The Impact And Challenges Of Internal And External Auditors In Manufacturing Companies

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Project and Seminar material for Accountancy

Project and Seminar material for Accountancy


This project is dedicated to Almighty God the giver of life, wisdom, knowledge and understanding, the creator of all things, my protector for His infinite mercies, love, kindness, wisdom and grace and also to my parents for their support.


Firstly, my sincere gratitude goes to God Almighty for His wisdom, knowledge and strength to make this project a success and my stay in this great institution.

My gratitude also goes to my beloved and special parents Mr. Josephat and Mrs. Rhoda Nnaji for their immense support both financially, morally and also for their parental care and otherwise in pursuit for my education. And also thanks to my uncle Mr Goddy Nnaji, Mr. Innocent Akubueze and his wife Mrs. Chiemeka Akubueze, my sister Miss Ngozi Nnaji for her support. Special thanks go to my other siblings for their support may God bless them all.

My aunties and uncles that are not been mentioned that have supported me one way or the other I also thank.
I will not fail to thank my supervisor Mr. C.A Osondu for his great support, directions and his fatherly love for his good supervision also my regards goes to the Head of department Mr. C.N Oparaeke of Accountancy department, Mr. B.N. Okezie, Mr. Ibeaja for the knowledge they impact finally to all lecturers and students of Accountancy department.

Nnajiofor Chiemeka Faith


This work “THE IMPACT AND CHALLENGES OF INTERNAL AND EXTERNAL AUDITOR IN MANUFACTURING COMPANIES” was chosen by the researcher so as to enable and prove the essence why auditors are needed in companies. The study is aimed at investigating the behavior of both workers, auditors, employees, managers in the auditing of manufacturing companies. The study is divided into five (5) chapters.

The first chapter is the introductory chapter which gave definitions of auditing, manufacturing companies, internal auditor and external auditor. Chapter two gave us more about auditors i.e their qualification, impact, problems and challenges, their work with the law and companies. While chapter three gave practical example with data collection and illustrations and also chapter four, finally chapter five gave concluding remarks.

Table Of Contents

  • Title page i
  • Approval page ii
  • Dedication iii
  • Acknowledgement iv
  • Abstract v
  • Table of contents vi

Chapter One

  • 1.0 Introduction 1
  • 1.1 Statement of research problem 3
  • 1.2 Research questions 5
  • 1.3 Objectives of the study 7
  • 1.4 Significance of the study 8
  • 1.5 Scope of the study 9
  • 1.6 Limitation of study 10
  • 1.7 Definition of terms 11

Chapter Two

  • 2.0 Literature review 16
  • 2.1 Concept of auditing 16
  • 2.2 Nature of internal and external auditing 20
  • 2.3 Methods of audit approach 21
  • 2.4 The necessity of external and internal auditors 23
  • 2.5 Auditors and the law 24
  • 2.6 Audit report 32
  • 2.7 Auditors liability 39
  • 2.8 The importance of audit in manufacturing companies 44
  • 2.9 Role of an auditor in a manufacturing company 45
  • 2.10 Principles of auditing 46

Chapter Three

  • 3.0 Methodology 49
  • 3.1 Introduction 49
  • 3.2 Research design 50
  • 3.3 Rational for choice of variables 50
  • 3.4 The methodology 52
  • 3.5 Data selection of analysis 53

Chapter Four

  • 4.1 Presentation and analysis of data 55
  • 4.2 Introduction 55
  • 4.3 Data presentation, classification and calculations 55
  • 4.4 Interpretation of result 61

Chapter Five

  • 5.0 Summary, recommendation and conclusion 63
  • 5.1 Summary of findings 63
  • 5.2 Recommendation 64
  • 5.3 Conclusion 66
  • Bibliography 68
  • Appendix 69
  • Questionnaire 70

Chapter One

1.0 Introduction

Manufacturing companies are companies that transform raw materials or semi finished goods into commodities, goods usable by humans. Manufacturing companies are companies that produce commercially. Their main aim is to produce goods and render services to members of the public at a minimum cost to maximize profit.

