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KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
M Shahid Siddiqui ID # 1183
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KHADIM ALI SHAH BUKHARI INSTITUTE OF TECHNOLOGY (KASBIT)
INTERNAL AUDIT EFFECTIVENESS AND ITS IMPACTS ON THE BANK’S CREDITABILITY
A CASE STUDY OF HABIB BANK LTD
A Thesis By:
M Shahid Siddiqui
ID # 1183
Supervised By:
Muhammad Sarfraz Munir
Submitted to Faculty of Management Sciences of
Khadim Ali Shah Bukhari Institute of Technology (KASBIT)
In partial fulfillment of the requirements for the degree of
Masters of Business Administration (MBA) with distinction
June 2012
Copyright 2012 NAGHMA NAZ
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
M Shahid Siddiqui ID # 1183
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All Rights Reserves
CERTIFICATE
I am pleased to certify that Mr. Muhammad Shahid Siddiqui S/o M Ishaque has satisfactorily
carried out a research work, under my supervision on the topic of “INTERNAL AUDIT
EFFECTIVENESS AND ITS IMPACTS ON THE BANK’S CREDITABILITY. A CASE STUDY OF HABIB BANK
LTD”.
I further certify that this distinctive original research and his thesis is worthy of presentation to the
Department of Finance, Faculty of Management Sciences, Khadim Ali Shah Bukhari Institute of
Technology (KASBIT) for the degree of Master of Business Administration (MBA).
______________________ Muhammad Sarfraz Munir
Project Supervisor
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
M Shahid Siddiqui ID # 1183
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DECLARATION I declare that the thesis submitted for the degree of Master of Business Administration at the
Khadim Ali Shah Institute of Technology is my own work and effort. It has not been previously
submitted by me at another university for any degree. I cede copy right of this thesis in favor of
the Khadim Ali Shah Institute of Technology.
This thesis is a presentation of my original research. The work was done under the guidance of Mr.
Muhammad Sarfraz Munir.
I further declare that it is free of plagiarism is checked by online software.
MR MUHAMMAD SHAHID SIDDIQUI
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
M Shahid Siddiqui ID # 1183
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DEDICATION
This project is dedicated to my beloved Parents who have never failed to give me financial and
moral support throughout my academic career and also for their love, patience, encouragement
and prayers, for giving all my need during the time I developed my system and for teaching me
that even the largest task can be accomplished if it is done one step at a time.
I owe my deepest gratitude to my parents whose steadfast support of this project was greatly
needed and deeply appreciated.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
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LETTER OF TRANSMITTAL
Respected Sir/Madam,
This research study submitted for the fulfillment of MBA by considering area of study “INTERNAL
AUDIT EFFECTIVENESS AND ITS IMPACTS ON THE BANK’S CREDITABILITY. A CASE STUDY OF HABIB
BANK LTD”.
This study based on statistical descriptions by considering the variables for the internal audit
effectiveness and its impact on the bank’s credibility. The researcher has considered the some
variables internal audit staff education, quality audit work, audit program, etc.
Analysis and Discussion section of this study supports that in future the importance of audit
department will be on peak as the managements are intended to have the high quality of internal
working without having any fraud risk. The respondents also acknowledge the importance of the
internal audit with respect to the external factors which includes the changing polices of central
bank, new technological changes etc.
Thank you,
Muhammad Shahid Siddiqui Reg. No. 1183 MBA Finance KASBIT
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
M Shahid Siddiqui ID # 1183
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ACKNOWLEDGEMENT
I am gratified to ALLAH, the most beneficial, who gave me the strength and will to overcome the
obstacles surfaced during the completion of this thesis.
Making a report of this stature could not be possible without the grace of ALLAH and continuous
support of my supervisor.
I feel exceptional warmth and gratitude in extending my appreciation for sincere and benevolent
guidance and patronage of the report to my Supervisor Muhammad Sarfraz Munir. It was a
privilege to have an advisor who gave me the freedom to explore on my own. His guidance at
every step of writing could not let my steps faltered. I am thankful to him for holding me to a high
research standard writing and for analyzing and rectifying my mistakes countless times. Also for
encouraging me too high when I considered myself to be in vain.
Last but not the least; I would render great thanks to all respondents and others who in one way
or other co-operated with me over the course of my research.
BY
Muhammad Shahid Siddiqui
Reg. No. 1183 Department of Finance, Faculty of Management Sciences, Khadim Ali Shah Bukhari Institute of Technology (KASBIT) Dated: 30th June 2012
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
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ABSTRACT
Purpose: The purpose of this project is to conduct the research on the internal audit effectiveness and its impacts on the bank’s credibility. The researcher has selected the Habib Bank Limited as Target Company for this research. Literature Review: The literature review reveals that internal audit department is playing vital role in the development of credibility of the bank in the external financial market. The literature review also acknowledges the importance of the internal audit with respect to internal control on fraud & forgeries. Target Group: The target group is the audit managers of the banking sector.
Design/Methodology/Approach: Primary data for the project was collected through the questionnaire duly filled by 50 (Fifty in Numbers) of respondents from Internal Audit Department of banking sector. Different statistical tools have been applied to analyze the responses from the respondents to prove the objective and purpose of the project. Limitations: The study is limited to banking sector only. Findings: It is observed that respondent acknowledges the importance of the internal audit department in the banking sector. The respondents also acknowledge the key role of the internal audit department in creating the credibility in the external financial market. The respondents also
of the opinion that quality of the internal audit, quality of education internal auditors, audit program effectiveness etc. are playing vital role in developing the credibility of the internal audit
department in any financial institution.
Results & Conclusion: After implementation of international guidelines by the central bank, the internal audit department standards have been improved. The impact of this adoption is not only on the working style and coverage of the financial workings. The credibility of the financial entity based on the internal audit workings and true and fair view of the management workings. Therefore the internal audit department is playing vital role in creating the credibility of the
financial institution in the financial market.
Originality/Value: Project finding and result concluded from personnel of Banking Sector, audit managers of banking sector.
Keywords: Banking Sector, Internal Audit, Internal Auditors, Internal Audit Department,
Credibility, Financial Market etc.
