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THE
ROLE OF INTERNAL AUDITORS IN STOCK TAKING
(A
CASE STUDY OF TOTAL NIGERIA LIMITED)
ABSTRACT
This
research work is designed for the study of the role of internal auditors in
stock taking as it affect Total Nigeria Limited. Internal auditors may be defined
as in house approval activity which provide services to management by examining
the application and effectiveness of system and controls within the
organization in a manner that is independent of those operations, systems and
controls.
In
embarking on this project work, efforts should be made to limit the research to
the areas of study which is hinged on their roles in stock taking activity in
business organization. In chapter one, this work deals with the general
introduction of the work by describing both auditing and stock taking. It
also entails statement of problem, purpose of the study, significance, scope,
limitation and statement of hypothesis and most of the terms used were defined
in this chapter.
Chapter
two gives the review of the related literature and studies. Also, the role of
internal auditor under the law, internal auditing, stock taking, structure of
Total Nigeria Limited and its operation, position of the internal audit
department in Total Nigeria Limited, functions of the department, an example of
internal auditors report, importance of effective communication among and with
the internal audit unit, and stock taking of black and white products were
reviewed also in this chapter.
Chapter
three of this work deals with the research design and methodology.
It
also showed the sources of data and the sample used.
Chapter
four showed how the data collected was presented and analyzed using a simple or
percentage analysis on the hypothesis.
Finally,
chapter five which is the last chapter of this work contains the summary of
findings, conclusion and recommendations.
TABLE
OF CONTENTS
CHAPTER
ONE
1.0.
INTRODUCTION
1.1.
Statement of problem
1.1
Purpose of the study
1.2
Significance of the study
1.3
Statement of hypothesis
1.4
Scope of the study
1.5
Limitations of the study
1.6
Definition of terms
CHAPTER
TWO
2.0
REVIEW OF RELATED LITERATURE
2.1 The role of Internal
Auditing under the law (statue)
2.2
Internal Auditing
2.3
Stock Taking
2.4 Structure of Total
Nigeria Limited and its operation
2.5 Position of the
Internal Audit Department in Total Nigeria Ltd.
2.6
Functions of the Internal Audit Department
2.7
An example of the internal auditors report
2.8 importance of effective
communication among and with the internal audits
1.9
the role of internal auditors in total Nigeria Limited
1.10 Presentation of the
role of internal auditors in total Nigeria Ltd.
1.11 Reporting and its
effect
2.12
Stock taking of black and white products
CHAPTER
THREE
1.0
RESEARCH DESIGN AND METHODOLOGY
1.1
Source of data
Primary
data
Secondary
data
1.2
Sample used
1.3
Method of investigation
CHAPTER
FOUR
1.0
DATE PRESENTATION AND ANALYSIS
1.1
Data presentation and Analysis
1.2
Test of hypothesis
CHAPTER
FIVE
5.0 SUMMARY OF FINDINGS,
CONCLUSION AND RECOMMENDATION
5.1
Findings
5.2
Conclusion
5.3
Recommendations
BIBLIOGRAPHY
REFERENCES
CHAPTER
ONE
1.0
INTRODUCTION
People tend to erroneously think that
auditing is a sub-division of accounting probably because that is how it was
introduced to them and every auditor as we know is also an accountant.
But, every accountant is not an auditor. Auditing has its roots
elsewhere. The relationship of auditing and accounting is close but they
are not the same.
Accounting is concerned with the
collection, classification, summarization and communication of financial
information. It involves the measurement and communication of business
events and conditions as they affect the particular enterprise. The task
of accounting is to provide a detailed financial information that will be
manageable and understandable about an enterprise. Auditing does more of
these things.
Auditing is the independent examination
and expression of opinion on the financial statements of an enterprise by an
appointed or employed auditor in pursuance of that appointment and in
compliance with the relevant statutory obligation, hence the role of internal
auditors in stock taking. It involves critical and thorough investigation
of the financial books prepared by the accountants as to whether those
financial statement show a discipline department on logic and accounting is
part of its utilities.
An auditor must exercise reasonable
care and skill in carrying out his audit work of stock taking.
