Internal Audit Function and Development of Corporate Governance Code

This study focuses on the internal audit function and development of corporate governance code. It discusses the research methodology, research types, philosophical underpinning, research approach, and research technique used for the study.

Running head: INTERNAL AUDIT FUNCTION AND DEVELOPMENT OF CORPORATE
GOVERNANCE CODE
Internal Audit Function and that Development of Corporate Governance Code
University Name
Student Name
Authors’ Note

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Research Methodology
The current section throws light on research methods used for the study
at hand that indicates towards the mechanisms otherwise techniques
used by the researcher for performing research operations. In essence,
research methodology might be understood as a science of studying the
way research is carried out scientifically. In itself, this section presents
varied steps that are normally acquired by researcher in studying
research problem together with the logic behind the same.
Research is illustrated as the systematic method that learners undertake
to discover different aspects to enhance their degree and level of
knowledge, overall advance of the research procedure, from academic
basis to collection of data and evaluation. This is indicated as the
methodology of research. Nevertheless, Silverman (2005) mentioned that
methodology is a matter of effectiveness and usefulness.
The section at hand outlines design of research, research target, and
sample size together with processes that were used for selection of
different elements of sample (McCusker and Gunaydin 2015).
Fundamentally, this necessarily covers different instruments of research
and the procedures for data collection and explicates different
mechanisms that are employed for evaluation of data.
- Different Research Types
As rightly indicated by Choy (2014), there are certain specific information
that needs to be gathered regarding the subject matter under

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consideration, market or else competitors that can exert influence on
overall methods of research. In essence, there are various methods of
amassing information (from primary or else secondary sources) and
diverse types of information to collect. As suggested by Bauer (2014),
primary as well as secondary research can associate to the way specific
information is gathered. Panneerselvam (2014) says that primary research or
in other words field research collects information directly for the purpose
in place of gathering information from available printed sources. In
essence, primary research entails surveys, direct observations, and
interviews along with focus groups that are necessarily designed by the
researcher. Thus, in this connection it can be said that primary research
provides control over the definite type of questions asked and information
gathered. Panneerselvam (2014) asserts that outcomes of primary research
can be considered to be extremely valuable. Nevertheless, primary
research is necessarily more time consuming and at the same time
expensive in comparison to secondary one. On the other hand, secondary
research also referred to as desk research collects information by means
of available sources. As suggested by Ledford and Gast (2018), secondary
research collects information by means of available sources.
Fundamentally, secondary research also contains necessary information
on the internet, outcomes of subsisting market research, existing data
from stock lists as well as databases of customers. As stated Ledford and
Gast (2018), secondary researches help in maximum utilization of available
market information. Nevertheless, it can be an issue to acquire the
requisite information.

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The learner has executed secondary research for acquiring a preliminary
understanding of previous studies from the studies conducted by different
scholars. In essence, it is considered to be relatively quicker to evaluate
the primary data as in several cases; some other researcher has already
started assessing the same. Also, use of secondary research can be said
to be viable as there is ease of accessing good secondary data and
learners can access libraries, get reports through mail and access online
resource materials from different locations (Ledford and Gast 2018). Further,
researchers also get attracted to particularly secondary data as acquiring
this set of information can be considered to be relatively less pricey than
if the researcher had the need to undertake the research on their own.
Moreover, utilization of secondary data can also be said to be justified in
this case as it might help the learner find out the exact information from
what is available through secondary sources thereby eliminating the
requirement and expends.
Nonetheless, at the time of utilizing secondary research it is important to
be careful about the way of interpreting the same, since it might have
been amassed for an entirely different purpose or else acquired from a
market section that is not pertinent to the business (Vaioleti 2016).
Additionally, it is important to make certain that any kind of secondary
information is not obsolete since the market can alter quickly and this can
affect overall outcomes.
The learner has the intention to employ secondary research that takes
into account specific research topic on particularly internal audit. Also it

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considers insinuations of secondary research on superior corporate
governance code. In essence, the learner also employs secondary data for
undertaking the current study (McCusker and Gunaydin 2015).
Secondary data indicates towards data that was collected previously in
the past by some other user. Intrinsically, it can hereby be integrated from
diverse government pronouncements, authorized websites, newspapers,
articles, books plus journals particularly on system of internal audit and
corporate governance of primarily Libya. Furthermore, particular cases of
Harouge oil operations are considered in this specific study and specific
data are accumulated from certified website, business literature as well as
articles announced on the same.

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- Philosophical underpinning of the adopted research
Jaggar (2015) mentions, there are essentially three diverse philosophies
for research that includes positivism, realism plus Interpretivism. As
mentioned by Bryman and Bell (2014) positivism indicates towards
positive knowledge that is completely based on specific natural
phenomenon, characteristics together with associations.
Interpretivism can necessarily be indicated as social approach in
particularly social science and is relatively opposite to particularly that of
positivism advance. In essence, this definite research philosophy can be
implemented for qualitative research under consideration. Fundamentally,
qualitative research can be considered to be a method of investigation
and inquest in the area of social science in conjunction with other related
disciplines concurrently (Choy 2014).
As suggested by Choy (2014), realism indicates towards a specific
research philosophy that relies upon sovereignty of thoughts as well as
diverse facts and information as regards reality. Essentially, the research
philosophy is to be based on assumption and deductions of a definite
scientific approach (Neuman and Robson 2014)
Discussion as well as rationale for selection
For undertaking the study at hand, the learner has the intention to utilize
philosophy of Interpretivism that can appropriately acclimatize to research
subject under deliberation. In essence, this philosophy often gets

