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SIGNIFICANCE
OF INTERNAL AUDITING ON THE PERFORMANCE OF INSURANCE ORGANIZATION IN NIGERIA
ABSTRACT
The study
examined the significance of internal auditing on the performance of insurance
organization in Nigeria; shows that internal audit is useful in sustain
achievement of organizational goals. Thus, internal audit assist management in
decision making.
The study
employed the descriptive survey design to determine internal audit as it
correlates with peformance in Nigerian Insurance companies. The survey design
was adopted in order to generate diverse attitudes, opinions, responses,
reactions and beliefs from the respondents on the nature of correlation among
internal audit and performance.
From the
empirical result, the significance value (p-value) of 0.046 <0.05; The
second hypothesis shows the significance value (p-value) of 0.066 <0.05, the
both models are significant; Finally since the significance value (p-value) of
0.118 > 0.05, the model is not significant.
The study
concluded that internal auditing has a significance effect on the performance
of insurance organization in Nigeria.
The study
has contribute to body of literature by providing empirical evidence on the
significance of internal auditing on the performance of insurance organization
in Nigeria using the following variables performance of insurance
organizations, quality and accuracy of reports , independence of internal audit
and expertise of the auditor.
Based on the
findings from the study, the study recommended that; Services of professional
accounting personnel should be employed; Knowledgeable administrators should
occupy administrative positions; Administrators should ensure that duties are
discharged in accordance with set
standards; There should be regular internal and external audit to check
compliance or deviation.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The demands
on the internal audit departments of insurance organizations have increased
significantly in recent years as technology advances, regulation becomes more
rigorous, new risks emerge, and companies seek more business insights. Internal
audit plays a crucial role in providing assurance on an organization’s
governance, risk management, and control processes to help achieve strategic,
operational, and financial objectives while balancing compliance objectives and
expectations from regulators. Internal audit departments need to leverage an
understanding of insurance industry trends, feedback from leadership,
regulatory compliance requirements, and available public information to add
value to the organization – to optimize internal audit value.
Insurance
organizations’ internal audit departments have more demands than many other
organizations, namely because they are providing assurance insight and
consultation on risk management to an industry that executes risk management as
its business. However, because insurance organizations are operating in an
environment of ever-increasing change and regulation, internal audit has vast
opportunities to improve and provide value optimization.
The
qualitative growth and increasing complexity of service, business and
industrial activities, and the pressure from the lack of resources and
increased competition to absorb the resources needed by the units in the modern
world in recent decades have led the capital owners to be unable to direct the
companies and the management of commercial units to be transferred to people
other than their owners. The separation of ownership from management, in turn,
has increased the need for specialized people who are able to audit financial
statements of units with extensive and complex activities (Auditing
instructions, No. 95, March 2014).
Executive and non-executive directors have the responsibility of
pressures, threats and dangers to fulfill their duty of stewardship to the
owners of the capital. In this regard, managers of large institutions, unlike
the owners and managers of small institutions cannot be aware of all the
details of the affairs. The main reason that managers of large institutions
cannot be aware of the details of the issue is the large number of employees,
different departments, variety of operations, and the existence of different
stages of production and products in such institutions. Therefore, these
general policies are necessary to be communicated in regulations, methods and
instructions to the Chief Executive Officers of differe nt departments. Hence,
this delegation of responsibilities, creates is a significant gap between
executives and the operations led by them. In this situation, management will
require the fulltime service of people who constantly review and report all
stag es of the institution's operations as an observer and administrative
analyst. These people should be aware about the details of the policy of
mangers, organization, methods, and regulations of the human resources and,
finally, the actual facilities of the institution. Therefore, the presence of
internal controls for identifying, modifying, evaluating and controlling the
steps, on the one hand, the legal requirements of the economic units on the
other, which must be also properly observed, is essential. Therefore, an
internal control system must be established to identify and control the extent
to which such legal requirements are observed. Internal auditing is an
independent assessment of the economic unit that is created by its management
to examine the internal control system and reports the adequacy of the internal
control system in terms of appropriateness, economics, effectiveness and the
necessary effectiveness in using resources, tests, assessments, etc. Getting
sure that the consumption of public fund s has been spent properly and
economically efficient, effective, and in the interests of society, has an
essential role. In summary, internal auditing is considered as an important
part of an effective management in all economic units and it is necessary
according to auditing instructions and considering the widespread necessities
of accountability in the use of resources, especially public resources, it is
not possible to provide rational justification for the lack of internal auditing,
even in small institutions. The existence of internal auditing is one of the
conditions for the efficient operation of economic institutions. There are many
managers who try to rely on the performance of internal auditors to improve
their performance and achieve organization al goals. Commercial failures and
economic scandals, in recent years, have drawn the attention of managers to
issues of protecting, controlling, maintaining, and managing effective economic
institutions. Since the main responsibility for protecting assets, preventing
mistakes and exploits and discovering them is exclusively on management, so
this responsibility requires the establishment of appropriate internal
controls, including internal auditing. The quality which determines the auditing
function depends on two factors associated with the auditor's performance,
including the ability of the auditor (including knowledge, experience,
compliance and technical performance), and professional performance (including
independence, objectivity, professional careers , to measure conflict,
interests and judgments). The audit quality structure is multi dimensional but
intangible, therefore it is very difficult (Factors affecting independent audit
quality, Mojtahed et al. ; Winter, 2004).
