THE ROLE OF INTERNAL AUDITORS IN STOCK TAKING

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.

 CHAPTER ONE

INTRODUCTION

• Background of the study

Auditing  system has been  known as  a  major  factor  to  which  good  or poor  performance  of a  manufacturing   company  can  be  attributed. Most people think to seriously that auditing is a subdivision of accounting, probably that is how it was introduced to us and because every auditor is an accountant but every accountant is not an auditor. Auditing has its root elsewhere. The relationship of auditing and accounting is close, but they are not the same. There are business associates. One may ask “What is accounting?”  Accounting has been defined in many ways by different authors.

Accounting to Eneje (2006) accounting is a service activity which provides and financial information about economic activity that is intended to be useful in making economic decisions”   It involves the measurement and communication of business events and conditions as they affect the peculiar enterprises or entity. The task of accounting is reduced a tremendous mass detailed information to manageable and understandable proportion. Nevertheless auditing does more of these things.

Auditing to Nwabueze C.C (1997), “auditing is an independent examination by a statutory  appointed person  called the  auditor  to  investigate  an  organization, its  records  and  the  financial  statement  prepared  from  them, and  thus  form  any  opinion  on the  accuracy  and   correctness   of  the  financial  statement , hence  the role  of  the internal  auditors  in stocktaking Auditing is analytical not constructive. It is critical, investigative and concerned with the basis of accounting measurement and auditing emphasis its proof of correctness. Auditing is also concerned with adequacy in design, effectiveness in operation and consistency in application of such processing’s.

The researcher  will  also  examine  the  effects  of  these  aspects  of  the  role  the internal auditor  in stock  taking.

It is aimed at forming opinion on the truth and fairness of the transaction of an enterprise and also has its principles, rules not on accounting, which is learns for ideas and methods. Auditing is therefore a discipline independent on logic with accounting as art of its utilities.

The  use  of  internal  auditors controls  the  measures and  its effects on a manufacturing  company,  hence  the establishment of the auditing  department will also  been show. The  effects of  these  aspect  of  auditing  in stock taking  is  The  objective  of this  work,  hence  the research  topic  “The  role  of  internal  auditors in stock  taking”. Nevertheless the  auditor  had  the account   read  to  him  since the term  audit originated from  the  latin  “audire”  meaning  to  hear. The  origin  of  an  audit  can be  traced to  the  ancient  times  in  Britain  when  landowners allowed  tenant  farmers  to   farm  on their  land. The landowners did not involve themselves in the cultivation of the land or in the supervision of these tenant farmers.

After  Luca  pacilo  published  his  book in the  15th  century,  the work  of  auditor  became  more  involved  but  today,  the  increased  complexity  of  business  units, either  by   the  scope  of its  own  operation  or  by  amalgamation,  has now  forced the auditor   to  adopt  new  methods of   approach  to  his  work the  role  of  auditors  in stock  taking. The auditors  duty in respect to stock  taking  is  often  is  often regarded as  fully  expressed in the  case  of  “re Kingston  cotton  mill  co. ltd” , (1896)  in  which   Lindly  L.J.  stated  that  it  was  “on  part  of  the  auditors  duty  to  take  stock” .  But later  in the  united  states,  it  is  recognized  duty of the  auditor  to  make  physical  stock chedes that  is  stock  taking,  this  duty  having  been  imposed  upon  him  after   much  defalcations  has  took  place  in  case  of “ MC”  Kasson  V-  Robin” (1940) whereby  fictitious  record  affecting  purchases,  sales  and  stocks  enabled  various  responsible  officials   working  in  collusion  to  overstate to  overstate  the  assets  on the  balance  sheet  by  sum  of  21000, 000  dollars.

On  the  other  hand,  stock  taking  or  physical  verification  of  stock  by  means  of fully  counted  or  measurement  in case  of bulk  stock  tally  with  the  bin  card  records  stock  taking  could   be  done  in  three  ways  stated  below:

(a)       Counting of  stock  at  the end  of  the year  or  before  the  year ends  or  after  the  year ends.

(b)     Counting of the part of stock by means   of interpolating the total statistics.

(c)      By means of using continuous stock records

It should be known that where stocks are material in the enterprises. Financial  statement  and  the  auditor is  placing  reliance upon  management  stock  – take  in other  to prate  evidence  of  existence, the auditor  should  attend  the stock  taking. This  is  because  attendance  of  stock  taking  normally is  the  best  way  of  providing evidence  of the  proper  functioning   of  the management   stock  –  taking. Procedure and the existence of stock and their conditions.