Project Type: Research Project
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Table of Contents
Certificate II Declaration III Dedication IV Letter of Transmittal V Acknowledgement VI Abstract VII List of Tables XIV List of Graphs XV
CHAPTER 01 Introduction 1
1. Introduction 1
1.1 Researcher Objectives 1
1.2 Scope of the Study 1
1.3 Problem Definition 1
1.4 Problem Statement 1
1.5 Introduction 2
1.5.1 Definition of Internal audit 2
1.5.2 Internal Auditors? 2
1.5.3 Internal Audit Function 3
1.6 Audit Process 3
1.6.1 Planning 3
1.6.2 Announcement Letter 3
1.6.3 Initial Meeting 4
1.6.4 Preliminary Survey 4
1.6.5 Internal Control Review 4
1.6.6 Audit Program 4
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1.6.7 Fieldwork 4
1.6.8 Transaction Testing 5
1.6.9 Advice & Informal Communications 5
1.6.10 Audit Summary 5
1.6.11 Working Papers 5
1.6.12 Audit Report 5
1.6.13 Discussion Draft 6
1.6.14 Exit Conference 6
1.6.15 Formal Draft 6
1.6.16 Final Report 6
1.6.17 Client Response 7
1.6.18 Client Comments 7
1.6.19 Audit Follow-Up 7
1.6.20 Follow-up Review 7
1.6.21 Follow-up Report 8
1.6.22 Internal Audit Annual Report to the Board 8
1.6.23 The Process: A Collaborative Effort 8
1.7 Code of Ethics for Internal Auditors 9
1.8 Limitations 10
CHAPTER 02 Literature Review 11
2.1 Literature Review 11
2.2 Theoretical Framework 14
2.2.1 Policy and Procedure 14
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2.2.2 Delegation of Authorities 14
2.2.3 Audit Program 14
2.2.4 Sampling 15
2.2.5 Staff Trainings 15
2.2.6 Quality of Work 15
2.2.7 Internal Audit Standard 16
2.2.8 Central Bank Guidelines 16
2.2.9 Bank’s Credibility and Internal Audit 17
2.2.10 Characteristics of the Individual Internal Auditor 17
2.2.11 Technical Skills 17
2.2.12 Behavioral Skills 18
2.2.13 Broader Organizational Enviorment 18
CHAPTER 03 Company Profile 19
3 Company Profile 19
3.1 Brand of HBL 19
3.2 Vision 19
3.3 Mission 19
3.4 Values 19
3.5 Excellence 19
3.6 Integrity 19
3.7 Customer Focus 19
3.8 Meritocracy 20
3.9 Progressive 20
3.10 Board of Directors 20
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3.11 Management 21
3.12 Awards 22
3.13 Introduction 23
3.14 Ratings 23
3.15 History 24
3.16 Financial Performance of Habib Bank Ltd 25
3.16.1 Balance Sheet 25
3.16.2 Profit and Loss Statement 27
3.16.3 Valuation Statistics 29
3.16.4 Key Ratios 30
3.16.5 Ratios 31
3.16.6 ROE Decomposition 32
3.16.7 Growth in P&L 33
3.16.8 Graphical Representation 34
CHAPTER 04 Methodology 47
4.1 Problem Definition 47
4.2 Problem Statement 47
4.3 Research Design 48
4.3.1 The Purpose of the Study 48
4.3.2 The Type of Investigation 48
4.3.3 Extent of Research Interference 48
4.3.4 The Study Setting 48
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4.3.5 The Unit of Analysis 48
4.3.6 The Time Horizon 48
4.4 Sample Design 49
4.4.1 Population 49
4.4.2 Sampling Frame 49
4.4.3 Sampling Unit 49
4.4.4 Sampling Type 49
4.4.5 Sampling Size 49
4.4.6 Sampling Plan 49
4.4.7 Select a Sample 50
CHAPTER 05 Data Analysis 51
05 Data Analysis 51
CHAPTER 06 Hypothesis Testing 56
6.1 Hypothesis Testing 56
6.1.1 Hypothesis No. 1 56
6.1.2 Hypothesis No. 2 57
6.1.3 Hypothesis No. 3 58
6.1.4 Hypothesis No. 4 59
6.1.5 Hypothesis No. 5 60
CHAPTER 07 Conclusion 61
7 Conclusion 61
7.1 Chapter wise Conclusion 61
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7.1.1 Chapter 1 61
7.1.2 Chapter 2 61
7.1.3 Chapter 3 61
7.1.4 Chapter 4 62
7.1.5 Chapter 5 62
7.1.6 Chapter 6 62
7.1.7 Chapter 7 62
7.2 General Conclusion 63
CHAPTER 08 Recommendations 66
8 Recommendations 66
8.1 Objective of Internal Audit Department 66
8.2 Independent Function of Audit Department 66
8.3 Professional Competencies 66
8.4 Internal Audit Integrity 66
8.5 Internal Audit Department Charter 66
8.6 Scope of the Internal Audit Department 67
8.7 Regulatory Requirements Audit 67
8.8 Permanent Status of Internal Audit Department 67
8.9 Responsibility of Board of Directors 67
8.10 Audit Committee 67
8.11 Responsibilities of Head of Internal Audit Department 67
8.12 Reporting to Internal Audit Department 68
8.13 Assessment of Risk Management 68
8.14 Transformation of Internal Audit Requirements 68
8.15 General Requirements 69
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CHAPTER 09 References 70
9 References 70
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List of Table
Table 1: Balance Sheet
Table 2: Profit & Loss Statement
Table 3: Valuation Statistics
Table 4: Key Ratio Analysis
Table 5: Ratio Analysis
Table 6: ROE Decomposition
Table 7: Growth in P&L
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List of Graphs
Graph No. 1 Branches
Graph No. 2 Staff
Graph No. 3 Staff per Branch
Graph No. 4 Non-Performing Loans
Graph No. 5 NPL Ratio
Graph No. 6 CASA
Graph No. 7 Capital Assets Ratio (TIER I + TIER II)
Graph No. 8 Capital Assets Ratio (TIER I)
Graph No. 9 Loan to Deposits
Graph No. 10 Yield on Earning Assets
Graph No. 11 Cost of Fund
Graph No. 12 Spread
Graph No. 13 Market Capitalizations to Deposits
Graph No. 14 Cost / Income
Graph No. 15 Growths in Loan Books
Graph No. 16 Growths in Deposits
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1.1 Researcher Objectives
The researcher objective is to performance the analysis of audit techniques and its impacts on the
bank’s creditability. The researcher will have to perform the complete analysis of different audit
techniques, its methods, its sampling methods, and financial cost as well. The research will also
have to analysis of impacts of the effectiveness of the internal audit on the bank’s credibility.
1.2 Scope of the Study
The scope of the study is not limited to the one bank only however the same concept can be
applied to all banks. This study will be beneficial for finance as well as other students to analyze the
future of the market and job opportunities. This will help those who have interest in the internal
audit effectiveness. This research will serve as plat form for those students who want to work on
the inter audit management as well as new comers who want to excel their career in the same. The
students will also cater who want to conduct more research on the same topic with new aspects.
1.3 Problem Definition
What are the financial impacts of the internal audit effectiveness on the bank’s credibility?
1.4 Problem Statement
Internal audit is the main component of the any bank. The audit department established
with the idea of the establishment of bank. The Central Bank has the clear policy on the
internal audit department as well. Therefore the effectiveness of the internal audit
department will have the impacts on the credibility as well as on the financial performance
as well.
1.5 Introduction
1.5.1 Definition of Internal audit
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Internal auditing is an independent appraisal function established within an organization
which examines and evaluates its activities as a service to the organization. The objective
of internal auditing is to assist the organization, in particular managers and members of the
board of directors, to discharge of their responsibilities effectively. To this end, internal
auditing furnishes them with analyses, appraisals, recommendations, advice and
information concerning the activities reviewed. The audit objective includes promoting
effective control at reasonable cost. This is how the Institute of Internal Auditors defines
internal auditing. It can also be regarded as the means by which management learns if its
internal control systems are appropriately designed and in fact working.
1.5.2 Internal Auditors?
As defined by the Institute of Internal Auditors (IIA), "Internal auditing is an independent,
objective assurance and consulting activity designed to add value and improve an
organization's operations. It helps an organization accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and improve the effectiveness of risk
management, control, and governance processes.
Internal Auditors' roles include monitoring, assessing, and analyzing organizational risk and
controls; and reviewing and confirming information and compliance with policies,
procedures, and laws. Working in partnership with management, internal auditors provide
the board, the audit committee, and executive management assurance that risks are
mitigated and that the organization's corporate governance is strong and effective. And,
when there is room for improvement, internal auditors make recommendations for
enhancing processes, policies, and procedures."
1.5.3 Internal Audit Function
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The financial sector audit department exists by by-law to assist the Audit Committee of the
Board of Directors in effectively fulfilling their responsibilities. Internal Auditors are
charged with examining and evaluating the policies , procedures, and systems which are in
place to ensure: the reliability and integrity of information; compliance with policies, plans,
laws, and regulations; the safeguarding of assets; and, the economical and efficient use of
resources.
1.6 Audit Process
Although every audit project is unique, the audit process is similar for most engagements
and normally consists of four stages: Planning (sometimes called Survey or Preliminary
Review), Fieldwork, Audit Report, and Follow-up Review. Client involvement is critical at
each stage of the audit process. As in any special project, an audit results in a certain
amount of time being diverted from your department's usual routine. One of the key
objectives is to minimize this time and avoid disrupting ongoing activities. Following are
some sample flowcharts of the process from other organizations that you may find helpful:
1.6.1 Planning
During the planning portion of the audit, the auditor notifies the client of the audit,
discusses the scope and objectives of the examination in a formal meeting with
organization management, gathers information on important processes, evaluates existing
controls, and plans the remaining audit steps.