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associated to philosophical state of affairs of idealism and can essentially
be employed by the complete group and considers social constructivism
(Panneerselvam 2014). As per the specific approach, it is compulsory for
the learner as a definite social actor to appropriately understand and
realise variances that subsist between different individuals.
Use of this study is justified in this case as interpretivists argue that only
by means of subjective information as well as intervention in actual
practice can the reality can be entirely comprehended. As indicated by
Flick (2015), the study of specific phenomena in a natural setting can be
considered as the key to this interpretivist research philosophy, combined
with acceptance that scientists cannot avert affecting the phenomena
studied. In essence, they also admit the fact that there might be
understandings of reality but uphold that these interpretations are in
themselves a part of scientific knowledge pursued.
- Research approach
Gast and Ledford (2014) says that deductive research approach is said to
be related to design as well as hypothesis development based on existing
themes and designing a research strategy for research probing mentioned
hypothesis. Nevertheless, it can be hereby seen that this specific
deductive research approach reflects reasoning factor from diverse
general specifics.
In essence, this specific approach can aid in probing associations or in
other words associates that can necessarily be combined and collected

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from varied nonspecific circumstances (Silverman, 2016). Therefore, it can
thus be stated that deductive approach undertaken for research can help
in deducing research hypothesis based on current theme. In essence, the
themes can necessarily aid in designing research hypothesis in specific
functional terms and scrutinize proposed relations between given
research variables.
Additionally, inductive research approach indicates towards specific
approach of conducting research that can help in deducing broad along
with extensive generalizations and ideas and concepts from specific
explanations. On the whole, this definite research approach in actual fact
begins from definite observations and therefore recognizes different
prototypes, outlines, patterns and trends (Silverman, 2016).
Discussion and rationale for selection
In a bid to carry out the research, the learner put into practice deductive
research approach since for the most part it gives attention to assessment
of notions on development of internal audit as well as excellent corporate
governance code. This deductive research approach considered for
specifically a developing nation namely Libya can be considered to be
valid. For the purpose of the present study, the learner develops research
hypothesis on preceding notions and examine validity of the notion by
comparing these hypothesis with a variety of secondary data. Assortment
of deductive approach of research can be said to be viable since this
approach is formulated from a subsisting notion (Flick 2015). In essence,
this research approach moves from a generalised level to a more

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particular one. Particularly, use of deductive approach is viable in this
case as this approach to the research study that can help people
associate with the scientific examination. In this case, the learner of the
study can get a deeper understanding the subsisting theories and
examine different hypotheses that stem from the existing theories of
whatever phenomenon the learner is examining, and then examines the
ones that come out from the themes. Additionally, this deductive research
approach can assist in directly designing hypothesis and after that
formulating a research strategy that can help in examining research
hypothesis. In effect, deductive research approach begins with predictable
pattern where it can be examined against specific observations (Flick,
2015).
- Research Technique
As per Lewis (2015), technique of research refers to processes that can be
used to accomplish objectives of research. Flick (2015) says that techniques
of research consist of outline for assortment, enumeration together with
analysis of data. Particularly, there are necessarily two diverse research
techniques that is to say quantitative as well as qualitative research.
As rightly indicated by Flick (2015), quantitative research technique is
developed to amass cold as well as hard facts and figures. As such,
quantitative data is primarily structured and at the same time statistical.
This delivers support as and when required in order to draw general
conclusions from the research study. On the other hand, qualitative
research study helps in collecting requisite information that intends to

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illustrate a topic than enumerating the same. In essence, this refers to
study of different impressions as well as viewpoints (Flick 2015).
Fundamentally, a qualitative survey can be considered to be less
structured as it intends to look deep into the subject matter under
consideration in order to gain understanding about motivations, thinking
as well as attitudes of people. Whilst this brings depth of understanding to
the research questions, it makes the outcomes more difficult to evaluate.
In essence, this qualitative research is viable as this can aid in final stages
of the project and responses gathered from different open ended
questions can incorporate a human voice to the objective numbers as well
as trends in the outcomes (Lewis 2015). There are many times that aids in
hearing customers illustrating the corporation in their own words for
unearthing different blind spots.
Justification for selection
The selection of qualitative research technique can be said to be viable as
qualitative research can aid learners to avail and access specific thoughts
as well as feelings of various research participants that can help
development of comprehension of significance that people ascribe to their
own experience. This might deliver the foundation for a future stand alone
qualitative study or might perhaps aid learner to map out diverse research
instruments that can again be used for a quantitative research study.
Particularly, this particular research technique can also help in making it
possible to using diverse kinds of research in the same study (Taylor et al.
2015). For the present study, qualitative work can be said to be viable as