In manufacturing companies, some various items of expenditure are allocated to sub division of the final account in accordance with the principles which govern cost accounts. However, when a manufacturing company produces more than one particular product, different accounts are to be prepared by the different departments.

In manufacturing company, company established by law is treated as a separate legal entity different from shareholders or subscribers. The owners or shareholders of a manufacturing company present their account to the auditors who audit and report if the account shows a true and fair view before it is been presented to the directors of the company. Without the report of the auditor in a manufacturing company the shareholders i.e the owners of the company finds it hard to accept the account given to them by the directors.

The auditors both internal and external auditors at times have problem in computing accounts and giving reports because it involves the strenuous method of bringing together all accounts of the company and summary of these accounts and control system.

An auditor is said to be an accountant who undergo a recognized professional course and a member of one of the recognized account bodies resident in Nigeria and who is carrying out a professional accountancy practice. For an auditor to audit a company account he must not be an employee or a body corporate of the company been audited. An auditor should be recognized in the context of the institute of chartered accountants of Nigeria.

An external auditors are auditors that are independent of the organization that are auditing. External auditors can be government auditors or an independent public accounting firm. They report to the company’s shareholders. They provide their experienced opinion on the truthfulness of company’s financial statements and perform work on a test basis to monitor system in place.

Internal auditor is an auditor that work within an organization and report to its audit committee and directors. They help to design the company’s organizing systems and help develop specific management policies. They also ensure that all policies implemented for risk management are operating effectively the work of the internal auditors tends to be continuous and based on the internal control system of a business of any size.

1.1 Statement Of Research Problem

It has been a generalized fact and knowledge to all and sundry that businesses are unable to control their affairs and existence in the longrun. This is due to some of the attribute of the administrative weakness and misappropriate that are inherent in business resulting to the controversy of the reality of the audit work in manufacturing companies.

Manufacturing companies have been beclouded with puzzling circumstances like financial impropriety, lack of auditing control, lack of independence of the internal control, incomplete recording of business transactions over blow expenses to reckless spending, non compliance to accounting standards, mismanagement of scarce funds.
It has not be proven that auditors and audit report are not needed in manufacturing companies and the importance and effect of these auditors cannot be ruled out.

With this regard, the researcher want to investigate the importance and challenges of external and internal auditors in the management of manufacturing companies and attempts to answer the following questions

  1. Is there need for external and internal auditors in manufacturing companies
  2. Will management contribute to management efficiency
  3. Does the auditors have the right to access the company’s book of account and financial statement to get all relevant information.
  4. Does the auditors (internal and external) contribute to the detection of fraud.
  5. What type of challenges or problem do auditors encounter in delegating out their responsibilities.

1.2 Research Questions

To address the above mentioned problems, the following hypothesis are formulated

  1. To establish the necessity and challenges of internal and external auditorium manufacturing companies
    • Ho: There is need for internal and external auditors in manufacturing companies
    • Hi: There is need for internal and external auditors in manufacturing companies
  2. To find out if audit report has been hampered
    • Ho: Inefficient internal audit and internal control has hampered audit reports.
    • Hi: Efficient internal audit and internal control has hampered audit reports.
  3. To find out whether internal and external auditor improve the management of manufacturing companies
    • Ho: The internal and external auditors do not improve management.
    • Hi: The internal and external auditors improves management.
  4. To find out challenges faced by internal and external auditors
    • Ho: The internal and external auditors does not face some challenges.
    • Hi: The internal and external auditors does not face some challenges.
  5. To find out how internal and external auditors are opposed to the incursion of the external auditors
    • Ho: Internal auditors are opposed to the incursion of external auditor
    • Hi: Internal auditors are not opposed to the incursion of external auditor

1.3 Objectives Of Study

The objective of this study is to institute the need and affirm the important, effects, impacts, needs and challenges of external and internal auditors in the management of manufacturing companies.

It also has the objective of ascertaining if the audit records given by internal and external auditors about the financial statement if correct i.e it shows a true and fair view.

To also determine the extent to which internal and external audit helps in enforcing compliance to rule and regulations regulating manufacturing companies. Another important objective of the study is to find out if the internal and external auditors inspects, verifies organizational assets and liabilities, books of account and to check the maintenance of adequate control in the manufacturing companies encountered by the auditors while performing audit functions.