Finally, it can be stated that a system or set
of controls, whether financial or non-financial is intended to provide
reasonable assurance of the proper functioning or fulfillment of the following.
1 The
effectiveness or efficiency of the operations
2 . Reliability
of the financial infor ; mation and reporting ;
3.
Observance of laws and regulations (domestic and national). Therefore, the
administrative department or organization that controls and evaluates the
function of the above definition can be defined as internal auditing.
1.2 Statement of the Problem
Many
insurance companies fail to recognize the importance of internal audit and take
its implementation for granted, which in return, manifests mostly in the
reports of fraud and embezzlement in the insurance sub-sector. Baba (2010)
observes that, in the Nigerian banking industry, internal audit has significant
effect on management and that the occurrence of fraud can drastically reduce
the efficiency of an organization. As one of the recommendations, the
researcher recommended the need for an effective internal audit in the banking
industry. A look into the existing body of literature shows that very few
researchers have investigated the role of internal audit in fraud prevention
specifically in the insurance sub-sector in Nigeria. This study will fill in
this gap in the literature by studying the effectiveness of internal audit and
its role in fraud prevention in insurance companies.
1.3 Research Objectives
i. To know
how the quality and accuracy of reports influence the performance of insurance
organizations in Nigeria.
ii. To know
the extent whose independence of internal audit improves the performance of
insurance organization.
iii. To know
the extent expertise of the auditor affects performance of insurance
organization.
1.4 Research Question
i. Does the
quality and accuracy of reports influence the performance of insurance
organizations in Nigeria?
ii. What is
the extent whose independence of internal audit improves the performance of
insurance organization?
iii. To what
extent does expertise of the auditor affects performance of insurance
organization?
1.5 Research Hypothesis
Ho1: There is no significant relationship
between the qypouality and accuracy of reports influence the performance of insurance
organizations in Nigeria.
Ho2: There is no significant relationship
between independence of internal audit and
the performance
of insurance organization.
Ho3: There is no significant relationship
between expertise of the auditor and the performance of insurance organization.
1.6 Significance of the Study
The study
will contribute to body of literature by providing empirical evidence on the
significance of internal auditing on the performance of insurance organization
in Nigeria using the following variables performance of insurance
organizations, quality and accuracy of reports , independence of internal audit
and expertise of the auditor.
In line with
this, it has achieve the following objectives: the quality and accuracy of
reports influence the performance of insurance organizations in Nigeria,
independence of internal audit will improves the performance of insurance
organization and analyze how the expertise of the auditor affect performance of
insurance organization.
1.7 Scope of the Study
The study
examined the significance of internal auditing on the performance of insurance
organization in Nigeria.
1.8 Definition of Terms
i. Internal
Audit: Its an independent, objective assurance and consulting activity designed
to add value and improve an organization's operations.
ii. Performance:
comprises the actual output or results of an organization as measured against
its intended outputs.
iii.
Insurance Organization: It organizations that provides coverage, in the form of
compensation resulting from loss, damages, injury, treatment or hardship in
exchange for premium payments.
iv.
Insurance: Its a means of protection from financial loss.
v.
Organization: Its a person or a group of people working together in pursuit of
the same commercial interest.
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