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the qualitative work can be said to gain comprehensive understanding of
different tools and themes that can be utilized to acquire, evaluate and
interpret specific information. Therefore, usage of this particular
technique can be said to be viable as qualitative research delivers a more
sensible feel of the entire world that cannot be known from the numerical
as well as statistical data examination used in quantitative research. Also,
this selection is justified as this delivers flexible ways of gathering,
evaluating as well as analysing data along with information. The utilization
of primary along with structured data delivers qualitative research a
descriptive capacity (Mackey and Gass 2015).
The learner has the intention to make use of mono method as research
design. This is referred to as secondary research that entails qualitative
design of research. Since qualitative research design entails an approach
that can take into account systematic and at the same time subjective
aspects. Therefore, this can be used for explaining different sensible and
realistic experiences and presenting important connotation (Mackey and
Gass, 2015). Additionally, the learner has the intention to show by means
of this the way enhancement of system of internal audit influences
corporate governance after analysis of qualitative data on matter under
deliberation. Therefore, different academic articles, journals, previous
case studies and many others can be used for study under consideration.
- Research Design
Taylor et al. (2015) mention that there are three different kinds of
research design that take in explanatory, exploratory accompanied by

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descriptive research design. Silverman (2016) asserts that exploratory
design of research can be considered to be a definite design of research
where learner scrutinizes particular issues and the said state of affairs
that sequentially assists in presenting insights into study under
consideration. Over and above this, explanatory research design refers to
a particular design in which learner can associate to different ideas for
instituting the cause and effect linkages (Silverman 2016). As suggested
by Silverman (2016), explanatory research is said to be undertaken for a
specific issue that was not well researched previously and presents
priorities and delivers operational descriptions presents an appropriately
researched theme. This is necessarily a definite research type that
concentrates on illustrating different aspects of the study in a thorough
and comprehensive manner. In essence, the learner begins with a general
idea and utilizes research as a particular tool that can direct the way
towards subjects that can be dealt in the upcoming future. Furthermore, it
can deliver details where a small amount of information subsists for a
specific subject matter in mind of the learner. This specific type of
research design can be said to be viable as this can help in undertaking
the research creating a research outline. As suggested by Mackey and
Gass (2015), explanatory research is necessarily carried out for the
purpose of finding out the issues that was not studied previously. In
essence, this particular study is not utilized for delivering certain
conclusive substantiation and new insights discovered in this subject
matter under consideration.

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In addition to this, descriptive study refers to a specific design for
conducting research where learner endeavours to investigate and all at
once give details supplementary information regarding specific areas
associated to topic under consideration (Mackey and Gass 2015). As
recommended by Taylor et al. (2015), descriptive research design is
necessarily referred to as scientific mechanism that includes observing as
well as illustrating behaviour of the subject without influencing the same
in any manner. Taylor et al. (2015) say that descriptive research study cannot
fit appropriately into definition of quantitative else wise qualitative
research methodologies, however, can use components of both.
Essentially, it can engage assortment of quantitative information that can
necessarily be tabulated together with continuum in numerical format
(Lewis 2015). In particular, descriptive research also includes collecting
data that illustrate incidents and thereafter arranges, tabulates, illustrates
and describes the procedure of collection of data. Fundamentally, this
often utilizes visual aids namely graphs as well as charts to help the
learner to comprehend distribution of data.
Justification for selection
For carrying out the current study under deliberation, the learner makes
use of descriptive design as it aids in correctly using secondary data and
evaluating acknowledged facts and figures known beforehand. Executing
descriptive research can aid the learner to take on studies of approved
facts and subsequently presenting conclusive statement through thematic
appraisal. As such, descriptive research is said to be justified as this can

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help the learner in creative exploration, provide and serve to arrange all
the findings in a bid to fit with rationalizations and then examine or else
substantiate the explanations. There are several research studies that
require descriptions of natural else wise man made phenomena namely
form, framework, action, alteration overtime, association to different other
phenomena (Lewis 2015). Essentially, description often elucidates
knowledge that might perhaps not be noticed or else encountered. The
study using descriptive research study can help learner in describing
incidents along with studies aimed at understanding inferences or else
causal associations. Essentially, descriptive study designed can help in
collecting descriptive data for the present study. Furthermore, selection of
descriptive study can be said to be exclusive in the total number of
variables implemented. The learner utilizing descriptive study can help in
associating observational studies, however, they are also not restricted
with observation data mechanism. Essentially, this can aid in analysing
different non-qualified topics as well as issues, provide learner the
possibility to witness different phenomena in an entirely natural as well as
unaltered natural setting (Taylor et al. 2015). Also, selection of this
specific methodology for the current study is said to be time consuming in
this study than different quantitative researches.
- Sampling Technique
As suggested by Taylor et al. (2015), there are essentially three different
types of data that are collected and evaluated in qualitative research
counting in-depth interviews, written and structure documents as well as

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direct observations. In essence, it is impossible for researchers to acquire
data from everyone in a sample section or else community. Therefore, a
researcher can select from three different qualitative sampling processes
that entail purposeful sampling, snowballing sampling as well as quota
sampling. However, the current study uses structured documents for the
present study.
As suggested by Taylor et al. (2015), purposeful sampling can be
considered to be a common strategy of sampling. Particularly, in this kind
of sampling, different participants are necessarily selected or chosen
founded on pre-selected measure based on questions of research. Again,
purposeful sampling includes quota sampling and snowball sampling.
Quota sampling can be considered to be a sampling technique in which
quotas of participant are predetermined before sampling. Essentially, the
learner is attempting to acquire data from different participants that
satisfy certain features that include age, marital status and many others.
Flick (2015) says that snowball sampling is also referred to as chain
referral sampling. In essence, in this method, the research participant
indicates the learner to different others who might be able to potentially
contribute else wise participate in the research study. In particular, this
mechanism also aids researchers to find out and recruit different
participants. The system that can be utilized for research at hand is
making use of secondary data and by means of thematic evaluation
where data along with information can be developed from earlier
academic evidences in print, books, journals in conjunction with
authorized websites (Flick, 2015).

