Internal Auditing

Topics: Internal audit, Auditing, Internal control Pages: 18 (6084 words) Published: May 5, 2013
British Journal of Arts and Social Sciences ISSN: 2046-9578, Vol.8 No.I (2012) ©BritishJournal Publishing, Inc. 2012

Effectiveness of Internal Audit in Tanzanian Commercial Banks

Dr.Jayalakshmy Ramachandran Asst. Professor, Nottingham University Business School, Seminyih, Malaysia, Email: 60386248779

Dr.Ramaiyer Subramanian , Lecturer, Faculty of Business and Law, Multimedia University, Malaysia. Email:, 6062310640

Ireneo John Kisoka Research scholar, Nottingham University Business School, Seminyih, Malaysia, Email:

Abstract This study aims to examine the effectiveness of internal audit function in Tanzanian commercial banks since this function is now a mandatory requirement as per the Banking and Financial Institutions Act 2006. Results of this study deliberate that, the risks management and corporate governance related activities of internal auditors are incorporated merely as statutory obligations and do not provide additional value to the stakeholders. We assert that that internal auditing in Tanzania commercial banks is still embracing the conservative approach which is primarily concerned with compliance and monitoring rather than adopting value added approach. The inference of the study is more crucial to the agency theory whereby public funds are being spent on activities which do not add value to the stakeholders. This could in turn dilute the principal agent relationship, which is already a tenacious issue due to the corporate collapses witnessed over the last decade. The study comes as a timely contribution to practice since, Tanzanian economy is now at a growth and development stage and the Commercial Banks of Tanzania are the major contributors to the development of Tanzanian economy. We suggest that it is time to change the outlook of internal audit system by Tanzanian Commercial Banks. Key words: Internal, Audit, Commercial, Banks, Effectiveness.


British Journal of Arts and Social Sciences ISSN: 2046-9578

Introduction Arens et al. (2005) define auditing as the „accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria‟. The American Accounting Association (AAA) guidelines (1973) defines auditing as „a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria, and communicating the results to interested parties‟. Thus varied definitions for auditing are provided by different authors and professional bodies/association. Fundamentally, these definitions imply that the primary role of external auditors is to provide an independent opinion on the state of affairs of an entity. While this was the budding idea of audit, numerous changes could be witnessed as businesses progressed. Presently, the auditors provide a galaxy of services, such as consultancy, tax, legal compliance, due diligence, forensic auditing and development of internal control system for companies accompanied by internal audit services, which are considered the ultimate money vending machines. The last decade, thence, witnessed a chain of corporate collapses, each one creating a history by itself, which triggered trepidations over the role of auditors, the effectiveness and the purpose of internal control systems in the organization. The regulatory bodies are, since, working their way to ensure that the companies are not only having tighter internal control system but they are also adequately disclosed as a part of governance compliance. As a result most listed companies have their own internal audit department as well as internal auditors. The Professional Practices Framework in the Institute of Internal Auditors (IIA) Research Foundation...

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