1.6.2 Announcement Letter
The client is informed of the audit through an announcement or engagement letter from
the Internal Audit Director. This letter communicates the scope and objectives of the audit,
the auditors assigned to the project and other relevant information.
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1.6.3 Initial Meeting
During this opening conference meeting, the client describes the unit or system to be
reviewed, the organization, available resources (personnel, facilities, equipment, funds),
and other relevant information. The internal auditor meets with the senior officer directly
responsible for the unit under review and any staff members s/he wishes to include. It is
important that the client identify issues or areas of special concern that should be
addressed.
1.6.4 Preliminary Survey
In this phase the auditor gathers relevant information about the unit in order to obtain a
general overview of operations. S/He talks with key personnel and reviews reports, files,
and other sources of information.
1.6.5 Internal Control Review
The auditor will review the unit's internal control structure, a process which is usually time-
consuming. In doing this, the auditor uses a variety of tools and techniques to gather and
analyze information about the operation. The review of internal controls helps the auditor
determine the areas of highest risk and design tests to be performed in the fieldwork
section.
1.6.6 Audit Program
Preparation of the audit program concludes the preliminary review phase. This program
outlines the fieldwork necessary to achieve the audit objectives.
1.6.7 Fieldwork
The fieldwork concentrates on transaction testing and informal communications. It is
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during this phase that the auditor determines whether the controls identified during the
preliminary review are operating properly and in the manner described by the client. The
fieldwork stage concludes with a list of significant findings from which the auditor will
prepare a draft of the audit report.
1.6.8 Transaction Testing
After completing the preliminary review, the auditor performs the procedures in the audit
program. These procedures usually test the major internal controls and the accuracy and
propriety of the transactions. Various techniques including sampling are used during the
fieldwork phase.
1.6.9 Advice & Informal Communications
As the fieldwork progresses, the auditor discusses any significant findings with the client.
Hopefully, the client can offer insights and work with the auditor to determine the best
method of resolving the finding. Usually these communications are oral. However, in more
complex situations, memos and/or e-mails are written in order to ensure full
understanding by the client and the auditor. Our goal: No surprises.
1.6.10 Audit Summary
Upon completion of the fieldwork, the auditor summarizes the audit findings, conclusions,
and recommendations necessary for the audit report discussion draft.
1.6.11 Working Papers
Working papers are a vital tool of the audit profession. They are the support of the audit
opinion. They connect the client’s accounting records and financials to the auditor’s
opinion. They are comprehensive and serve many functions.
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1.6.12 Audit Report
Our principal product is the final report in which we express our opinions, present the
audit findings, and discuss recommendations for improvements. To facilitate
communication and ensure that the recommendations presented in the final report are
practical, Internal Audit discusses the rough draft with the client prior to issuing the final
report. For an audit report template including an executive summary click here.
1.6.13 Discussion Draft
At the conclusion of fieldwork, the auditor drafts the report. Audit management
thoroughly reviews the audit working papers and the discussion draft before it is presented
to the client for comment. This discussion draft is prepared for the unit's operating
management and is submitted for the client's review before the exit conference.
1.6.14 Exit Conference
When audit management has approved the discussion draft, Internal Audit meets with the
unit's management team to discuss the findings, recommendations, and text of the draft.
At this meeting, the client comments on the draft and the group works to reach an
agreement on the audit findings.
1.6.15 Formal Draft
The auditor then prepares a formal draft, taking into account any revisions resulting from
the exit conference and other discussions. When the changes have been reviewed by audit
management and the client, the final report is issued.
1.6.16 Final Report
Internal Audit prints and distributes the final report to the unit's operating management,
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the unit's reporting supervisor, the Vice President for Administration, the University Chief
Accountant, and other appropriate members of senior University management. This report
is primarily for internal University management use. The approval of the Internal Audit
Director is required for release of the report outside of the University.
1.6.17 Client Response
The client has the opportunity to respond to the audit findings prior to issuance of the final
report which can be included or attached to our final report. However, if the client decides
to respond after we issue the report, the first page of the final report is a letter requesting
the client's written response to the report recommendations.
In the response, the client should explain how report findings will be resolved and include
an implementation timetable. In some cases, managers may choose to respond with a
decision not to implement an audit recommendation and to accept the risks associated
with an audit finding. The client should copy the response to all recipients of the final
report if s/he decides not to have their response included/attached to Internal Audit's final
report.
1.6.18 Client Comments
Finally, as part of Internal Audit's self-evaluation program, we ask clients to comment on
Internal Audit's performance. This feedback has proven to be very beneficial to us, and we
have made changes in our procedures as a result of clients' suggestions.
1.6.19 Audit Follow-Up
Within approximately one year of the final report, Internal Audit will perform a follow-up
review to verify the resolution of the report findings.
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1.6.20 Follow-up Review
The client response letter is reviewed and the actions taken to resolve the audit report
findings may be tested to ensure that the desired results were achieved. All unresolved
findings will be discussed in the follow-up report.
1.6.21 Follow-up Report
The review will conclude with a follow-up report which lists the actions taken by the client
to resolve the original report findings. Unresolved findings will also appear in the follow-up
report and will include a brief description of the finding, the original audit
recommendation, the client response, the current condition, and the continued exposure
to Indiana University. A discussion draft of each report with unresolved findings is
circulated to the client before the report is issued. The follow-up review results will be
circulated to the original report recipients and other University officials as deemed
appropriate.
1.6.22 Internal Audit Annual Report to the Board
In addition to the distribution discussed earlier, the contents of the audit report, client
response, and follow-up report may also communicated to the Audit Committee of the
Board as part of the Internal Audit Annual Report.
1.6.23 The Process: A Collaborative Effort
As pointed out, during each stage in the audit process--preliminary review, field work,
audit reports, and follow-up--clients have the opportunity to participate. There is no doubt
that the process works best when client management and Internal Audit have a solid
working relationship based on clear and continuing communication.
Many clients extend this working relationship beyond the particular audit. Once the audit
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department has worked with management on a project, we have an understanding of the
unique characteristics of your unit's operations. As a result, we can help evaluate the
feasibility of making further changes or modifications in your operations.
1.7 Code of Ethics for Internal Auditors
Internal auditors shall:
Exercise honesty, objectivity and diligence in the performance of their duties
and responsibilities
Exhibit loyalty to the affairs of the organization which employs them and to
government. They shall not be a party to any illegal or improper activity
Not knowingly engage in acts or activities which are discreditable to the
profession of internal auditing, to the organization which employs them or to
government
Refrain from entering into any activity which may conflict with the interests of
government and the organization which employs them, or which would
prejudice their ability to carry out their duties and responsibilities objectively
Not accept anything of value from an employer, client, customer, supplier or
business associate of the organization which employs them, which would
impair, or be presumed to impair, their professional judgment
Undertake only those services which they can reasonably expect to complete
with professional competence
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Be prudent in the use of information acquired in the course of their duties.
They shall not use confidential information for any personal gain nor in any
manner which would be contrary to law or detrimental to the welfare of
government
When reporting on the results of their work, reveal all material facts known to
them, which if not revealed, could either distort reports of operations or
conceal unlawful practices
Continually strive for improvement in the proficiency, effectiveness and quality
of the services which they supply
Be ever mindful as professionals of their obligation to maintain high standards
of competence, morality and dignity
1.8 Limitations
Limitations are everywhere in the world. As like of every researcher I have also faced the
so many limitations while conducting the research. The main limitation is the data
limitations in this regard. There are so many researches available on the international level
but as far as concerned to Pakistan there is lacking of authenticated researches. As far as
concerned to the education in the respondents there is lacking of education people
working in credit risk department. We also faced lot of difficulties to get the right response
from the respondents.