This was fully stated in the case of RE
KINGSTON COTTON MILL (1896). This case considered the degree of care and skill
required of an auditor. It stipulated than an auditor is a watch dog and
not a blood bound. That, it is the duty of an auditor appointed to carry
out the work of stock taking to ensure that skill, care and caution which a
reasonable, competent, careful and cautious auditor will use has been applied
in stock taking. The auditor has to ensure in stock taking or physical
verification of stock either by full count or measurement as incase of bulky
stock taking that the stock taking with the bin card record.
Stocktaking could be done in three ways
namely:
a.
Counting of stock at the end of the year, before the end of the year or after
the end of the year
b.
Counting of the part of the stock by means of interpolating the total
statistics and
c.
By means of using continuous stock records.
It should be known that where stock are
materials in the enterprises financial statement and the auditor is placing
reliance upon management stock-rate in order to provide evidence of existence,
the auditor should attend the stock taking is normally the best way of providing
evidence of proper functioning of the management stock taking procedure and
also, the existence of stock and their conditions.
In the case of Re Kingston Cotton Mill
Co., Ltd., it was decided in 1896 that it is not the duty of the auditor to
take stock. But the practice in the accountancy profession has been
improved and as a matter of general practice, the auditor Is now required to:
a.
Review the stock records available
b.
Review the adequacy of the stock taking procedure
c.
Review the cut-off procedure
d.
Observe at least a part of the stock taking to ensure that the procedure laid
down is being followed
e.
Compare the final stock sheet with the sheets used at stock taking to ensure
that the quantities correspond
The auditor has to
look into valuation of stock also to ensure the following:
i.
That the same method of valuation is adopted from one period to the other
ii.
That stock is valued at cost or realizable value which ever is lower and
iii.
That damaged or obsolete items are properly written down or written off as
circumstances may dictate.
1.1 STATEMENT OF
THE PROBLEMS
The nature of the product of Total
Nigeria limited particularly liquids like kerosene, petrol, diesel and oil made
it very difficult to effectively conduct stock taking at a point in time and
also to determine the extent to which internal auditors are involved.
The problem emanates from the fact that
it is not easy to measure or determine the quantity of oil or gas, petrol or
kerosene in the storage tanks, pumps etc. This is because as ales are
made, the tanks are refilled immediately. This peculiar situation makes
it very difficult for the internal auditor to reutilize the process of stock
taking.
Another problem is that the enterprise
has a single internal audit department which is not adequately staffed to
carryout the routine internal audit functions not to talk of engaging actively
in stock taking in the area offices and the various rattail outlet (services
station) through out the country.
Finally, since sales are made through
out the year, period for stock taking will be a problem. This is because,
before a stock taking will be carried out in the company, there must be a stock
taking procedure where by there will be no purchases and sales of the company’s
products for at least one or two days to enable the auditor and other staff
concerned to carry out the stock taking properly and as needed.
1.2
PURPOSE OF THE STUDY
The main purpose or objective of
the study is to determine whether persons in position of fiscal
responsibility in government and limited liability companies like total Nigeria
Limited do act and report in a trade fair manner. This is because
internal auditing is becoming increasingly important in large business
enterprises where the owner can keep close personal contact with all the phases
of his business. He may not need an elaborate office or organization and
extensive internal control. But, such situation can be found only in a
relating small establishment and not in a larger enterprise that comprises many
people who customarily are not supervised directly by the owners. The ownership
of such enterprise may be scattered widely and an individual who own little or
has no proprietary interest will be employed to run the enterprise.
Separation of ownership from detailed supervision and even from the active
management of an enterprise is a common phenomenon.
Such a situation present an urgent need
for special safeguard to promote honesty and efficiency in the operation of the
business and to ensure accuracy in the financial records hence internal
auditing.
The purpose of this study is also to
stress the importance for an organization to be aware of its stock position at
all times since stock is as importance as cash in a business. The
research also wish to across how internal auditing of Total Nigeria Limited has
improved management information system and the type of activities performed by
the internal auditor.
