CHAPTER 1:
INTRODUCTION
1.1 Background of the
Study
An essential
condition for the survival of a manufacturing industry or more generally of an
organization lies on the ability of its members to act reliably and efficiently
to achieve the objectives of the industry. The substantial coordination of
behavior can be achieved in numerous ways. Supervision of managers and staffs
of manufacturing industry is becoming ineffective. However it may be wished to
maintain these ways of controlling but it would only be applied to the part of
the industry (Brown, 1999). Therefore it is necessary that management put in
place mechanisms to fill the gap in supervision.
The financial and corporate goal
attainment of a manufacturing industry is underpinned by effective internal
systems in which the practices of the internal audit has an important role,
raising the reliability of the internal control system which is always aimed at
improving the process of risk management, and, above all, satisfying the needs
of internal users (Fama, 2008). The effective practice of internal audit also
supports and enhances the system of responsibility that the executive directors
and employees of manufacturing industry have towards the owners and other
stakeholders. The Internal Audit Department provides a reliable, objective, and
impartial service to the management, board of directors, and audit committee,
while stakeholders are interested in return on investments, sustainable growth,
strong leadership, and reliable reporting on the financial performance and
business practices of a manufacturing industry.
Proper understanding of the role and
importance of the internal audit is one of the preconditions for successful
strategy implementation and attainment of corporate goals of a manufacturing
industry. However, this research aims to examine the effect of internal audit
practice on corporate goal attainment of some selected manufacturing firms in
Port Harcourt, Rivers State.
Corporate
goal attainment by manufacturing industries is a major concern these days due
to importance of the global competition. One factor of this corporate goal
attainment lies on the ethical and responsible behavior of its managers and
employees. But at the end of the 20th century, the Enron and WorldCom scandals
show that there was a lack of control in companies (Bertin, 2007). Following
these financial scandals, actions were taken. It has become essential to
provide an ethical control in the interest of leading to better take into
account the content of internal control practice, in order to overcome the weaknesses
of economic and legal support. In a common interest, ways to measure the impact
of moral decisions have been found and the manufacturing industry must be able
to justify its activities (Ethical norms and values), and this control may be
performed by the internal audit (Mercier 2000).
Corporate
goal attainment of manufacturing industry can also be "the ability of an
organization to identify and implement appropriate strategies within the
framework of the aims it pursues in other maintains good reputation"
(Bouquin, 1997). The corporate goal are vary from one manufacturing industry to
another for example a manufacturing company may want to become the largest industry
in the world or to remain a successful specialized firm, or even be best able
to achieve the goals it has set. Once the purposes have been defined, success
in the attainment of these corporate goals depends on the ability to define
appropriate strategies and to implement them. Firm arrangements must ensure the
level of transparency and accountability in both economic and strategic scopes
and we call internal control the combination of such devices. It is necessary
to periodically test the effectiveness and suitability of a particular aspect
of internal control mostly importantly the mode of practice. Auditing is the
process of studying and evaluating internal control and certain of its aspects,
as well as its expected outcome. The ensuing result may help to determine the
effectiveness of the industry. It is something important because the challenges
of every work day are for the manufacturing industries to be competitive so as
not to be forced out of the market.
1.2 Statement of the Problem
Internal
audit practice involves the evaluation function available to a firm to examine
and appreciate the proper functioning, consistency and effectiveness of its
internal control. To this end, internal auditors should review the various
activities of the industry, measure the risks and the arrangements put in place
to control them, ensure performance in carrying out assigned responsibilities
and make recommendations to improve its security and increase efficiency
(IFACI, 1998).
Internal
audit practice is one of the essential mechanisms of the internal control
system. No manufacturing industry can disregard it, even partially, without
losing at the same time control of a key to its survival. A vital member of firm
management, the internal auditor is a party to an audit charter defining his
independence. When the internal audit department does not meet the expectations
of senior management, it should take adequate steps to upgrade it (IFACI,
1998).
In any event,
the firm must maintain control of the implementation process of internal
audits. As manufacturing industry is pursuing objectives in an economic
environment, the firm is the meeting place of a wide range of stakeholders
interested in its success. This complex situation has prompted the researcher
to seek to understand more precisely the contribution of internal audit practice
in attainment of corporate goals.
1.3 Purpose/objectives of the Study
The
following are the objectives of this study:
1. To
examine the effectiveness of the internal audit in selected manufacturing firms
in Rivers state.
2. To
ascertain the relationship between internal audit practice and corporate goal
attainment in the manufacturing industry.
3. To
determine the factors militating against corporate goal attainment in
manufacturing companies.
1.4 Research Questions
1. What
is the effectiveness of the internal audit in selected manufacturing firms in
Rivers state?
2. What
is the relationship between internal audit practice and corporate goal
attainment in the manufacturing industry?
3. What
are the factors militating against corporate goal attainment in manufacturing
companies?
1.5 Research Hypothesis
HO:
There is no significant relationship between internal audit practice and
corporate goal attainment in the selected manufacturing industry in River State
HA:
There is significant relationship between internal audit practice and corporate
goal attainment in the selected manufacturing industry in River State
1.6 Significance of the Study
Considering
the importance of the internal audit practice towards the attainment of the
corporate goal of the manufacturing industry, this study is coming at the right
time as the outcome will educate the management and decision makers of
manufacturing industry on how proper practice of internal audit can be used as
a tool for the corporate goal attainment. This will also help in the realization
of the industry’s long term objectives.
This research will also serve as a resource base
to other scholars and researchers interested in carrying out further research
in this field subsequently, if applied will go to an extent to provide new explanation
to the topic.
1.7 Scope of the Study
This
study will cover the activities of the internal audit department in the
selected manufacturing industries in Port Harcourt, River State with a view of
ascertaining the effectiveness of the internal control mechanism
1.8 Limitation of the study
1.
Financial
constraint- Insufficient fund tends to impede
the efficiency of the researcher in sourcing for the relevant materials,
literature or information and in the process of data collection (internet,
questionnaire and interview).
2.
Time
constraint- The researcher will simultaneously
engage in this study with other academic work. This consequently will cut down
on the time devoted for the research work.
3.
Due
to confidential reasons we did not received the manufacturing industries
internal audit reports on time.
4.
The
internal audit departments of the selected manufacturing industries were small
in size and therefore various types of interviews were not collected.
1.9 Definition of Terms
Corporate
goal: are statements that outline an overall
company vision that includes an operating philosophy and specific objectives
Audit:
an official inspection of an individual's or organization's accounts, typically
by an independent body
Ethics:
moral principles that govern a person's or group's or industry’s behavior.
Accountability:
The obligation of an individual or organization to account for
its activities, accept responsibility for them, and to disclose the results in
a transparent manner.
REFERENCES
Bertin. (2007),” “Managing change
and size risks”, Internal Auditor, Vol. 56 No. 6, pp. 68-9.
Bouquin H. (1997). - The European
literature review on internal auditing” Managerial Auditing Journal, Vol.21 pp.
845 – 853
Brown, R.G. (1999). Changing Audit
Objectives and Techniques. The Evolution of Audit Thought and Practice. T.A.
Lee. New York, Garland Publishing, Inc. 1999.
Fama, E.F. (2008), “Agency problems
and the theory of the firm”, Journal of Political Economy, April, pp. 288-307.
IFACI (institut français de l’audit
et du contrôle interne), (1998). « L’audit interne vers une collaboration
renforcée avec ses collaborateurs externes ».
Mercier S (2000). " Capital: A
Critique of Political Economy, Volume 2, D. Fernbach (trans.), Penguin
Classics, London, (originally published in 1999