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2.1 Literature Review
In recent years, researchers and practitioners have widely discussed the need for internal
auditors of adding more value to their companies’ operations, and contributing to the
achievement of corporate objectives. This new perspective has focused increasing
attention on issues such as performance evaluation and effectiveness of internal auditing
(for instance Dittenhofer, 2001; Bou-Raad, 2000; IIA, 1999). Several parties advocated the
need to assess internal auditing (IA) effectiveness, though, at present, there is not a shared
framework of reference to this scope (for instance Ridley & D’Silva, 2008; Mihret &
Yismaw, 2007; Van Gansberghe, 2005; KPMG, 2004; Dittenhofer, 2001; Sawyer, 1995;
Barrett, 1986). Recently, Sarens (2009) have raised the question “when can we talk about
an effective IA function?” in his editorial about future perspectives of IA research. Looking
at the existing literature, there are many possible answers to this question. Different
authors have related IA effectiveness to different issues, focusing on IA processes, outputs
and outcomes.
Certain authors related IA effectiveness with the quality of IA procedures, such as the level
of compliance with IIA standards or the ability to plan, execute and communicate audit
findings (for instance Fadzil et al., 2005; Xiangdong, 1997; Spraakman, 1997). However, this
approach suffers from a major limitation as it is based on the hypothesis that IA activity is
effective if IA procedures are carried out properly, without considering the needs of the
main stakeholders in each individual audit (Lampe & Sutton, 1994). This is in contrast with
the current trend that stresses the relevance of value-added activities and indicates
stakeholders’ satisfaction as one of the critical performance categories for IA activities
(see, for instance, the Practice Advisory 1311-2).
A second stream of research relates IA effectiveness to the output of IA activities (Frigo,
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2002), looking for instance at the ability of IA to respond to auditees’ needs (see, for
instance, Frigo, 2002; Ziegenfuss, 2000; Barrett, 1986). In this context, a recent work by
Ziegenfuss (2000) has highlighted that the survey results of auditee satisfaction and the
percent of recommendations that are implemented are the performance measures
considered by the CAE to be most suitable to evaluate IA effectiveness.
Finally, a few authors went further, relating IA effectiveness to the outcome of the audit
activities (i.e. the impact of a certain output of the audit process). According to Dittenhofer
(2001), “when evaluating the effectiveness of the internal auditing operation, a positive
response would be given when the internal auditor: (1) audits the achievement of the
auditees’ objectives and finds no problems, and no problems surface following the audit;
or (2) audits and finds problems; and (3) recommends solutions to the problems; and the
solutions resolve the problems”. From this statement it is clear that outcomes address a
wide range of aspects, i.e. all the elements on which audit activities have an impact. These
include both efficiency and effectiveness of the audited processes, and corporate
performances. At a process level, for example, the impact of IA activities has been related
to cost savings generated by the implementation of suggested recommendations (see, for
instance, Cashell and Aldhizer III, 2002). At a corporate level, outcome can address the IA
contribution to corporate performance, such as profit, growth, or share price; or its role in
the avoidance of corporate failures by ensuring sound corporate governance. This last
issue has been given particular attention in the most recent literature. Sarens (2009),
based on Gramling et al. (2004), suggested that IA can be considered effective when the
quality of IA function “has a positive impact on the quality of corporate governance”. He
also goes on linking IA quality to the “capacity to monitor and improve risk management
and internal control processes”.
In our opinion, this is a key point. In fact, to improve risk management and internal control
processes, the internal auditors have to convince the auditees about the quality of their
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work, persuading managers to implement their recommendations. The internal auditors, in
most of cases, do not act on the internal control-risk management system “directly”. They
can identify a criticism or an area of potential improvement and provide managers,
responsible of business processes, with an evaluation of the internal control–risk
management system. Then, managers and officers have to decide whether and how
enacting internal auditors’ recommendations. As highlighted by Mihret and Yismaw (2007),
audit findings and recommendations would not serve much purpose unless management is
committed to implement them. Implementation of audit recommendations is therefore
highly relevant to audit effectiveness (Van Gansberghe, 2005; Sawyer, 1995). The effect
that internal auditors have on the achievement of corporate objectives (i.e. their
effectiveness) is influenced by the extent to which managers consider internal auditors’
work valuable and decide to exploit it. In such view, the effectiveness of IA depends on the
quality perceived by the auditees.
Given the central role of auditees’ perceptions in relation to IA effectiveness, this paper
aims at analyzing which factors can influence the quality perceived by managers and can
enhance auditees’ satisfaction over internal auditors’ contribution.
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2.2 Theoretical Framework
2.2.1 Policy and Procedures
Policy and procedures are the back bone of any organization. The organization policy and
procedures are the sum of the all departments’ policy and procedures. In the same manner
the internal audit department will have its own policy and procedure which the internal
auditor has to follow and check the implementation of the other departments’ policy and
procedures as well. Therefore the definitions of the policies are the main and critical area
which has the significant impacts on the audit authentication and credibility.
2.2.2 Delegation of Authorities
The delegation of the authorities means the allocation of power to the subordinates. Its
means all powers should not be centric in the one point but other subordinates should
have powers so that they can take decisions. If the auditor have the authority to conduct
the audit but does not have the authority to find it either it is wrong or correct, its audit
objection or not then the audit will not be effective and decision making will required
sufficient time. This also have the positive impression on the outsiders that the
organization have the confidence on their auditors and give them enough room to prove
that what is wrong and what is right.
2.2.3 Audit Program
The audit program is the main course of action according to which the audit being
conducted during the year. Normally it is designed for the period of one year in which audit
department trying to cover all the aspects of the organization functional departments. This
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audit program is the clear indicator of the audit department performance whether they are
enough sufficient to utilized their abilities in the best interest of the bank that they can
cover the bank in the limited time period of year or not. Therefore the audit program is
designed in such a way that they can cover all the departments with effective audit
techniques and tools.
2.2.4 Sampling
Sampling is one of the tools which internal auditors used for the sampling of the
transactions for their checking and conducting audit. Sampling can be done based on the
amount, repetition of transactions, by nature of transaction, etc. Therefore the audit
checking is based on the sampling and the sampling criteria can be varied from department
to department according to nature of workings. Sampling needs to be effective as if the
sampling fails the purpose might be fraud transaction left and other will be conducts.
2.2.5 Staff Trainings
The training plays the vital role in the professional development of the employees. It’s
become vital when a trainer trains the internal audit staff. In this case the knowledge of
the trainer plays the vital role for the success of that auditor, as the auditor has the
deployed the same in its mind when conducting the audit. The training department should
be self-sufficient to conduct any type of training as and when required basis.
2.2.6 Quality of Work
The quality of work plays the vital role to create the credibility of the work and
organization. Quality means, do the less work but do the right things. Internal auditors are
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playing the vital role in maintaining and improvement of the quality of work in the
organization. As they are playing the supervisory role in the implementation of policy and
procedures the internal auditors are going to conduct the audit based on these guidelines.
There are also other guidelines which are also in considerations for the internal auditor to
conduct the quality audit which have the positive impact on their performance and
organizational credibility.
2.2.7 Internal Audit Standards
Internal audit standards are international guidelines for the conducting of audit in the
financial as well as manufacturing concerns. These guidelines are being followed by all the
organization to meet the international standards and meet the requirements of the world.
After successful implementation of these standards the organization are eligible for the
registration in the international stock and trade markets.
The implementation of these standards also checked the by external auditors as they have
to issue the report on the same. This brings the positive impact on the organizational
credibility in the market.
2.2.8 Central Bank Guidelines
The Central Bank also provides the guidelines on the internal auditors. These are the
comprehensive guidelines which include the complete set of the guidelines which includes
the establishment of the internal audit department, appointment of department head,
staff, policy and procedure for the internal audit department. The implementation of these
policy guidelines is required to avoid any penalization from the central bank as well as to
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establish the credibility in the financial market.
2.2.9 Bank’s Credibility and Internal Audit
Banks credibility is the main factor which they have to keep maintains and improves with
the passage of time so that they can remain alive in the market. The maintenance of the
credulity is the vital factor to keep alive the organization in the market. Credibility means
that financial practices are crystal clear and financials are given the true and fair view of
the organization matters. This crystal clear view can only be obtained by having the strong
and professional internal audit department.
