2.12. Development the plan of engagement

Internal auditing standards require the development of a plan of audit engagemtns (assignments)
based on a risk assessment, updated at least annually. The input of senior management and the
board is typically included in this process. Many departments update their plan of engagements
though the year as risks or organizational priorities change.
This effort helps ensure the audit activity is aligned with the organization\s objective, by
answering two key questions: first, what goals is the organization rying to accomplish in the
upcoming period? Second, how can the internal audit department assist the organization in
achieving these goals?
Internal auditors often conduct a series of interviews of senior management to identify potential
engagements. Changes in people, processes, or systems often generate audit project ideas.
Various documents are reviewed, such as strat4egic plans, financial reports, consulting studies,
etc. further, the results of prior audits and resolution of open issues are considered. For example,
automated programs such as NEMEA compliance center can collect responses, produce and
write standardized compliance reports for an organization seeking or issuing compliance rules.
Even if a business area is important, prior audit work and the nature and status of open issues
may render further audit effort unnecessary. If the organization has a formal enterprise risk
management (ERM) program, the risks indentified there in help limit the amount of separate risk
assessment perfumed by internal audit.

The preliminary plan of engagements is documented and prioritized. Audit resources and
expertise are the considered and a final plan is presented to senior management and the audit
committee. The presentations very based on the needs of the stakeholders and may include the
following:

Summary of key goals, risks and corresponding major audits, to illustrate alignment:
Analyses of audit effort along a variety of dimensions (e.g., by business segment,
COSO objective category, IT, Sarbanes-Oxley, vs. prior year, etc.) along with

commentary regarding change;

Brief description of critical potential audit engagement identified.
Audit engagement requested but not planned for excision due to prioritization and

resources;
Required co-sourcing effort, typically where outside expertise is required or during

peak periods;
Coordination with other risk functions, such as legal, compliance or insurance, to

ensure coverage of key organizational risks.

Update on audit staffing levels, experience and certification; and
Appendix materials, such as planning approach, assumptions (e.g; days per auditor
and staging level) and brief descriptions of all planned audits and related
prioritization.
http://en/wikipidia.org/wiki/internal..audit

2.13. Internal audit reports

Internal auditors typically issue report as the end of each audit that summarize their findings,
recommendations, and any responses or action plans from management. An audit report may
have an executive summary; a body includes the specific issues or findings identified and related
recommendations or action plans; and appendix information such as detailed graphs and charts
or process information. Each audit finding within the body of the report may contain five
elements, sometimes called the 5 Cs.
1. Condition: what is the particular problem identified?
2. Criteria: what is the standard that was not time? The standard may be a company
policy or other benchmark
3. Cause: why did the problem occur?

4. Consequence: what is the risk/negative outcome (or opportunity foregone) because of

the finding?
The recommendations in an internal audit report are designed to help the organization achieve its
goals, which may relate to operations, financial reporting or legal/regulatory compliance. They

may relate to effectiveness (i.e., whether goals were met or compliance with standards was
achieved) or efficiency (i.e., whether the outputs were generated with minimum inputs).
Audit findings and recommendation also relate to particular assertions about transactions, such
as whether the transactions were valid or authorized, completely processed, accurately valued,
processed in the correct time period, and properly disclosed in financial or operational reporting
among other eleemtns.
http://en.wikipidia.org/wiki/internal..audit

2.14. Quality program assurance

The internal audit should to process monetary and assess the over all effectiveness of the quality
programming.

Reporting on the quality program

Use of conducted in accordance with standard to report that their activity are
conducting in accordance with the standard for the professional practice of internal
audit.

The internal audit establish risk base plane to date remain the consistence with the
organization goal.

Coordination the chief audit executive should share information and coordination
activities with other internal and external provides of relevant assurance and
consulting services to issuer proper coverage and minimize duplication of efforts.

2.15. Phase of internal audit

1. audit planning phases once the auditor is appointed and issue and engagement letter to the
management, the next stage is to plan the audit. Planning is very important to the following
reason

it enable the auditor to get sufficient and competent evidence this will reduce the

legal liabilities and increase the reputation of the audit firm

it helped to keep the audit cost reasonable
to avoid misunderstanding the client

Audit planning has stage those are:

a. pre planning
b. obtaining background information about the client
c. obtaining information about client legal obligation
d. set materiality and access acceptable audit risk and inherent risk
e. understanding internal control system and assess control risk
a. preplanning stage: it takes time before the audit engagement and it also involves deciding
weather to accept or continue doing the audit for the client. This stage obtain engagement
letter and select audit staff for engagement and finally evaluate the client reason for audit.
b. Obtaining background information about the client:- for doing an adequate audit
understating of the clients business industry and knowledge about the company operation
are essential these can be accomplished in different ways:
By discussing with previous auditor
Participating actively and adequate training program
Reviewing companies policy
Reading AICPA audit guides, text book magazine
c. Tanning information about the contractual obligation of the client:- may be categorized: Corporate charters and by laws
Minutes of board of directors and meeting of staff worker
Contract
Corporate charter:- is granted by the state in which the company is incorporated it is also legal
document necessary for recognition a corporation as legal entity.
d. Set materiality and assess acceptable audit risk and inherent risk
It is the auditors preliminary estimate of the smallest amount of misstatement that would
probably influence the decision of a reasonable person relaying up on finical statement. If the
financial statement of the client contain material misstatement auditor has to modify their

opinion, when financial statement contain immaterial misstatement. Materiality determines the
scope of audit procedure. Factors affecting materiality are size of the items and the nature of he
item and other circumstance
Audit risk:- is the possibility that auditors may fail to appropriate modify their opinion on
financial statement that are materially misstated. Audit risks is the chance that a material
misstated exists in financial statement and auditors do not detect the misstatement with their
audit procedure audit risk has there components:

a.

Inherent risk
Control risk
Detection risk
Inherent risk_ is the measure of auditors assessment of likelihood that error
(misstatement) exceeding a tolerable amount exist in the client before considering

the internal control system

b. Control risk: is the measure of auditors assessment of likelihood that error
(misstatement) exceeding controllable amount that will not be prevented by the
client internal control.
c. Detection risk: is risk that the auditor is substantive test procedure will detect a
misstatement that exist, in account balance or transactions that could be material
individually or aggregated with their misstating.
Audit risk=control risk x detection risk x inherent risk
d. Understanding the internal control system and assessment of control risks:
Internal control: is consists of various policies strategy methods designed by the
management help the organization to achieve its objectives or goal the organization
objective may include:

Reliable financial report

Operational efficiency and effectiveness
compliance with various levels and regulation for e.g. tax rules of government
regulation

factors that affect internal control system are:

the size of the organization

nature of operation
objective of organization

Components of internal control of an organization includes the following:

controlling environment
Risk assessment
Quantity information and communication
Control activity
Non to risk or evaluating
Know back of internal control system is collusion of employees, carelessness, fatigue, mistakes
made by misunderstanding and top management over ride.
Assessment of control risk determines the substantive test of the auditor. When the enterprise has
strong internal control system their would be low control risk and decrease extent of substantive
test. When the enterprise has weak internal control system, there would be high control risk and
increase in extent of substantive test.
e. Developing audit program: it is the detailed list of activities to be performed in the
course of audit. These has two parties
a. Assessment of control risk
b. Substantive test
The objectives of audit programming are: the existence and occurrence of different transactions
summarized and occurred completeness of financial statement right and obligation of valuation,
allocation, presentation and disclosure.
II. Executive phase of auditing: is applying sampling techniques and selecting the sample for
performing the audit and preparing Audi work paper.
Sampling techniques is statistical or non statistical process of selecting a group of items from a
large group of items called population and using the characteristics of the sample to draw
influences about the characteristics of the entire population of teem. These is one of the basic
reason that the audit report are regard as expression of opinion rather than absolute certification
of the fairness of financial statement.
(O. Ray whitlingston, 1989, 118-180).

CHAPTER-THREE
3. Research design and methodology
3.1. Methodology of the study
The method used in achieving the objective of this study is to called relevant information from
various sources. There for, the researcher used both primarily and secondary data sources. The
researcher used primarily data by using of questionnaire, inquiry and interview with the
concerned audit staff, managers of the hospital who had possession financial area. The secondary
data sources used was books, and different unpopulated documents.

3.2.

Data collection method

Important information for this research is collected from internal auditor management of the
hospital and finance, departments by suing well and standardized questionnaires and inquiry. In
this research used both open ended and close ended questionnaires.
Close ended questions include a possible answer which contain ticks among choices and most
respondent can easily and answer the valued information.
Open ended questions are accrued to respondent to answer in heir own words (based on
subjective filling), it containing black space and explanation space can be filled by respondent.

3.3.

Sampling technique

This research focused to collect information from the office of finance management audit. So,
the number of population is very small in number and not needed sampling rather than used
census methods of collection information are appropriate and it is very difficult to analysis, these
implies the work of this research was more of qualitative research.

CHAPTER-FOUR
4. Data presentation and analysis
This parts of the research deals with the presentation and analysis of data of athered through
interviews to the management and the auditors.

4.1.