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Justification for selection
The selection of purposeful sampling for the current research study by the
learner is said to be justified in this case. This is because purposeful
sampling can be extensively utilized in different qualitative research for
the purpose of identification as well as selection of different cases that are
rich in information and associated to the area of interest. This non-
probabilistic sampling technique also indicated as subjective sampling or
judgemental sampling has helped the learner in generalizations of various
results studied, perform typical studies of particular cases and find out
specific trends and characteristics from a specific data (Flick 2015). Each
phase in purposive sampling can build upon the previous one. That means
different sampling technique types can be used in each phase, which
makes it possible to achieve a wider range of non-probability sampling for
researchers to draw conclusions upon. It allows for identifying phenomena
that may require further investigation.
- Techniques for Data Collection
The researcher gathers requisite data from existing available journals,
authorized websites, diverse research case studies, academic information
and evidences with available government reports (Silverman, 2016). In
essence, research technique is for the most part thematic that takes into
account data from different sources.
- Analysis of Evidence

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The learner undertakes thematic analysis utilizing amassed qualitative
data for the existing research based on secondary data. Basically,
thematic analysis is an extensively used method of analysing qualitative
data that the learner can utilize for current purpose under consideration.
Basically, this scheme has been carefully taken into account and
considered to an important method that principally focuses on identifying
acknowledged patterns in a given data set (Choy 2014).
Additionally, learner of the current study takes into consideration a
specific type of thematic analysis in which different aspects of the
research are carried out by using deductive manner. In this case,
procedure of formulation of theme is primarily directed by existing
notions, concepts along with thoughts. For itself, it is a specific case where
researchers can execute and make use of previously accumulated
information from different sources and subsequently depict conclusions by
instituting their point and substantiating stated objectives of research.
Data analysis:
In this research paper, qualitative data analysis is done by performing thematic
analysis and case study analysis. The perception of current study depicts the illustration and
identification of observation of prior scholars. Major focus of research paper would be to
provide empirical evidence in determining the effectiveness of internal audit function in
creating impact on good corporate governance. A qualitative approach is adopted for this
study because proper insights to research problems are provided by qualitative research that
is narrative in nature. Implementation of qualitative research is done so that researcher arrives
at deeper understanding of how the instrumentality of internal auditing would help in

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enhancing the performance of corporate governance. Therefore, the research paper helps in
addressing the factors and role of internal audit function in hindering or contributing to the
effectiveness of enhancing the performance of organization.
Thematic Analysis
In undertaking the thematic advance, some of the themes have been identified relating to
corporate governance and internal audit.
Internal audit functioning in organization:
One of the measures of success of business organization is business objectives and
they assist in providing foundations for engagement objectives for internal auditors. Such
objectives are goals that should be achieved by internal auditors forming part of an internal
audit function. It is stated by (Aguilera et al. 2015) that improvement, evaluation of role of
procedure of governance, management of risk as well as control is the primary role of internal
auditor. Internal auditing function helps in adding value to organization by providing
consulting and assurance activities that needs to be tactical, operational, operations
improvement and strategic. However, the effectiveness of internal audit function depends
upon the sector and specific needs of organization in which they are operating.
Moreover, it is suggested by (Wang et al. 2016) that internal auditors are provided
with an insight of where value addition can be done requires understanding of strategic
priorities. For meeting the expectations of stakeholder, internal auditor should strive by
embedding process of performance management that focuses on using limited resources
effectively and efficiently. Nevertheless, one of the source of significant risk to company is
subservient internal audit and such risks results devastating the reputation, fraud, monetary
loss and sometimes resulting into company’s collapse. Therefore, it is required for internal

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audit function to have adequate access to audit committee and independent reporting line and
authority. Depending upon the complexity, size and nature of business operating
environment, the functions of internal audit should be well staffed, funded and appropriately
trained with specialized skills. Altogether, internal auditing function helps in providing value
if they are maintained in terms of quality and one of the ways to provide such quality is to
comply with professional standards of internal audit.
Roles of internal audit function:
This theme would help in accessing the views of internal auditors relating to the
changing roles of internal audit function in the process of corporate governance. Several roles
are performed by internal audit system that includes mitigation stratagems, administration of
risks, safeguarding of assets, internal control system maintenance and supporting the audit
committee. It is opined by some respondents to research on the importance of internal audit
function that board is provided with the assurance about the safety and adequacy of
information technology in driving growth of business using such audit function (Aguilera et
al. 2015). In addition to this, it was viewed by majority of respondents that the changing role
of audit function is influenced by major driving force that is corporate governance.
Organizations are provided with the new direction of being governed along with
strengthening of financial stability with the help of internal audit task. In essence, it is
suggested that without interference of top management, the positive change would be related
to effective functioning of internal audit. Therefore, it is clear in the opinion of researcher
based on different responses that for the performance and operation of organization, internal
audit function is considered significantly important. Internal audit function is provided with
credence in making organization as going concern as it gives assurance of the fact that it
makes effective contribution and ensures of activities being done under jurisdiction such as