1.4 Significance Of Study

The research work is being carried out to enable the research to be more enlightened about external and internal auditors in the course of manufacturing companies.

The study will be of immense benefit to the shareholders who have contributed the funds for the business and needs a reward in form of dividends. It will also help a great deal by way of determining the type of policies which an auditor will use upon the process of auditing manufacturing companies.

Lastly, the relevant of the study is to ascertain the internal control system that is operational ion manufacturing companies so that it can be effectively administered saved from mal-administration. It is hoped that manufacturing research work by agreeing with the recommendations, the study and appreciates the need for external and internal auditors.

It will also be of immense help to future researcher who will find the study interesting in their research pertaining same things.

1.5 Scope Of Study

This research work has been confirmed to be the impact and challenges of internal and external auditors in manufacturing companies. In the course of the study, the researchers shall examine the record system.

This will enable the researcher to find out whether the manufacturing companies keep proper records and books of account. Analysis on test of accounts will be carried out to enable the study give an insight as to the corrections and accuracy of the records kept.

Furthermore, the research will identify the system of management and administration set up, the efficiency and effectiveness of the internal control system and finally where possible conduct compliance and substantive tests.

1.6 Limitation Of Study

The researchers in the course of carrying out the research was faced with a lot of problem. The research is limited to a particular area or vicinity due to its peculiarity and the limited available data, time factor; majority of the findings depends greatly on the writers efforts research the research work is limited to manufacturing companies. Hence, there is low possibility of generalizing the study to cover other classes of business organizations.

Time factor posed a very high limitation to the study due to the respondents who might not give quick response to questionnaire or interview they may be engaged in other activities company and when he seems available to answer the questions, the respondent gives limited time which might not be enough to answer all questions.

Finally, another great problem encountered in this research work is financial aids and assistant, the available fund was not enough to sustain the vast research proposals.

1.7 Definition Of Terms


An auditor can be defined as an independent professionally qualified accountant who has undergone a recognized professional course and is a member of the recognized accountancy bodies resident in Nigeria who is appointed for the purpose of examining the statement of accounts, assessing of assets and liabilities of the relevant organization with a view to ascertain the true and fair view of the financial statement.


This is the systematic investigation and appraisal of transactions procedures operations and resulting financial statements.


This is defined as an independent examination of financial statement or related financial information of an enterprise by an appointer auditor in pursuance of that appointment and in compliance with any relevant statutory obligations.

Internal Control

This is the whole system of control, financial or otherwise established by management in other to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the records.

Internal Auditors

This is an auditor that works within an organization and report to its audit committee and directors. They help design the company’s organizing systems and help develop specific risk management policies.

External Auditors

These are auditors that are independent of the organization they are auditors. External auditors can be government auditors or an independent public accounting firms.

Compliance Test

These are those tests which seek to assure the auditors (i.e provide audit evidence) that the internal control procedures are being applied (i.e working as prescribed by management.

Substantive Test

These are those tests on transactions and balances and other procedures such as analytical review, which seek to provide audit evidence as to the completeness accuracy and validity of the information contained in the accounting records or financial statement.

Financial Statement

This is a statement that has been prepared by a firm to ascertain its profit and to know its financial positions. It is the final books of account known as profit and loss account and balance sheet.


The auditor profession emphasize on this doe of conduct because this is a position which will enable auditor express his opinion without biasness. An independent auditor is one which has no interests in the clients firm to such extent of tilting his opinion towards one side.

True And Fair View

The main objective of an auditor is to form an opinion as to the truth and fairness of the products accounts. Truth means exactness and accuracy and this could be applied to the existence, ownership, classification and valuation of assets and liabilities.

Fairness may be evaluated, statistical techniques, adopted, confidence limits and estimate taken in the light of available information. Therefore this auditor must take reasonable still and care in her judgement on fairness.

I bet you, the complete material is fully loaded. This is just an excerpt. The Material is in MS-Word Format which you can easily edit and is comprehensive for a complete research work for this topic

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How to nail it on the head during your project defence

You are through with writing that project. Now what?