2.2.10 Characteristics of the Individual Internal Auditor
The second set of elements refers to the characteristics of individual internal auditors, with
specific reference to their skills. At a general extent, internal auditor’s skills can be
distinguished into two classes: cognitive and behavioral skills (Pickett, 2000). Cognitive
skills include technical competences. Behavioral skills include communication and
interpersonal ability. Both these skills can influence the quality perceived by the auditees
significantly.
2.2.11 Technical Skills
Technical skills ensure that the auditors are more able to provide advice to improve the
internal control system (mat Zain et al., 2006; Brody et al., 1998), to complete audits, to
find consistent solutions based on previous experiences and to deal with complex and
conflicting situations (mat Zain et al., 2006; Flesher & Zanzig, 2000). Previous studies
underlined that line managers often believe that internal auditors do not have enough
knowledge to provide useful help (Griffiths, 1999; Van Peursem 2004; 2005) and, if this is
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the case, they do not take into account their advice, hence reducing the effectiveness of IA
(Van Peursem 2004; 2005).
2.2.12 Behavioral Skills
Behavioral skills are required by auditors to establish a sound relation with their auditees;
interpersonal and communication skills facilitate the understanding of audit findings and
the ability to accomplish their responsibilities effectively (for a review, see Smith, 2005).
Furthermore, auditors’ competencies, both behavioural and cognitive can increase the
effectiveness of the IA team by improving the recognition of their role within the
organization.
2.2.13 Broader Organizational Environment
The final set of elements influencing IA effectiveness deal with the broader organizational
environment: (1) regulatory context and (2) level of risk of the company.
The role of laws and regulations in relation to IA effectiveness is twofold: first laws and
regulations shape internal audit activities. In particular in those settings where the
attention to both internal controls and internal audit is recent organizations’ approaches
are not based on consolidated routines and their (re)action can be more strongly
influenced by external pressures in a process of external conformance (DiMaggio and
Powell, 1983; Meyer, 1994).
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3.1 Brand of HBL
Our brand identity is the outward expression of what we stand for as an organization. This is
summarized in our vision, mission and is supported by our values.
3.2 Vision
“Enabling people to advance with confidence and success”
3.3 Mission
“To make our customers prosper, our staff excel and create value for shareholders”
3.4 Values
Our values are the fundamental principles that define our culture and are
brought to life in our attitudes and behavior. It is our values that make
us unique and unmistakable. Our values are defined below:
3.5 Excellence
This is at the core of everything we do. The markets in which we operate are becoming
increasingly competitive, giving our customers an abundance of choice. Only through being the
very best - in terms of the service we offer, our products and premises - can we hope to be
successful and grow.
3.6 Integrity
We are the leading bank in Pakistan and our success depends upon trust. Our customers - and
society in general - expect us to possess and steadfastly adhere to high moral principles and
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professional standards.
3.7 Customer Focus
We understand fully the needs of our customers and adapt our products and services to meet
these. We always strive to put the satisfaction of our customers first.
3.8 Meritocracy
We believe in giving opportunities and advantages to our employees on the basis of their ability.
We believe in rewarding achievement and in providing first-class career opportunities for all.
3.9 Progressive
We believe in the advancement of society through the adoption of enlightened working practices,
innovative new products and processes, and a spirit of enterprise.
3.10 Board of Directors
Sultan Ali Allana Chairman
R Zakir Mahmood President & CEO
Ahmed Jamal Director
Sajid Zahid Director
Mushtaq Malik Director
Sikandar Mustafa Khan Director
Moez Jamal Director
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3.11 Management
R Zakir Mahmood President & CEO
Sohail Malik Chief Risk Officer
Nauman K Dar Head of Corporate & Investment
Banking &
International Banking
Sima Khalil Head of Retail Banking
Abid Sattar Head of Global Operations and Learning &
Development
Ayaz Ahmed Chief Financial Officer
Jamil Iqbal Chief Compliance Officer
Muddasir Khan Chief Information Officer
Salim Amlani Chief Internal Audit
Nausheen Ahmed Company Secretary
Aslam Gadit Remedial Assets
Aly Mustansir Head of Marketing
M Salah Uddin Manzoor Head of Global Treasury
Dr Razi Ahmed Head of Human Resource
Mubshir Maqbool Head of Commercial & Retail Lending
Mirza Saleem Baig Head of Islamic Banking
Faiq Sadiq Head of Payment Services
Tulu Islam General Manager Branch & Trade Operations
Abrar Rashid Awan Business Head of Semi Urban Area
Shahid Fakhur-ud-din General Manager International Market & Risk
Management
Aman Aziz Siddiqui Regional Gulf (UAE and Oman)
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Mohammad Ali Chief Representative
Rizwan Haidar Deputy Global Risk Management
3.12 Awards
2010
'HBL wins Best Emerging Market Banks award in Pakistan 2010'
2009
'The Best Emerging Market Bank in Pakistan'
HBL among Top 500 Global Financial Brands
2008
'Best Bank In Pakistan'
'Most Innovative Global Trade Finance'
'Buzziest Brands'
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3.13 Introduction
HBL was the first commercial bank to be established in Pakistan in 1947. Over the years, HBL has
grown its branch network and become the largest private sector bank with over 1,450 branches
across the country and a customer base exceeding five million relationships.
The Government of Pakistan privatized HBL in 2004 through which AKFED acquired 51% of the
Bank's shareholding and management control. HBL is majority owned (51%) by the Aga Khan
Fund for Economic Development, 42.5% of the shareholding is retained by the Government of
Pakistan (GOP), whilst 7.5% is owned by the general public i.e. over 170,000 shareholders
following the public listing that took place in July 2007.
With a presence in 25 countries, subsidiaries in Hong Kong and the UK, affiliates in Nepal,
Nigeria, Kenya and Kyrgyzstan and rep offices in Iran and China, HBL is also the largest domestic
multinational. The Bank is expanding its presence in principal international markets including the
UK, UAE, South and Central Asia, Africa and the Far East.
Key areas of operations encompass product offerings and services in Retail and Consumer
Banking. HBL has the largest Corporate Banking portfolio in the country with an active
Investment Banking arm. SME and Agriculture lending programs and banking services are
offered in urban and rural centers.
3.14 Rating
HBL is currently rated AA (Long term) and A-1+ (Short term) and has a balance sheet size of USD
10.2 billion. It is the first Pakistani bank to raise Tier II Capital from external sources.
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3.15 History
HBL established operations in Pakistan in 1947 and moved its head office to Karachi. Our first
international branch was established in Colombo, Sri Lanka in 1951 and Habib Bank Plaza was built
in 1972 to commemorate the bank’s 25th Anniversary.
With a domestic market share of over 40%, HBL was nationalized in 1974 and it continued to
dominate the commercial banking sector with a major market share in inward foreign remittances
(55%) and loans to small industries, traders and farmers. International operations were expanded
to include the USA, Singapore, Oman, Belgium, Seychelles and Maldives and the Netherlands.