1.3
SIGNIFICANCE OF THE STUDY
It is believed that this study will not
only be useful to the company where it is carried out but also to the companies
that carry out the same type of business. Not only that Total Nigeria
Limited is a commercial oil company, there is need to know its internal
auditing system and how it has helped the efficiency of the accounting records
again, this study will add tot he advancement of knowledge in the field of
internal auditing in the company to the future researchers in the area.
external auditors as well as internal auditors will benefit immensely from this
work.
1.4
STATEMENT OF HYPOTHESIS
Hypothesis serve as guides for
the researcher in the entire process of research endeavour and also, trim
the main line of his study. They assumed answer to the principal question of
the study, the correctness of which the researcher assess I the course of this
study.
Hypothesis are either proved or
disproved, accepted or rejected, that depends on the future. In order
world, hypothesis interpose between a statement of the problem and the solution
of the problem.
The importance of hypothesis to the
course of this study are listed here under:
a.
Internal auditors recommendation as regards to stock taking is well carried out
in Total Nigeria Limited
b.
That proper records of stock is not well carried out
c.
That proper accounting records are maintained for stock taking
d.
That effective internal auditing has enabled management to achieve its
objective
e.
That effective internal auditing has not enabled management to achieve its
objective.
1.5 SCOPE
OF THE STUDY
The researcher wants to examine in
detail the role of internal auditor in stock taking.
Although, the study reviewed the
internal auditing in companies but the investigation carried out by the
researcher covered only Total Nigeria Limited which was the case study of this
research.
There was a plan by the researcher to
administer questionnaires to all branches of total Nigeria Limited in the
country but confined most of this to only few branches due to financial
problems.
1.6
DEFINITION OF TERMS
In order to ensure proper and
easy understanding of what the study is all about to some people
especially those that are not in the same discipline, some unfamiliar words
used in the project are defined below.
INTERNAL AUDITING
This is the independent appraisal of
the activities within an organization for review of accounting and other
operations as the basis for service to management. It is a management
control which functions by measuring and evaluating the effectiveness of other
controls.
In other words, internal auditing is an
element of internal control system set up by the management of an enterprise to
examine, evaluate and report on the operations of financial and management
controls within the enterprise.
INTERNAL AUDITOR
Internal auditor is the person who
performs the work of internal auditing. He review the accounting system
and other operations to ensure that they are in line with the need of the
organization in relation to its operations. He also review the
organization’s internal control system and monitors the activities of the
organization to ensure that they are in line with the systems set up and the
controls that are in place.
INTERNAL CONTROL
This is the whole system of controls,
financial and otherwise, established by the management in order to carry on the
business of the enterprise in an orderly and efficient manner, ensure adherence
to management policies, safeguard the asset and secure as far as possible the
competence and accuracy of the records.
It is pertinent to mention that
internal control comprises the whole system of financial and other controls set
up and operating within a business.
STOCK TAKING
This is the counting and checking of
prices and quantities of goods or items in the store by selected official of
the company in order to know whether the physical numbers and prices tally with
what was written in the cards.
BIN CARDS
These are cards that contain the
description on a good or item, the receipts and issues of materials. It also
help the stock keeper in controlling stock.
EXTERNAL AUDITOR
This is a person appointed to express
opinion in accordance with the statutes and to report on the truthfulness and
fairness of the accounts as presented by the director. He is responsible
tot he shareholders and the public but reports tot he shareholders of the company.
CALIBRATED CHART
This is an investment through which the
capacity of a compartment of tank is know
VOUCHING APPROACH
The vouching approach is typified by
checking and ticking the quantities of transaction document to ensure that they
have been accurately recorded.
VERIFICATION APPROACH
This means direct verification of
assets, liabilities, income, expenditures and other matters by the auditor.
SYSTEM APPROACH
This entails the system to audit which
govern the control feature in order to determine the extent to which the
objective of the system will be met.
JETTY
This is a wall or platform built out
into the sea, river etc. where boats carrying petroleum product can be tied and
where people can get on and of boats.
WATCH DOG
A person or group of people whose job
is to check that companies are not doing anything illegal or ignoring people’s
rights. In this context, the term watch dog refers to internal auditor.
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