Back ground of the respondent

To achieve the objectives of the study the researcher used questionnaires for gathering the
necessarily data from the respondent. After distributing the questionnaires the following results
are obtained.
Table 4.2.1. sex competition of the respondent
Sex
Male
Female
Total
As indicated the above

Number of respondent % of respondent

5
71%
2
2%
7
100%
table out of the total respondent 80% are males and the remaining 20%

are female
Table 4.2.2. martial status
Martial status
No of respondent % of respondent
Divorce
Single
3
43%
Married
4
57%
Total
7
100%
As have see from the above table the martial status of the respondent are 43% sigee and 57% the
married respondent

Table 4.3: educational background

Educational background
Diploma

No of respondent
5

% of respondent
71%

Degree
Other
Total

1
1
7

14.5%
14.5%
100%

From the above table among the respondent 75% of respondent are diploma. 14.5% degree,
14.5% other.
Table 4.3.1. age composition of respondent
age
No of respondent
Below 30
3
31-45
3
Above 45
1
Total
7
From the above table the age compensation of the

% of respondent
43%
43%
14%
100%
respondent with percentage of 43% below

30%, 43 of 31-45 and the reaming above 45% is 14%.

4.2.

Presentation of data gathered through questionnaires

Do you agree the existence of auditor for No of respondent

% of respondent

hospital?
Yes
7
100%
No
Total
7
100%
As indicates the above table 100% of the respondent says that agree auditor sis important
for hospital.

Do you thing that the existing no

No of respondent

% of respondent

Yes
No
7%
100%
Total
7
100%
From the above table 100% of the respondent says, that the existing auditor is not enough
to hospital.

Do you believe that the auditor are No respondent

% of respondent

performing properly their task?

Yes
No
7
100%
Total
7
100%
From the above table the respondent do not believe that the auditor has not properly performing
their task 100% of respondent.
Is the objective of auditor problem No

% of respondent

associated with audit procedure?

respondent
Yes
2
89%
No
5
71%
Total
7
100%
From the above table 29% of respondent says problems assonates with auditor procedure and
71% no associated with audit procedure.
Do you thank that the auditor apply ethical No

of % of respondent

standards for example confidentiality, objectivity, respondent

etc.
Yes
3
43%
No
4
57%
Total
7
100%
From the above table 45% respondent think that the auditor apply ethical standards and 57% of
respondent sys the auditor does not apply audit with ethical stanrds for example confidentiality,
objectivity etc.
Do you believe that the existing auditor is No

of % of respondent

qualified?
respondent
Yes
No
7
100%
Total
7
100%
All respondent do not believe the existing auditor is not qualified (100%)
Could the audit report comply with standard?

No

Yes
No
Total

respondent
1
6
7

of % of respondent
14%
86%
100%

The respondent say the audit report comply with standards 14% and 86% is the audit report do
not comply with standards

4.3.

Interview presentation

Data gathered through interview from the management and auditors of the Felege Hiwot referral
hospital in Bahir Dar town. The interviewee are one management and two auditor.

4.3.1. Interview with the management

The researcher made interview with one management and the following data is our presentation
of interview from management:

Does the auditor have structural work relation to the management and head?

The management state that auditor has no structural work relationship with the
management and the head. The only relationship that the auditor has to the management
and head is meetings and panel discussions, of the organization but not related to the
work interactions.

What is the management responsibility to organize the audit section materially,

manpower and morally?

The management respond that the board of audit of the organization has no effective control and
cannot effectively utilize his powers in proper way (carelessness). So, they are weakly organized
materially and morally by the management.

In the organization, there is only one audit staff and no segregation among the
auditor. How they effective in controlling and achieving their goal?

As the operation in the organization is very wide and complex that cant be controlled by
only one staff auditor. In this case achieving the goal and controlling is very difficult.

How audit play major roles in protection of the employment fraud over asset? Most
of the time employment fraud over asset cannot be occurred, but the major role ro

procedures are comparing the list of asset with the physical existing one or on hand

balance assets.
Did the auditors of the organization sharing experience with other experienced
organization auditors? Most of the time they could not share experience but are

searching the possibility to them.

What is the reason of the organization facing lack of segregation among auditors
with audit type?

These are the problems of the organization head or board of audit big problems. Due to these, the
organization audit type is only financial audit but there are no other types of audit.

Could the auditor use the document assessing methods such as performance,
reconciliation, tracing and vouching?

The organization auditor is lack of experience and auditor knowledge to those document
assessing methods. Among those reconciliation and tracing is the only procedures used by the
organization auditors.

How many times could the auditors prepare audit report per year?

The auditor prepare quarterly report one copes to the management and one copes to the finance
and economy minister of the organization. In their report they include the deviations and
misstatements amount facing them in the audit of 3 months period. Their report is not formal but
rather subjective to the auditors. The finance and economic minister of the organization ha sthe
responsibility to control this error and make it to pay.

By what method the management prevent collusion of employees?

The big problem is employment collusion this is caused by each department heads carelessness
and the heads cannot support the work of audit because the auditor find out his fault actions.