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internal control system. In a research paper about internal audit functioning of bank, it is
argued by researcher that for achieving their stated goals, there needs to establish a successful
working relationship between the aspects of bank such as audit committee, management and
external audit and internal audit function. Furthermore, it is emphasized by (Sierra‐García et
al. 2015) that a valuable contribution is made by internal audit to the effective functioning of
organization in terms of measures of objective of business. Internal audit function is taking
more on central and strategic role in an organization.
Competence of internal audit department:
The core competencies consist of skills possessed by internal auditors which should
be improved continuously. Continuous development of audit staffs should be promoted by
work environment and culture of organization. Core competencies of audit staffs can be
developed systematically by providing adequate resources on part of management. A
monitoring system should be implemented by organization that would help in systematic
identification of deficiencies, evaluation of competencies and training program
implementation for deficiency alleviation. Core competencies of internal auditors can be
improved by organizing the process of competency development, prioritizing and identifying
their core competencies. The important component of quality of internal audit function is
competence which is one of the attribute of internal auditor. Such attribute is related to
financial reporting activities. It is viewed by researcher that understanding of overall quality
of internal audit can be increased by assessment of concepts from perspective of multi
stakeholder. It is said by (Amran et al. 2014) that the need to understand capability of internal
audit is properly comprehended by amplified reliance by multiple governance stakeholders
regarding functions of internal audit.

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In a research paper relating to the internal audit function of Sudanese banks depicts
that should be improvement on part of improvement of professional competence of internal
auditors. It has been ascertained that one of the shortcomings in competence factor is the
experience of external auditors. The reason is attributable to the fact that in banking
organization, internal auditors does not have any cadre and no training is imparted when
transferring internal auditors from other departments to internal audit departments (Doorley
and Garcia 2015). In addition to this, most of the auditors are not appointed to work as
internal auditors and it is concluded that banking organizations have been staffed with
internal auditors who are not experienced. Therefore, the professional competence of such
auditors is negatively impacted by such shortcomings.
Supporting of internal audit in organization:
The purpose of this specific theme is to analyse the degree and extent to which
internal audit is upheld. Internal audit function serve as manager, monitor of risk and helps in
providing independent assurance to management, board, audit committee and external
auditors. Therefore, necessary support should be provided so that the role of internal function
is adequately discharged. It has been found by (Power and Gendron 2015) that effectiveness
of internal audit is critically determined by support of management. Support of management
is one of the most important division that help in ensuring effectual deliverance of internal
audit task as per specialized standards set by Institute of Internal assessors.
In this context, the main objective of researcher was to ascertain how the management
service helps in satisfying internal auditors. It can be deduced from the previous research
work on relationship between management support and internal audit function that for quality
and effective internal audit, services of management support is regarded as prerequisite. An
organization receiving less management support there would be failure on part of

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management to properly integrate the internal audit tasks into corporate governance
arrangement. In order for internal audit to effectively and efficiently discharge its audit
functions, department of internal audit requires full management support. Management is
required to see unit of internal audit as strategic business unit in providing necessary support
and value creation. Some degree of organizational independence should be provided to
internal audit function by allowing the management to work with internal audit unit for
development of internal audit charter (Cuomo et al. 2016).
Role of internal audit on corporate governance:
The researcher while assessing the importance of internal audit exercise on corporate
governance in mainly Ghana Post Company Limited situated in Ashanti area at three
different facets. These include internal audit elements and expectation of company being a
corporate entity, factors making internal audit function efficient and effective and experience
and qualification that are required for an auditor to be efficient. In addition to this, researcher
has also looked into the extent of internal auditing impact on corporate governance.
Internal audit role in achieving corporate goals:
Researcher is provided with a reasonable assurance concerning role of internal audit
in attainment of corporate objectives as well as goals. Such goal involves financial reporting
reliability, efficiency and effectiveness of operations and compliance with regulations and
laws of company. Findings from this research paper depict that providing assistance to the
members of management in effective discharging of responsibilities is the objective of
internal auditing. Therefore, the responsibility of internal auditor lies is about raising concern
of any phase of business activity in the form of service management. This would include
obtaining full understanding of business operations which involves going beyond financial
records and ‘p’ accounting. Now, looking into the area of assurance as opined by (Lenz and

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Hahn 2015) that the basic purpose of internal assessment is to efficiently meet the objectives
of company by determining the provision of reasonable assurance. It is regarded as verifying
the adequacy of internal function of company. There were either ambiguous answers or no
answers at all over the issues that pertain to verify the expectation gap existence between goal
of company and internal audit. This made it difficult for researcher in ascertaining the
expectation extent between goals of company and internal audit (Omicsonline.org 2018).
It is indicated by study conducted on Ghana Post that the corporate governance is
positively impacted by internal auditing. It was revealed by majority of respondents that
effectiveness of structure of governance could not be assessed by internal audit. Such
ineffectiveness is attributable to factors such as ineffective leadership, lack of resources and
lack of personnel competent resulting from high attrition rate (Adegbite 2015). Moreover, it
has also been depicted that the interference of management has compromised the internal
audit interdependence.
The corporate governance is positively impacted by internal audit as it helps company
in preventing mismanagement of resources particularly funds. Internal auditing function
should be strictly maintained by ensuring strict adherence to policies and plan of company
that would impact the practice of corporate governance positively.
Drivers and barriers of internal audit function:
This particular theme helps in accessing the efficiency with which internal auditors
have performed their roles by focusing on factors that have created hindrance in the
operations of internal audit function. Such factors include inadequate corporate governance,
lack of management support, limited manpower, lack of independence and inadequate staff
training. It is commented by one respondent that internal audit staff has integrity and
compromise issues. Moreover, it is stated by other respondents that management of