1.2 STATEMENT OF THE PROBLEM      

The nature of the product of   seven up bottling company  plc   particularly liquids such  as  pepsi, mirinda, selen – up and   mountain dew  makes it very difficult to effectively conduct stock – taking at any point in time and also to determine the extent to which internal auditors are involved. The statement of the problem was discovered as a result of the researcher’s enquiries.

1) 7up Bottling company plc has been going under services of financial problem due to the internal control where not effectively used.

2) The staff do not know whether internal control will regulate the financial constraints of the company.

3) 7up Bottling company does not know whether internal activity stocktaking will make good or loss.

4) The staff of  seven – up Bottling  company  plc  do  not  know  the  present effectiveness  and  how  efficiency of stock  talking  method  will be

5) The existing  auditing  system  in the  manufacturing  company  does  not   comply  with  the  generally  accepted  accounting  principles.

6. There is incomplete recording of  stock  in most  manufacturing  companies in Nigeria, thereby  not  obeying  the  principle

 

1.3 OBJECTIVE OF THE STUDY

The study has one objective which is divided into general and specific objective, the general objective is to examine the role of internal audit in stock taking, the specific objectives are;

1. to examine the role of internal auditor in enhancing effective stock taking
2. to ascertain if there is any relationship between stock taking and organizational profitability

• To ascertain if there is a significant relationship between stock taking and internal audit

1. To proffer suggested solutions to the identified problem

1.4 RESEARCH QUESTIONS

1) Does internal auditor play any role in enhancing effective stock taking in the organization?

2) Is there any relationship between stock taking and organizational profitability?

3) Is there any significant relationship between stock taking and internal auditing?

1.5     SIGNIFICANCE OF THE STUDY

This study is believed will not only be useful to the company where it is carried out but also to other companies that carryout the same type of business not only that, since seven – up  Bottling  company is  prelate limited  liability company, there is need to know its internal auditing system and how it has helped the efficiency and proper usefulness of accounting records.

The  study  of  auditing  in  manufacturing  companies  will  enable  them  to  identify  areas  were  their  accounting  system inadequate.

The  study  will  also  provide  information  on  management  to  accomplish  its  objectives.

These  research  work  will  help manufacturing  companies  know  how controls  can  be  applied  with regards  to  inventory  and why  this  is necessary.

Researchers,  students  and  teachers  will  also  gain  from  the  techniques  and  methods  of  good   auditing  system  exposed  in  this  work.  Government will equally benefit through increased revenue from higher   profits.

The society  at  large  will  benefit  through  facilities  provided  from  increased  revenue  accruing   to  government  as well  as  higher  expenditure  votes to  social  responsibility  functions  by these  companies as  a result  of  higher profits. Shareholders  and  investor will  benefit  from  the  study  by  higher  dividend,  dividend  yield  resulting  from  better auditing records.

1.6    SCOPE OF THE STUDY

Through the study received the internal auditing in companies the investigation carried out by the researcher covered only seven – up  Bottling  company  plc at mile cornch Enugu which was used as a case study.

 

1.7 DEFINITION OF TERMS

To ensure a proper understanding of what the study is all about, some unfamiliar words to those who are not in the same filed are defined as they appear in the project.

1. a) Internal Auditing: Internal Auditing is an independent appraisal activity within an organization for the review of accounting, financing and other operations as a basis for services to management. It is a managerial control, which functions by measuring and evaluating the effectiveness of other control.
2. b) Internal Control: Internal control is the whole system of controls financial and other wise established by management in order to carry on the business of the enterprise in orderly and efficient manner, ensure assess and secure as far as possible the completeness and accuracy of the records.
3. c) Internal Auditor: Internal Auditor is the person that does the above mentioned job.
4. d) Stocktaking: Stocktaking is counting and checking the price and physical qualities of goods or items in the store by selected officials of the company in order to know whether the physical numbers and prices tally with what is written in the bin cards.
5. e) Bin cards: Bin cards are cards that contain the descriptions of an items, the receipts issued and as well as the balance of the items in question. The bin cards are used not only for detailing receipts and issues of materiel but also to assist the storekeeper to control the stock.
6. f) External or Independent Auditing: This is an independent examination of the financial statement of an enterprise conducted with view to the expression of an opinion on whether or not those statements show a true and fair view of the enterprise by a professional practitioner who engaged as an independent contractor.
7. g) Watch dog: This is a dog trained and kept to guard property of various kinds, homes and offices. In this context, the term watchdog refers to the internal auditor.
8. h) Vouching Approach: Vouching approach is typified by checking and ticking the quantities of transaction and documents to ensure that they have been recoded accurately and correctly.
9. i) Verification Approach: Verification approach this concerns the direct verification by independent means of assets, liabilities, income and expenses and other mattes that is concern to the auditor.
10. j) Jetty: Jetty is a place in the seaport where tankers carrying soft drinks products berth.

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