Most research has proven to show what efficiency is to a Company but has failed to
show it effectiveness. While they sound similar, effectiveness means something
entirely different than efficiency. Effectiveness is the level of results from the
actions of employees and managers, while Efficiency in the workplace is the time it
takes to do something. An effective employee produces at a high level, while an
efficient employee produces quickly and intelligently. (Adeyeye, 2017)
According to Robertson (1976), Internal Auditing may be defined in several ways
depending upon what purpose is to be served. Pickett (1976), stated that
―internal audit 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. This definition actually seeks to demonstrate the depth and
breadth of the internal audit activity within an institution as against the
previous orientation of reviewing payment transactions over the years.
Internal Audit is an objective and independent appraisal service within an
organization on risk management, control and governance by measuring and evaluating
their effectiveness in achieving the organization‘s agreed objectives. In addition,
internal audit‘s findings are beneficial to the Board of Directors and line
management in the audited areas. The service applies the professional skills of
internal audit through systematic and disciplined evaluation of the policies,
procedures and operations that management put in place to ensure the achievement of
the organization‘s objectives, and through recommendations for improvement
(Dumitrescu, 2004).
Most internal audit professionals argue that an effective internal audit function
correlates with improved financial performance. According to Bejide (2006), an
effective internal audit service can, in particular, help reduce overhead, identify
ways to improve efficiency and maximize exposure to possible losses from
inadequately safeguarded company assets all of which can have a significant effect
on the bottom line. Similarly, Venables and Impey (1991) had stated that internal
audit is an “invaluable tool of management for improving performance”. Fadzil
(2005) had also noted that internal auditors help run a company more efficiently
and effectively to increase shareholders’ value”. And Hermanson and Rittenberg
(2003) had argued that the existence of an effective internal audit function is
associated with superior organizational performance.
At the empirical level, a survey conducted by KPMG (1999) found that the internal
audit function in organizations where it exists, contributes substantially to
performance improvement and assist in identifying profit evidence in corporate
disasters, particularly financial fraud consistently documents an association
between weak governance (e.g. less independent boards or the absence of an internal
audit function) and the incidence of problems (e.g. Dechow, 1996; Beasley, 1996,
Beasley 2000; Abott 2000). Thus, internal audit by acting as a watchdog could save
the organization from malpractices and irregularities thus enabling the
organization to achieve its objectives of ensuring high level of productivity and
profit.
Internal auditing is an independent, objective assurance and consulting activity
designed to add value and improve an organization’s operations (Institute of
Internal auditors (IIA), 1999). The scope of internal audit should be to cover the
systematic review, appraising and appraising and reporting on adequacy of systems
of managerial, financial, operational and budgetary controls and their reliability
in practice (ACCA Internal Audit bulletin, 1999).
The financial statement audit is a monitoring mechanism that helps reduce
information asymmetry and protect the interests of the various stakeholders by
providing reasonable assurance that the management’s financial statements are free
from material misstatements. The societal role of auditors should be a key
contribution to financial performance, in terms of reducing the risks of
significant misstatements and by ensuring that the financial statements are
elaborated according to preset rules and regulations. Lower risks on misstatements
increase confidence in capital markets, which in turn lowers the cost of capital
for firms (Heil, 2012; Watts and Zimmerman, 1986)
The basic purpose of financial statements in the view of Meigs and Meigs (1981) is
to assist decision makers in evaluating the financial strength, profitability and
the future prospects of a business entity. The basic objective for preparing
financial statement is to provide information useful for making economic decisions.
The objective of an audit of financial statements is to enable the auditor express
an opinion whether the financial statements are prepared in all material respects
and also in accordance with auditing standard.
The function of auditing is to lend credibility to the financial statement. The
financial statements preparation is the responsibility of the management, while
auditor responsibility is to lend credibility of the financial statements. The
auditor also increases the credibility of other non-audited information which is
released by the management. For an audit to be credible and reliable, it must be
performed by someone who is independent and cannot be influence by position, power
which will affect its own conclusion. The securities exchange commission approved
new auditor independence regulation which requires that traded companies should
disclose the level of fees that were paid to their external auditor for non-audit
services. (Olagunju, 2011)
