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THE ROLE OF INTERNAL AUDITOR IN STOCKTAKING

(Accounting)

THE ROLE OF INTERNAL AUDITOR IN STOCKTAKING

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Many people tend to seriously think 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.

Accounting is concerned with collecting, classification, correction, summarization and communication and financial information. 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. Auditing does more of these things.

Auditing is an independent examination and expression of opinion on the financial statement 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 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 is to proof of corrective ness

Auditing is also concerned with adequacy in design, effectiveness in operation and consistency in application of such proceedings.

It is also 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.

Historically, the auditor had the accounts read to him since the term audit originated from the Latin ‘audire’ meaning to hear.

After Luca Pacido published his book in the 15th century, the work of the 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 auditor in stocktaking.

The auditors duty in respect to stock taking 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 “no part of the auditors duty to take stock”. But later in the united States, it is the recognized duty of the auditor to make physical stock checks – that is stocktaking – this duty having been imposed upon him after much defalcations as took place in the cause of MC Kesson V Robin (1940) whereby fictitious records affecting purchases, sales and stocks enabled various responsible officials working in collusion to overstate the assets on the balance sheet by some 21000,000 dollars.

On the other hand, stocktaking or physical verification of stock may by means of full count or measurement in case of bulk stock tally with the bin card records stocktaking 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 the stock by means of interpolating the total statistics.

c.                   By means of using continuous stock records.

It should be know that where stocks are material in the enterprise’s financial statement and the auditor is placing reliance upon management stock – take in order to prove evidence of existence, the auditor should attend the stocktaking. This is because attendance of stocktaking is normally the best way of providing evidence of the proper functioning of the management stocktaking procedure and the existence of stock and their conditions.      

1.2              STATEMENT OF PROBLEM

The nature of the product of Total Nigeria Limited particularly liquids like kerosene, petrol, diesel and oil make 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 problem was discovered as a result of the researchers enquires.   

1)                  Total Nigeria Limited has been going under services of financial problem due to the internal control were not effectively used.

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

3)                  Total Nigeria Limited does not know whether internal activity stocktaking will make good or loss.

4)                  The staff of the Total Nigeria limited do not know now effective and efficient stocktaking method will be.             

1.3       THE PURPOSE OF THE STUDY

The main purpose or objective of this study is to determine whether persons in position of fiscal responsibility in government and limited liability companies and organisation like Total Nigeria Limited report in a time and fair manner. This can take place because the Internal auditing is becoming increasingly important in large enterprise.  

An organization like Total Nigeria limited Enugu that has so may district branch offices through the state ad because of this they need the service of many people who are not supervised directly. It is also the same thing like ownership of a co-operation often is scattered widely, and individuals who own little or no proprietary interest in firm, are employed to run it. Separation of ownership from the active management of an enterprise is a common phenomenon. Such a situation presents an urgent need for special safeguard to promote and efficiency in the operation of a business and to assume accuracy in the financial record hence internal auditing.       

The purpose of this study is also to stress the importance of an organisation to be aware of its stock position at all times since stock is as important as cash in an organization.

The researcher also wish to put across how internal auditing in Total Nigeria Limited has improved management information system and type of activities performed by the Internal auditors.

1.4       SCOPE OF THE STUDY

Through the study reviewed the internal auditing in companies, the investigation carried out by the researcher covered only Total Nigeria Limited, which was used as a case study.

1.5       RESEARCH QUESTIONS

1)        To what extent can the role of Internal auditing in stocktaking in Total Nigeria Limited effecting to be determined?

2)        Can internal auditing in Total Nigeria Limited regulate its stocktaking?

3)        How does internal auditing effect stock taking in Total Nigeria Limited.

4)        Will Internal auditing in Total Nigeria limited change the stocktaking methods positively?

1.6              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 Total Nigeria company is a commercial oil company, there is need to know its internal auditing system and how it has helped the efficiency and proper usefulness of accounting records.

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.

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.                      

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.   

c)         Internal Auditor:

                        Internal Auditor is a person that does the above mentioned job.

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. 

e)         Bin cards

Bin cards are cards that contain the description of an items, the receipts and issued and 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.

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.

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.     

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. 

i)          Verification Approach

Verification approach is concerns the direct verification by independent means of assets, liabilities, income and expresses and other mattes of concern to the auditor.

j)          Jetty

Jetty is a place in the seaport where tankers carrying petroleum products berth.

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