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organization has high interference and sometimes overrides report produced by internal
auditors. On other hand, it is articulated by another respondent that one of the key factors
responsible for weak nature of system of internal audit is the implementation of policy
direction by management.
Therefore, it can be inferred that adequate and independent support is required in
terms of welfare of staffs for increasing information quality and maintenance of objectivity
and effective functioning of internal audit. The whole auditing process can be undermined by
weakness in staffing as it leads to abuse and error (Too and Weaver 2014). For the smooth
operations of internal audit function, some of the factors as outlined by researcher include
segregation of duties, technological improvement, proper documentation and procedures,
qualified audit personnel and support of audit committee.

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Case Study Analysis:
Analysis of the case on Harouge Oil Operations
The Harouge Oil Operations
The company focuses on development of oil fields for the purpose of extraction of crude oil
in different commercial quantities. In essence, the strategic procedure engages prospecting of
oil, processes of extraction, designing of huge transportation pipelines, secure storage and
ultimately loading of different crude oil tankers across the world. As per reports pronounced
by the firm, Harouge Oil Operations functions under specific international agreements and
abides by the regulations of OPEC. The report of the corporation specifies that administration
is accountable for instituting as well as maintaining adequate internal control particularly
over arrangement of reporting of the firm. In this case, management has utilized the
committee a Treadway framework in specifically Internal Control. The company has an
integrated framework for analysis of efficacy of internal control of the firm over financial
reporting. As suggested by Teoh et al. (2017), management of Harouge Oil Operations has
evaluated effectiveness of internal control of the firm over financial reporting and has
concluded that this kind of internal control was effectual. Furthermore, based on the analysis
management ascertained that there were no substantial weakness in zones of internal control
in financial reporting. However, critical analysis of the report reveals that there are inherent
limitations and arrangement of internal control over financial reporting might perhaps fail to
prevent or else detect misstatement and these systems determined to be effectual can deliver
reasonable assurance with regard to preparation as well as presentation of financial
statements (Sarens 2014). Moreover, projections of any kind of analysis of effectiveness of
upcoming period are subject to different risks that in turn might perhaps become inadequate

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owing to alterations in conditions or else degree of compliance with specific policies or else
processes might deteriorate.
Analysis of operations of the firm Harouge Oil Operations reflects the fact that the company
alleviates liquidity risk by predicting spending necessities as well as flow of cash from
different operating actions and maintaining adequate cash, different credit facilities as well as
prospectuses of debt for satisfying the liquidity requirements. However, internal audit
function was necessary for assessing financial obligations of the firm, for instance, superior
internal audit function was necessary for judging that Suncor will fail to meet financial
responsibility and commitment when due (Teoh et al. 2017). In essence, Suncor’s cash as
well as cash equivalents and facilities for credit stood at $4 billion as well as $9.5 billion
respectively. Therefore, internal audit function is necessary for unused capacity under a
Canadian debt and an unused potential of roughly USD1.25 billion.
The Harouge Oil Operations encounters credit risk and therefore a customer or else
counterparty might perhaps fail to perform an obligation otherwise fail to make payments due
leading to financial loss for the corporation. In essence, credit policy of the Harouge Oil
Operations are analysed by internal audit to make sure that there is a standard practice of
credit throughout the firm to measure as well as monitor credit risk. In essence, the internal
audit function of the firm sketches processes of delegation of authority, due process of
diligence necessary for approving novel customers and maximum amount of credit exposure
for every single entity. Internal audit function also assesses creditworthiness, provides credit
rating and assigns maximum limit of credit (Sarens 2014). The procedure of credit is
mentioned in the credit strategy and takes into account different quantitative as well as
qualitative factors. The internal audit function of Harouge Oil Operations relentlessly
monitors overall exposure to any specific lone customer or else counterparty together with
financial position of the customer otherwise counterparty. The internal audit division of the