You have found yourself at that point where you have to defend what you have written. Of course you have to stand in front of your supervisor and other literary personalities to prove that you know what you wrote in your project paper. Unfortunately, the more you think about it, the more it looks like you are about to face a legion. It is not a war. But the emotion of dread welling up inside of you makes it look like one. So now you are asking yourself questions.

  • How am I going to start?
  • I hope I will do well enough to get an A.

You really want to nail it, but you need to come to terms with exactly how to get everything in perfect control. Especially your emotions of fear that seem to make a wreck of you every time you think about public speaking.
So here is the deal. I want to help you avoid that feeling that would ruin your precious moment if you dare to let it. And we are going to do it together.

I am going to highlight some very important tips to help you get in control for you to be comfortable enough to move from that feeling of DREAD to CONFIDENT; and making an awesome Impression for that great rating your supervisors should be giving to you so freely.

Consider these tips as you prepare for your defence. We will be taking them one after the other so here we go.

Watch Your Body Language And Keep It Confident:

Can you tell that a person is falling apart if they look confident? … If I can second guess you rightly, am sure you answered no to that question. Remind yourself that you need to come out that way. Now this might seem like a huge big deal when you are dealing with the foreboding. Maintaining a poise of confidence is very important. So find your most comfortable position, sitting or standing and draw up your body. You must exude confidence. It is something you need to do for yourself. People can only see what you allow your body language to show. So you must endeavour to put that out. Remember the story of David and Goliath? … At the end of your defence day, you want to be David.

Dress In Your Most Comfortable And Impressive:

Am sure this one is a no brainer. However I must highlight that you choose comfortable pieces. You don’t want to look so good and yet look like you were forced to wear something that does not belong to you. It’s great to ensure that as impressive as your clothes are on you, that they are also very comfortable.

Speak With Authority:

Going hand to hand with that aura of confidence is your most powerful asset:your words. If you look that confident, your words must not come out like whimpers. To be able to pull this off, you definitely need to speak as deliberately as possible in expressing yourself. Let them also hear what they see.

Use, Your Gestures:

I have often found this to come to my rescue in dealing with shyness and conveying my confidence. Usually it gives you an edge to also drive home your point. You must, however, ensure that you do not over use it. It doesn’t mean that your hands should be flying all over the place. That would be absolutely unnecessary. If you do this well, after a while you will realize that you are not as self-conscious as you used to be at the very start. For most situations, it would have completely disappeared altogether; leaving a really confident you talking.

Have A Good Opening And Closing Line:

Make sure you have perfected a good opening line. You should also be armed with a good closing line too. Try and rehearse it to a friend. If for the first time you presented it, your friend does not say “wow, that’s beautiful” or something like that; just know you need to keep refining it until you get the perfect line. Both opening and closing lines will go a long way in how impressed your panel gets to rate you high.

Make Sure You Know Your Work:

Certainly you should understand how important it is to know your own work from start to finish. Not having in-depth knowledge of your own work is tantamount to a suicide mission. Why should you kill yourself?
When all is said and done, this is what you came to defend in the first place. You should know your work from A to Z.

Prepare For The Questions:

Now this part is truly essential. You must be sure you do not floor all the good work you did on your presentation by not answering correctly. You must pay attention to the questions you are asked to be sure you will give the right answer. Many people get it wrong at this stage and spoil their good presentation. When you do not understand any question do endeavour to ask the person to expatiate what they mean before you answer.

These tips are by no means exhaustive, but applying these tips will give you some necessary advantage you need for a great outcome. Of course that outcome would mean that you eventually earn all your points on this project.

The structure of a good project work

Undergraduate projects in Nigeria is a prerequisite for graduation amongst Nigerian tertiary students who will which to obtain bachelors degree in their respective courses of study such as accounting, banking and finance, business administration and a host of others. Writing an undergraduate project in Nigeria for final year students entails a lot both financially and otherwise. Being able to develop any final year project depends on getting a researchable topic whether it is Accounting Undergraduate project topics, Banking and Finance research topics or banking and finance project topics and materials and it all requires diligent hard work of students who are willing to develop best undergraduate projects in Nigeria and graduate in flying colors.