4.3.2. Interview with auditors

We mad interview with two auditors of the FHRH of Bahir dar town and the following data is
our presentation of interview from auditors.

Could the management of the organization give permission to take audit training to
auditors?

The organization manager is also weak in internal control and lack of knowledges to analysis the
quality levels of the auditors. Because of these problems management cant provide permission
to the auditors to increase the work efficiency among them.

How the management know the auditors independence, professional quality

(experience) and ethical standard?

The management is also weak to know the quality and ethical standards of auditors. Partially the
auditor is ethically standard and independent and experienced. Among the auditors one auditors
is come from management department and the work and position of work cant match to each
other.

How do you audit the financial audit and follow-up the improvement as per the
given common needed?

The financial audit procedures are tracing the voucher amount to the deposit slip accounts. And
also attaching the documents of the remittance advices, bill of lading with each available
document. The financial audit is the only audit in FHRH.

Could the audit report compliance with audit standards?

The audit report does not compliance with standards as a result of lack of auditors knowledge
and trainings and also managements weak by providing them compliance with standard their
reports.

Data analysis
Because of the population member is very small used census method of data gathering and
analysis is based on subjective judgments. For our research topic using qualitative data analysis
technique is appropriate

From the data analysis, we understood that there is:

Lack of structural work relation between the auditor and the management
The management of the hospitals controlling is not affective in materially,

manpower and morally audit section is weak.

There is shortage of audit staff in the organization
The auditor cannot fully protect the employment fraud over asset and inventors.
There is lack of audit experience sharing with other organization auditors.\there is
shortage of following the auditor procedures such as performance, reconciliation,

vouching etc.
There is no audit of performance, compliance and other type audit but the only audit

is financial audit.
There is lack of audit training
The audit procedure of the hospital cannot follow the GAAP and their report cannot

follow GAAS.
The major problems related to internal audit control in EHRH is lack of segregation
fod duty, shortage of audit staff and there is not audit type of compliance and

performance.
There is shortage of auditor, when comparing the organization activity.
The auditor lacks knowledge and work on with out their professions area.
Lack of information forwarding to the auditors.
Lack of immediate action taken by management for audit opinion to implement it.
Lack of consideration the advantage of internal audit in FHRH
Lack of improvement achieve on the area of fianc and other operational matters due
to audit performance.

CHAPTER FIVE
5. CONCLUSION AND RECOMMENDATION
5.1. CONCLUSION
The objective of this research was to assess the problem of internal audit practice. Based on the
analysis and finding of the previous chapter we colluded:

Accordingly the finding of this research shows the main problems related to internal
audit control is shortage of skilled profession man powers, lack of audit training
among the existing audit, no segregation among the auditor (segregation fo duty) and

responsibility and shortage of audit staff.

The management of the hospital is not managing effectively and efficiently the

operation of audit work. This opinion cant implemented until finally.

According the finding the audit section of the organization cant know compliance

performance and special audit. The only audit performed is financial audit.
The auditor of the hospital cant follow the techniques of data gathering by
confirmation, performance and reconciliation etc.

The audit procedures, audit report and audit work of the organization cannot be
compliance with the GAAS, rules and regulations of audit manuals. But based on the

subjectivity of the auditors procedures.

The only the focus areas of the work of audit in the organization is the risk areas of
the hospital which is the area of fianc, purchase and disbursement, sales and

collection.
Lack of implanting the audit program but the only method is comparing the audit

program with the work done followed by plan.

Lack of structural work relation between the auditors and the management of the

organization.
Lack of knowing the importance of the internal auditors.

5.2.

Recommendation

For the improvement of audit performance in Mizan-Aman hospital in Aman town. The
following idea is recommended to minimize the problems related to internal audit control.

The office of audit or management of the organization assign enough number of

worker and they should be professional skilled and experienced.

To be effective in controlling they should increase the numbers of staff office and

should be segregation of duty and responsibility among auditor with audit type.
The management group provide to the auditor training program and the auditor

should increase skill level by following these

The management of the organization should properly controlling, directing, planning

the employees to reduce employee fraud.

To be effective auditing the compliance, performance, special audit etc. are very

important and improving the existing only audit financial audit, mizan aman
To be effective the organization should apply documentation techniques of analytical
and detail testing procedure and use of confirmation, performance and reconciliation
of audit procedure data gathering is very important to be effective.

The hospital auditor should follow the internationally accepted rules and regulation
of audit standards such as general accepted audit standards (GAAS) and general

accepted accounting principles (GAAP).

The auditor should diversify their work area in to many types of audit, but not only

on the financial area.

The management of the hospital should control the effectiveness of audit program

To be effectives the needs of structural work relationship between the auditor and the
management group is needed.