On December 29, 2003 Pakistan's Privatization Commission announced that the Government of
Pakistan had formally granted the Aga Khan Fund for Economic Development (AKFED) rights to
51% of the shareholding in HBL, against an investment of PKR 22.409 billion (USD 389 million). On
February 26, 2004, management control was handed over to AKFED. The Board of Directors was
reconstituted to have four AKFED nominees, including the Chairman and the President/CEO and
three Government of Pakistan nominees
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3.16 Financials of HBL
Balance Sheet
(In PkRmn) CY2006 CY2007 CY2008 CY2009 CY2010 CY2011
Cash and balances w ith treasury bank
46,310
55,488
56,533
79,840
81,640
103,400
Balances w ith other banks
35,965
27,361
39,364
40,367
37,413
47,350
Lending to f inancial institutions
6,550
1,628
6,194
5,353
30,339
41,581
Investments
119,587
175,197
129,833
216,468
254,909
418,604
Loans & Advances
349,433
382,173
456,356
454,662
459,750
457,368
Other Assets
21,535
25,796
34,588
41,117
34,920
44,809
Fixed Assets
11,955
13,781
14,751
16,767
16,155
19,168
Deferred tax asset - net
2,725
7,578
12,187
9,206
9,572
7,276
Total Assets
594,062
689,001
749,807
863,779
924,699
1,139,554
Bills payable
9,508
15,418
9,828
10,042
9,775
13,895
Borrow ings from financial institutions
56,392
58,995
46,961
52,543
40,460
39,474
Deposits and Other Accounts
459,140
531,298
597,091
682,750
747,375
933,632
Fixed deposits
100,379
142,719
186,207
208,459
203,019
281,178
Savings deposits
257,902
266,963
271,240
314,041
341,086
392,254
Current accounts - remunerative
983
1,673
2,739
1,812
1,726
1,694
Others
99,876
119,943
130,327
149,222
186,234
240,687
Sub-ordinated loans
-
3,100
3,955
4,212
4,282
5,036
Liabilites against assets subject to f inancial lease
-
-
-
-
-
-
Other Liabilites
15,578
19,951
25,663
29,862
26,557
37,931
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Deferred Liabilites
-
-
-
-
-
-
Balance Sheet
(In PkRmn) CY2006 CY2007 CY2008 CY2009 CY2010 CY2011
Total Liabilities 540,618 628,762 683,498 779,409 828,449 1,029,967
Net Assets 53,443 60,239 66,309 84,370 96,251 109,587
Share Capital 6,900 6,900 7,590 9,108 10,019 11,021
Reserves 17,803 19,585 23,656 27,527 29,356 32,146
Unappropriated Profits 20,475 25,588 31,933 38,498 47,468 56,981
Total Tier I Equity 45,178 52,073 63,179 75,134 86,842 100,147
Tier II Equity 8,266 8,166 3,129 9,236 9,409 9,440
Total SHEQ 53,443 60,239 66,309 84,370 96,251 109,587
Total SHEQ and Liabilities 594,062 689,001 749,807 863,779 924,699 1,139,554
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3.16.2 Profit and Loss Statement
Profit & Loss Accounts
(In PkRmn) CY2006 CY2007 CY2008 CY2009 CY2010 CY2011
Mark-up/return earned
43,686
50,481
63,376
76,076
81,325
98,580
Mark-up/return expensed
13,204
19,154
26,526
33,406
34,330
42,182
Net mark-up income
30,482
31,327
36,850
42,671
46,995
56,398
Provision / (Reversal) against non-performing financing
2,863
8,238
6,905
8,795
7,602
6,698
Other Provisions
(59)
(139)
2,282
295
(17)
228
Bad debts written off directly
-
-
-
-
-
-
2,804
8,099
9,187
9,090
7,586
6,925
Net mark-up income after provisions
27,678
23,228
27,663
33,581
39,409
49,473
Non mark-up income
Fee, commission and brokerage income
3,932
3,420
4,518
5,316
5,433
6,086
Dividend income
-
-
1,301
597
-
435
Income from dealing in foreign currencies
1,102
1,487
2,374
1,913
3,189
3,756
Capital Gains
1,220
2,473
-
-
1,380
505
Other income
2,236
2,643
3,089
3,333
2,760
4,001
Total non mark-up income
8,489
10,023
11,283
11,160
12,762
14,783
36,167
33,251
38,946
44,740
52,172
64,256
Non mark-up expenses
Salaries & related expeses
11,205
10,364
-
13,143
12,980
15,292
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Other administrative expenses
5,944
7,933
21,425
9,603
11,273
14,142
Total admin Expenses
17,149
18,297
21,425
22,746
24,253
29,434
Profit & Loss Accounts
(In PkRmn) CY2006 CY2007 CY2008 CY2009 CY2010 CY2011
Other provisions 123 (276) 524 609 178 423
Other charges 55 85 65 4 179 78
Total non mark-up expenses 17,327 18,106 22,014 23,359 24,610 29,934
Others - - - - 522 -
17,327 18,106 22,014 23,359 25,132 29,934
Profit before taxation 18,840 15,145 16,932 21,382 27,040 34,321
Taxation Current 7,145 7,221 8,309 8,096 9,699 10,459
Deferred (966) (3,829) (2,474) 981 (323) 1,501
Other (39) 1,669 233 (1,095) 630 28
Total Taxation 6,140 5,061 6,068 7,981 10,006 11,988
Profit after taxation 12,700 10,084 10,864 13,401 17,034 22,333
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3.16.3 Valuation Statistics
Valuation Statistics
Year End Dec 31 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011
EPS (PkR) 10.48 8.32 8.96 11.05 14.05 18.42
EPS grow th - -21% 8% 23% 27% 31%
PER (x) 10.69 13.46 12.49 10.13 7.97 6.08
Tier I BVS (PkR) 37.27 42.95 52.12 61.98 71.64 82.61
P/BVS Tier I (x) 3.00 2.61 2.15 1.81 1.56 1.36
BVS (PkR) 44.09 49.69 54.70 69.60 79.40 90.40
P/BVS (x) 2.54 2.25 2.05 1.61 1.41 1.24
ROE - 20.7% 18.9% 19.4% 21.0% 23.9%
ROA 2.1% 1.5% 1.4% 1.6% 1.8% 2.0%
ROE / P/BVS (x) 9.36 7.43 8.00 9.87 12.55 16.45
DPS (PkR) - 2.28 3.44 4.51 - -
Dividend Yield 0.0% 2.0% 3.1% 4.0% 0.0% 0.0%
Payout Ratio 0.0% 27.4% 38.4% 40.8% 0.0% 0.0%
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3.16.4 Key Ratios
Key Ratios
CY2006 CY2007 CY2008 CY2009 CY2010 CY2011
Branches 1,477 1,489 1,508 1,494 1,501 1,506
Staff 14,572 14,552 14,123 13,211 13,269 13,661
Staff/Branch 10 10 9 9 9 9
NPLs - 27,693 40,053 49,438 53,608 56,549
NPL Ratio 0% 7% 9% 11% 12% 12%
CASA 0% 51% 46% 46% 46% 42%
CAR 0% 0% 14% 13% 15% 0%
Capital Asset Ratio (Tier I) 8% 8% 8% 9% 9% 9%
Capital Asset Ratio (Tier I + Tier II) 9% 9% 9% 10% 10% 10%
Loan to Deposit 76% 72% 76% 67% 62% 49%
Yield on earning assets 8.5% 8.6% 10.0% 10.6% 10.4% 10.2%
Cost of Funds 2.5% 3.1% 4.0% 4.5% 4.3% 4.3%
Spread 6.0% 5.5% 6.0% 6.2% 6.1% 6.0%
Market Cap. To Deposits 30% 26% 23% 20% 18% 15%
Cost/Income 47% 55% 55% 51% 46% 46%
Grow th in Loan Book - 9% 19% 0% 1% -1%
Grow th in Deposits - 16% 12% 14% 9% 25%
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3.16.5 Ratios
Ratios
CY2006 CY2007 CY2008 CY2009 CY2010 CY2011
Net Int. Income / Total Income 78% 76% 77% 79% 79% 79%
Fee Income / non int income 46% 34% 40% 48% 43% 41%
Non Int. Exp. / Non Int. Income 204% 181% 195% 209% 193% 202%
Provisions / Net Int. Income 6% 16% 14% 12% 9% 7%
Fee Income / Non Int Income 46% 34% 40% 48% 43% 41%
Admin Exp. / Non Int. Exp. 99% 101% 97% 97% 99% 98%
Admin Exp. / Total Income 47% 55% 55% 51% 46% 46%
Salaries & Related / Admin Exp. 65% 57% 0% 58% 54% 52%
Effective Tax Rate 33% 33% 36% 37% 37% 35%
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3.16.6 ROE Decomposition
ROE Decomposition
CY2007 CY2008 CY2009 CY2010 CY2011
Net Interest Income / Assets 4.9% 5.1% 5.3% 5.3% 5.5%
Non. Int. Income / Assets 1.6% 1.6% 1.4% 1.4% 1.4%
Expenses / Assets -2.9% -3.0% -2.8% -2.7% -2.9%
Core Income / Assets 3.6% 3.7% 3.9% 4.0% 4.0%
Provisions / Assets -1.3% -1.3% -1.1% -0.8% -0.7%
Other Items / Assets 0.0% -0.1% -0.1% -0.1% 0.0%
Pre tax ROA 2.4% 2.4% 2.7% 3.0% 3.3%
Tax Burden (x) 0.67 0.64 0.63 0.63 0.65
ROA 1.6% 1.5% 1.7% 1.9% 2.2%
Leverage (x) 13.19 12.48 11.67 11.04 11.04
ROE 20.7% 18.9% 19.4% 21.0% 23.9%