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company worked to lessen overall credit exposure and decrease assigned limit of credit.
Again, regular reports are necessarily created to track credit risk and ensure maintenance of
compliance with company’s credit strategy as well as different exposures. However, in spite
of different efforts the company has faced credit risks that indicate towards improvement of
existing internal audit function. Whilst the industry has encountered considerable credit
downgrades in the previous year that was lightened by the huge customer base of Suncor and
instituted different downstream firms with financial position not connected to benchmark
price of specifically crude oil. However, the company was exposed to specific losses
particularly in the event where counterparties to different derivative financial instruments are
unable to satisfy different terms of agreements (Quick and Henrizi 2018). The exposure was
also limited to different counterparties holding derivatives agreements due to the firm.
In addition to this, the firm also faced different market risks that include commodity price
risk, foreign currency exchange risk and interest rate risk among many others. The firm
Harouge Oil Operations maintains an official governance procedure for managing financial
risks. Trading actions are illustrated as actions intended to augment operations of firms along
with profitability by means of informed market calls, diversification of market, enhanced
transportation accessibility, improved economies of scale along with leverage of assets. The
internal audit function performing under the authority of the firm’s board of directors
monitors limits of exposures, assesses compliance of policies and substantiates different risk
associated methodologies as well as procedures (Coetzee and Lubbe 2014). Market risk
indicated as risk else wise uncertainty stemming from market price movements and their
influence on future performance of business. However, the market price movements
adversely influences overall value of financial assets of the firm, liabilities and anticipated
future flow of cash (Nickell and Roberts 2014). An effective internal audit function could
have helped the firm in lessening exposure to different commodity price risk by means of

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different strategies. In essence, these strategies comprise of entering into different option
contracts for limiting exposure to alterations in prices of crude oil during the period of
transportation (Sarens 2014). Also, the corporation is exposed to different foreign currency
exchange risk on particularly revenues; capital expends or else financial instruments that are
necessarily denominated in a specific currency other than functional currency of the firm. As
crude oil is primarily priced in US dollars, movements in exchange rates might have
considerable influence on revenues. In essence, this exposure is partially balanced by means
of issuance of debt denominated in USD. Therefore, internal audit function might have failed
that exposed the company to foreign exchange risk on particularly revenues, capital expends
or else financial instruments that are necessarily denominated in a definite currency other
than the functional currency of the firm (Sarens 2014).
.Conclusion and Recommendation
Conclusion
Based on outcomes of the qualitative analysis carried out in this study, it can be hereby said
that effectiveness of internal audit function relies upon the sector as well as specific needs of
firms in which they are operating. As indicated in several prior studies there are need for
internal audit function to have sufficient access to audit committee and independent line of
reporting and authority. Internal auditing can exert influence on efficacy of operations of
firms on the whole of corporation by delivering value, by maintaining audit quality and one
of the ways to deliver such quality is to act in accordance with with professional standards of
internal audit.
Recommendations

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Organisations intend to be more robust in the upcoming period and have the need to reinforce
their corporate governance. Listed companies sometimes fail to attain the full value and
acquire benefit from their internal audit segments. Recent reports on benchmarking reveals
that whilst most businesses have set up such functions, they too regularly fail to make a
noteworthy contribution to their tactical objectives. Effectual internal audit can not only
deliver assurance over a risk controls as well as governance procedures of a company, it can
ensure that everyone is operating efficiently to that closing stages with little or no waste or
replication (Alzeban 2015). Further, it can deliver comfort to firm’s directors as well as board
committees that the decision they frame are on the groundwork of sound suppostions as well
as risk assessments – and can give an opinion regarding the way to enhance overall efficacy
of information flowing to firm’s board.
Analysing the need for instituting an internal audit function
For different public interest corporation that do not presently have an established internal
audit function, the firm’s Board can be in charge to assess the requirement for instituting one.
As division of oversight role of management, and founded on fundamental rational presented
by senior management, firm’s board can consider endorsing or challenging decisions (Pike et
al. 2016). In essence, the likelihood and (financial) influence of organisational risks along
with the intricacy of the business concern, rather than size of the business concern, need to be
decisive facets in the area of framing decision to institute an internal audit facility. For Small
and medium sized enterprises, senior management along with the board might probably
decide to decide on for some sort of outsourcing as a way of acquiring an internal audit
potential. However, listed business corporations that have not yet instituted an in-house or
else outsourced internal audit have the need publicly divulge information (for instance in the
corporate governance declaration,) regarding governance, firm’s risk and whether compliance
assurance are necessarily being sufficiently obtained in its nonexistence (Khelil et al. 2016).

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In business concerns that have no internal audit operation, the board have the need to
periodically assess the need for instituting such an operation. Founded on the underlying
foundation presented by senior management, the board have the need to endorse or else
challenge decisions undertaken. As such, in different cases where a management of a
organisation decides to outsource its internal audit function entirely, the board have the need
to oversee the entire process of outsourcing, and make certain that an in-house connection has
been officially made responsible for the appropriateness in addition to quality of outsourced
operations (Bartlett et al. 2015). However, in different cases where a public interest
corporation has not instituted an in-house internal audit operation, the board has the need to
make certain that this decision is openly divulged (for instance in the corporate governance
declaration).
Reviewing and approving the internal audit charter
There are several studies that suggest that internal audit charter illustrates the scope of the
internal audit actions. In a bid to maximise overall involvement of internal audit to an
effectual governance framework, its extent of activity should possibly cover the entire
portfolio of risks of organisation that includes strategic, functional, reporting and
requirements of compliance and take in both assurance along with advisory actions
(Chambers and Odar 2015). In this regard, the board of the firm has the need to assess
internal audit charter to make certain that it permits the internal audit operation to entirely
assume its accountabilities as a key provider of assurance with regard to organisation-wide
systems of risk management as well as control.
Ensuring effectual communication between the Chief Audit Executive (also called CAE)
and firm’s board