A typical Undergraduate project in Nigerian tertiary institutions can be said to be divided into five or six chapters depending on the format of the school and course of study which are

1. Introduction

The introduction of an undergraduate project states the main research problem and research argument. What precisely the study is all about and why it is important. It looks at the originality of the research work and how it will fill the gap in other studies. Justification for a research undergraduate topic should not be lengthy before it has been explicitly stated.

Below are the contents in chapter one of an undergraduate research project which includes;

  • Background of the study,
  • Statement of the problem,
  • Objectives or aims of the study,
  • The research questions,
  • Research hypothesis,
  • Significance of the study,
  • Scope of the study,
  • Limitations of the study and
  • Operational definition of terms.

2. Literature review

Literature review of any undergraduate research work, be it business administration project topics or Economics project topics just to mention a few is very critical to securing a high grade in one’s project work. The literature review of a research process uncovers what other writers have written about the student’s topic. A student’s undergraduate research work should include a discussion or review of what is known about the subject and how that knowledge was acquired. The review could conclude with a brief summary of the literature and its implications. The contents of the literature review are the theoretical review, conceptual framework, empirical review and summary of literature review.

3. Research Methodology

This section includes a description of the research methods used in the undergraduate research work such as the sample size, data collection methods, measurement instruments, research data analysis procedures and the population from which the sample was selected.  This section also describes the method used in selecting the sample or samples, validation and reliability of the instruments used in the research work. There are different research statistical techniques used in undergraduate research work such as SPSS, e-views etc.

4. Results & Discussion

This section presents and discusses the data analysis results used in an undergraduate research work, the results of each analysis is being summarized, tabulated, and then discussed for each research question.  Then for each research hypothesis, the statistical test of significance selected and applied to the data is briefly described, followed by a statement indicating whether the hypothesis was supported or not supported.  In presenting the result analyses/summary in an undergraduate project tables and figures and or graph are used to add clarity to the presentation.

5. Summary, Conclusions And Recommendations

This section summarizes the findings of the study in an easy to understand manner.  It also explains the practical implications of those findings, and points to recommended directions for future research in that area.


This is where every source cited in the undergraduate research work is being included. Every undergraduate research work must be properly referenced for its authenticity.

Choosing A Good Project / Research Topic

Students in Nigerian universities these days wish to choose a very simple project topic/material. There is no issue choosing a simple project topic; the only problem is your ability to choose a good project or research topic that your supervisor will easily approve for you.

Most project supervisors really want to see how good his or her project student understands his or her surrounding through the kind of topic he or she chooses for their project work.

There are some project topic that are not reject-able; for instance in Nigeria of today; what do you think is the major issue on ground now?

If a project student can choose or craft a topic on the effect of dollar increment on the economy of Nigeria. Such project topic will be very interesting to write on.

Now what are the qualities of a good project topic?

  1. The materials for the project topic must be easily assessable.
  2. The project topic itself must be meaningful.
  3. The variables must be able to give a clear aim of the project topic.

What do I mean by variable?

Well I am deriving my point from the area of project writing; the variables here are those main words in the project topic.

Like the above project topic; the effect of dollar increment on the economy of Nigeria. You can see the main variables that really define this project topic are:dollar, increment and economy.

Before you present your topic to your project supervisor, first of all understand your project topic, and then secondly try to do some research for your topic to see if at least you can get up to 60% of what you need to write the complete project.

I said that above because you might have a very nice topic that the materials are not available online and there are no books as regard the topic; in this case the project topic becomes difficult for you even though the topic is catchy.

What do I mean by your topic being assessable?

Well what I mean is very simple and easy to understand. Simply pick your project topic, type it on google and see if you will have at least a good background for the topic you are writing on.

If you can have a good background for your project topic and you can understand the problem associated with the project topic, then I believe the aim of the project is not far-fetched.



Samuel Obiora Blessed is the CEO and founder of Samphina Academy ( a.k.a Nigeria Students Media, the youngest engineering graduate of Federal Polytechnic Nekede in 2017 and the engine brain behind this great platform. He is the man behind the scene, filled with many potentials, a musician as well as a pro developer with the interest of Nigerian students at heart.

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