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3.16.7 Growth in P&L
Growth in P&L
CY2007 CY2008 CY2009 CY2010 CY2011
Interest Income 16% 26% 20% 7% 21%
Interest Expense 45% 38% 26% 3% 23%
Net Interest Income 3% 18% 16% 10% 20%
Provisions 189% 13% -1% -17% -9%
Net Int Income after Provisions -16% 19% 21% 17% 26%
Non Interest Income 18% 13% -1% 14% 16%
Fee Income -13% 32% 18% 2% 12%
Total Income -8% 17% 15% 17% 23%
Admin Costs 7% 17% 6% 7% 21%
NPBT -20% 12% 26% 26% 27%
Taxation -18% 20% 32% 25% 20%
NPAT -21% 8% 23% 27% 31%
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
3.16.8 Graphical Representation
1,460
1,470
1,480
1,490
1,500
1,510
2006 2007 2008 2009 2010 2011
Branches
Branches
12,500
13,000
13,500
14,000
14,500
15,000
2006 2007 2008 2009 2010 2011
Staff
Staff
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
8
8
9
9
9
9
9
10
10
10
Year 2006 2007 2008 2009 2010
Staff/Branch
Staff/Branch
-
10,000
20,000
30,000
40,000
50,000
60,000
2006 2007 2008 2009 2010 2011
NPLs
NPLs
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
2006 2007 2008 2009 2010 2011
NPL Ratio
NPL Ratio
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Year 2006 2007 2008 2009 2010
CASA
CASA
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
7.50%
8.00%
8.50%
9.00%
9.50%
10.00%
10.50%
2006 2007 2008 2009 2010 2011
Capital Asset Ratio (Tier I + Tier II)
Capital Asset Ratio (Tier I+ Tier II)
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
2006 2007 2008 2009 2010 2011
Capital Asset Ratio (Tier I)
Capital Asset Ratio (Tier I)
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
2006 2007 2008 2009 2010 2011
Loan to Deposit
Loan to Deposit
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
2006 2007 2008 2009 2010 2011
Yield on earning assets
Yield on earning assets
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
2006 2007 2008 2009 2010 2011
Cost of Funds
Cost of Funds
5.00%
5.20%
5.40%
5.60%
5.80%
6.00%
6.20%
2006 2007 2008 2009 2010 2011
Spread
Spread
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2006 2007 2008 2009 2010 2011
Market Cap. To Deposits
Market Cap. To Deposits
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
2006 2007 2008 2009 2010 2011
Cost/Income
Cost/Income
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
2006 2007 2008 2009 2010
Growth in Loan Book -
Growth in Loan Book -
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2006 2007 2008 2009 2010
15.72%
12.38% 14.35%
9.47%
24.92%
Growth in Deposits -
Growth in Deposits -
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
2006 2007 2008 2009 2010 2011
EPS (PkR)
EPS (PkR)
(0.30)
(0.20)
(0.10)
-
0.10
0.20
0.30
0.40
2006 2007 2008 2009 2010
EPS growth -
EPS growth -
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
2006 2007 2008 2009 2010 2011
PER (x)
PER (x)
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2006 2007 2008 2009 2010 2011
P/BVS Tier I (x)
P/BVS Tier I (x)
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
2006 2007 2008 2009 2010 2011
Tier I BVS (PkR)
Tier I BVS (PkR)
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
2006 2007 2008 2009 2010 2011
BVS (PkR)
BVS (PkR)
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
-
0.50
1.00
1.50
2.00
2.50
3.00
2006 2007 2008 2009 2010 2011
P/BVS (x)
P/BVS (x)
-
0.05
0.10
0.15
0.20
0.25
2006 2007 2008 2009 2010
ROE -
ROE -
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
4.1 Problem Definition
-
0.01
0.01
0.02
0.02
0.03
2006 2007 2008 2009 2010 2011
ROA
ROA
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
2006 2007 2008 2009 2010 2011
ROE / P/BVS (x)
ROE / P/BVS (x)
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
What are the financial impacts of the internal audit effectiveness on the bank’s credibility?
4.2 Problem Statement
Internal audit is the main component of the any bank. The audit department established
with the idea of the establishment of bank. The Central Bank has the clear policy on the
internal audit department as well. Therefore the effectiveness of the internal audit
department will have the impacts on the credibility as well as on the financial performance
as well.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
4.3. Research Methodology
The methodology for the study of this project is briefly discussed below:
4.3.1 Research Design:
4.3.1.1 The Purpose of Research:
The purpose of research is Descriptive in nature.
4.3.1.2 The Type of Investigation:
The type of investigation is Correlation.
4.3.1.3 Extent of Research Interference:
The research interference is Moderate in nature.
4.3.1.4 The Study Setting:
The type of study is Field Study. The researcher will perform Field
Experiment to identify cause and effect relationship.
4.3.1.6 The Unit of Analysis:
The unit of analysis is Banking Sector.
4.3.1.7 The Time Horizon:
The time horizon is Cross Sectional.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
4.3.2 Research Sample Design
4.3.2.1 Population
Banking sector consists of more than 45 companies.
4.3.2.2 Sampling Frame
Habib Bank Limited
4.3.2.3 Sampling Unit
Sampling unit Internal Audit Department.
4.3.2.4 Sampling Type
Sampling type is Proportionate Sampling
4.3.2.5 Sampling Size
Internal Audit Department of:
Selected 50
4.3.2.6 Sampling Plan
Researcher selects Audit managers and audit officers to conduct
interview / questionnaire to verify the Hypothesis.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
4.3.2.7 Select a Sample
We will select the Audit managers and Audit Staff for literature,
working since last 3 years in Audit Department.
Q13 Do you Agree that Internal Audit Department plays the vital role in detection of fraud?
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
Strongly Agreed Agreed Neutral Disagreed Strongly Dis Agreed
19 48 13 7 13
19% 48% 13% 7% 13%
19
48
13 7
13
0
10
20
30
40
50
60
Strongly Agreed Agreed Neutral Disagreed Strongly Dis Agreed
19
48
13
7 13
Strongly Agreed
Agreed
Neutral
Disagreed
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
Q17 Do you agree that internal auditor must have the knowledge about the banking practices to conduct effective audit?
Strongly Agreed Agreed Neutral Disagreed Strongly Dis Agreed
16 48 8 17 11
16% 48% 8% 17% 11%
16
48
8
17 11
0
10
20
30
40
50
60
Strongly Agreed Agreed Neutral Disagreed Strongly DisAgreed
16
48
8
17
11
Strongly Agreed
Agreed
Neutral
Disagreed
Strongly Dis
Agreed
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
Q 20 Do you agree that internal audit department creates the credibility of the company in external market?
Strongly Agreed Agreed Neutral Disagreed Strongly Dis Agreed
17 31 13 19 20
17% 31% 13% 19% 20%
05
101520253035
Strongly Agreed Agreed Neutral Disagreed Strongly Dis Agreed
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
Q 21 Do you agree that effective internal audit department has the positive impact on the credibility of the bank?
Strongly Agreed Agreed Neutral Disagreed Strongly Dis Agreed
9 49 7 13 22
9% 49% 7% 13% 22%
17
31
13
19
20
Strongly Agreed
Agreed
Neutral
Disagreed
Strongly Dis
Agreed
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
Q 23 Do you agree quality of the audit work has the positive impacts on the credibility of the bank?