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In a bid to make certain independence of functions of internal audit along with objectivity of
its reviews, it is essential that internal audit function is not positioned hierarchically under
different parts of the corporations that are in essence conditional on internal audit inspection.
The board of firms have the need to warrant that CAE is liable to a committed board member
else wise, when applicable, the audit committee (or else other members of the pertinent board
or committee of governance) (Bhattacharjee et al. 2015). In essence, the CAE also have the
need to enjoy direct along with unobstructed communications together with the board or
board committee. In this regard, it can be said that the board has the need to carry out direct
consultation with the CAE in any case once a year without attendance of CEO otherwise any
other senior managers. Also, the board need to be informed regarding any kind of significant
variances of opinion that crop up between senior management and audit executive on matters
of risk and issues of control (Chambers and Odar 2015).
Assessing the plan of internal audit
The audit executive is liable for developing a plan that is necessarily risk-based on a yearly
basis to ascertain the priorities of internal audit actions, in agreement with goals of firm. As
such, in this case, the audit executive has the need to consider risk management framework of
firms, counting risk tolerance levels instituted by senior management along with board for the
diverse actions or else parts of the corporation (Christ et al. 2015). In case if such kind of
framework does not subsist, the audit executive have the need to define own criteria for risk-
based assessment as the ground work for the internal audit plan in discussion with senior
management of firms as well as the board. The concluding internal audit plan should be
presented to the board for sanction. The board together with the CEO need to provide input to
executive in their drafting of a plan of internal audit that is necessarily based on risk. Also,
the board together with the CEO need to discuss with chief audit executive the entire content
of the framed audit plan.

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Evaluating the staffing processes of the internal audit
In a bid to be effectual, the internal audit function has the need to possess adequate resources
and assets that is both in respect of total numbers of staff along with staff adeptness. The
requisite competence of the internal audit operation should be first and foremost based on the
risk-based audit map (Alzeban and Sawan 2015). The chief audit executive should report the
influence of any resource boundaries implied by the arrangement to the firm’s CEO. The
pertinent board committee must carefully keep an eye on any decision undertaken by the
CEO to regulate the internal audit function’s capability (as illustrated within budgetary
structure of the business concern). There is need to officially approve list of different high
risk areas that are not be covered by the internal audit procedure owing to budgetary
limitations. In essence, the board has the need to periodically acquire assurance from the
chief audit executive that internal audit function jointly possesses otherwise has admittance to
- the requisite communication and technical expertise to carry out the internal audit plan
effectually and to present engagement ending and recommendations effectively (Barr-Pulliam
et al. 2017)
Gaining assurance regarding the quality of the internal audit function’s work
Reviewing overall quality of internal audit refers to the liability of the chief audit executive.
As such, the quality assurance together with improvement program has to include both
internal as well as external evaluation. In essence, internal assessments should take account
of monitoring of ongoing performance of internal audit by way of direct management in
addition to periodic self-review (Talab et al. 2018). External review must be carried out
periodically or else more regularly if necessary.
Monitoring association between internal audit function and centralised risk monitoring

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The board along with the CEO must make certain that there is suitable task allocation
together with coordination between internal audit operations and defence operations, namely
management of risk, financial controls along with compliance. Essentially, the board of the
firm together with the CEO must ensure that internal audit analyses both defence risk
management activities as section of its internal audit and delivers assurance regarding the
way defence operations function (Yee et al. 2017).
Coordinating internal audit operations with that of external audit
Fundamentally, the board along with CEO must make certain that there exists a system of
open communication mainly between internal as well as external assessors. In essence, they
need to monitor the way in which different actions of internal audit and external audit
maximise the utilization of work of others and avert any duplication of risk (Teoh et al.
2017).
Assessing internal audit reporting

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Board of firm needs to assume a dynamic role in properly formalising internal audit
declaration and communication requirements, counting the mandatory frequency of reporting.
In essence, as a least obligation, reporting system of internal audit to firm’s board need to
take in risk exposures along with control issues stemming from internal audit action, a report
on advancement and satisfaction of internal audit map and any kind of issues of concern as
regards staffing together assets/ resources presented to internal audit (Lenz and Hahn 2015).
Founded on a comprehensive impression, firm’s board might consider periodically thinking
about and assessing significant outcomes of internal audit during most recent audit period,
advancement and sufficiency of execution of internal audit supposition by management,
advancement in implementing the audit map, understanding issues of concern as regards
staffing together with assets/ resources presented for internal audit operation.

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Reviewing management as well as follow up of internal audit suggestions
The chief executive officer must institute a follow-up procedure to make certain that internal
audit suggestions have been executed effectually. On the other hand, there is need to
substantiate that senior management has completely understood as well as acknowledged
responsibility for diverse risks of not undertaking action. However, in case by means of not
acting on a specific recommendation of internal audit, the chief executive officer might think
that management of the firm has exposed the business to a degree of residual risk that might
not be acceptable to firm’s board. In this case, chief executive officer needs to discuss the
matter with firm’s management (Griffiths 2016). In case if the decision of the management as
regards residual risk is not illustrated to the satisfaction of the chief executive officer, the
chief executive officer needs to report the matter to firm’s board or pertinent board
committee. It can be witnessed that the board has the need to evaluate overall progress of
execution of the audit suppositions, placing detailed emphasis on different risk along with
control issues together with implementation backlogs (Lenz and Hahn 2015).

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