Strongly Agreed Agreed Neutral Disagreed Strongly Dis Agreed
19 40 9 13 19
19% 40% 9% 13% 19%
9
49
7 13
22
0
10
20
30
40
50
60
Strongly Agreed Agreed Neutral Disagreed Strongly Dis Agreed
9
49 7
13
22
Strongly Agreed
Agreed
Neutral
Disagreed
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
6. Hypothesis Testing
6.1 Hypothesis No. 1
19
40
9 13
19
05
1015202530354045
Strongly Agreed Agreed Neutral Disagreed Strongly Dis Agreed
19
40 9
13
19
Strongly Agreed
Agreed
Neutral
Disagreed
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
Ho: Internal Audit Department does not play the vital role in detection of fraud in the financial
institutions?
H1: Internal Audit Department plays the vital role in detection of fraud in the financial
institutions?
Data
Null Hypothesis = 3
Level of Significance 0.05
Population Standard Deviation 0.7571
Sample Size 100
Sample Mean 2
Intermediate Calculations
Standard Error of the Mean 0.075712108
Z Test Statistic 6.603963568
Upper-Tail Test
Upper Critical Value 1.644853627
p-Value 2.00154E-11
Reject the null hypothesis
ANALYSIS: Since the Z test of Hypothesis for the Mean is 2.0 where u = 3 and the level of significance is
0.05, so we reject the null hypothesis because the intermediate calculation which is positive, i.e.
0.075712108 and lower-Tail test p-value is less than 0.05 therefore we accept the alternative hypothesis.
Therefore, it is concluded that internal audit department plays the vital role in detection of financial fraud.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
6.2 Hypothesis No. 2
Ho: Internal Auditors must not have the knowledge about the banking practices to conduct
effective audit?
H1: Internal Auditors must have the knowledge about the banking practices to conduct
effective audit?
Data
Null Hypothesis = 3
Level of Significance 0.05
Population Standard Deviation 0.8495
Sample Size 100
Sample Mean 2
Intermediate Calculations
Standard Error of the Mean 0.084947994
Z Test Statistic 5.885954204
Upper-Tail Test
Upper Critical Value 1.644853627
p-Value 1.97882E-09
Reject the null hypothesis
ANALYSIS: Since the Z test of Hypothesis for the Mean is 2 where u = 3 and the level of significance is 0.05,
so we reject the null hypothesis because the intermediate calculation which is positive, i.e. 5.885954204
and lower-Tail test p-value is less than 0.05 therefore we accept the alternative hypothesis. Therefore, it is
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
concluded that internal auditor must have the knowledge about banking practices to conduct effective
audit.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
6.3 Hypothesis No. 3
Ho: Internal Audit Department does not create the credibility of the bank in the financial
market?
H1: Internal Audit Department creates the credibility of the bank in the financial market?
Data
Null Hypothesis = 3
Level of Significance 0.05
Population Standard Deviation 0.9941
Sample Size 100
Sample Mean 2
Intermediate Calculations
Standard Error of the Mean 0.099412415
Z Test Statistic 5.029552892
Upper-Tail Test
Upper Critical Value 1.644853627
p-Value 2.45812E-07
Reject the null hypothesis
ANALYSIS: Since the Z test of Hypothesis for the Mean is 2.0 where u = 3 and the level of significance is
0.05, so we reject the null hypothesis because the intermediate calculation which is positive, i.e.
5.029552892 and lower-Tail test p-value is less than 0.05 therefore we accept the alternative hypothesis.
Therefore, it is concluded that internal audit department creates the credibility of the bank in financial
market.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
6.4 Hypothesis No. 4
Ho: Effective Internal Audit Department plays the negative role in creation of credibility of the
bank?
H1: Effective Internal Audit Department plays the positive role in creation of credibility of the
bank?
Data
Null Hypothesis = 3
Level of Significance 0.05
Population Standard Deviation 1.4381
Sample Size 100
Sample Mean 2
Intermediate Calculations
Standard Error of the Mean 0.143811746
Z Test Statistic 3.476767477
Upper-Tail Test
Upper Critical Value 1.644853627
p-Value 0.000253749
Reject the null hypothesis
ANALYSIS: Since the Z test of Hypothesis for the Mean is 3.61758 where u = 3 and the level of significance
is 0.05, so we reject the null hypothesis because the intermediate calculation which is positive, i.e.
3.476767477 and lower-Tail test p-value is less than 0.05 therefore we accept the alternative hypothesis.
Therefore, it is concluded that internal audit department plays the positive role in creation of bank’s
credibility in financial market.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
6.5 Hypothesis No. 5
Ho: Quality of the internal audit has the negative impact on the credibility of the bank?
H1: Quality of the internal audit has the positive impact on the credibility of the bank?
Data
Null Hypothesis = 3
Level of Significance 0.05
Population Standard Deviation 0.7571
Sample Size 100
Sample Mean 2
Intermediate Calculations
Standard Error of the Mean 0.075712108
Z Test Statistic 6.603963568
Upper-Tail Test
Upper Critical Value 1.644853627
p-Value 2.00154E-11
Reject the null hypothesis
ANALYSIS: Since the Z test of Hypothesis for the Mean is 2.0 where u = 1.5 and the level of significance is
0.05, so we reject the null hypothesis because the intermediate calculation which is positive, i.e.
0.075712108 and lower-Tail test p-value is less than 0.05 therefore we accept the alternative hypothesis.
Therefore, it is concluded that quality of internal audit has the positive impact on the credibility of the
bank.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
7 Conclusion
7.1 Chapter wise Conclusion
7.1.1 Chapter 1
In chapter one, the researcher have given the brief introduction about the topic
and cover the basic areas related to project. Researcher first discusses the main
idea behind the research, and then covers the topic introduction. This chapter also
includes the researcher objective, limitations, scope of the study as well.
7.1.2 Chapter 2
In chapter two, the researcher has discussed the literature review where some
researchers have discussed previous researches conducted on the subject as well as
the theoretical framework is also the part of this chapter. In theoretical framework,
the researcher has discussed the main variables and the models which are directly
related to the subject. These variables cover the different prospects.
7.1.3 Chapter 3
In chapter three, the researcher has discussed the company profile which includes
the vision, mission, brief history, future plans, major achievements, and difference
aspects. This chapter also has the financial performance analysis of the subject
company.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
7.1.4 Chapter 4
In chapter four, the researcher has discussed the methodology which covers the
problem definition, problem statement, hypothesis, methodology and sampling
design.
7.1.5 Chapter 5
In chapter five, the researcher has discussed the testing of hypothesis which
includes the analysis of questions, results explanations, statistical tool application
and final result regarding hypothesis.
7.1.6 Chapter 6
In chapter six, the researcher has finally concluded the complete project and its
components.
7.1.7 Chapter 7
In chapter seven, the research has given the recommendations for the
improvement in the current financial position of the company as well as the
profitability of the company. This also has the recommendations for the
management and recoveries of the outstanding dues, controlling the line losses.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
7.2 General Conclusion
The internal audit function is often referred to as the last line of defense in a bank’s
“three lines of defense” approach to managing risk – the first line is made up by the
firm’s front office staff and the second line by the oversight functions including the
risk management department.
Internal and external auditors regularly review both the business frontlines and the
oversight functions to ensure the firm has adequate risk controls in place. The
directors of the company also make up the third line of defense in that they receive
and act on reports from audit, oversight and the business lines, to ensure that the
three lines of defense are operating effectively.
The global financial crisis, which began in earnest in September 2008 when Lehman
Brothers collapsed, exposed gaps in the three lines of defense approach, specifically the
weaknesses inherent in the third line of defense. The Basel Committee on Banking
Supervision, as part of its efforts to address bank supervisory issues and enhance
supervision, has issued revised supervisory guidance for assessing the effectiveness of the
internal audit function in banks.
This research analyzes the common interrelationships across these five areas and how
internal auditors can use a synergistic strategy to develop multiple competencies,
knowledge, and audit tools and techniques at the same time, resulting in training savings in
time and money. The four major interrelationships or themes consist of risk-based
auditing, problem solving, communications, and ethics. This section discusses each of these
themes. Many of the most important competencies, knowledge areas, and audit tools or
techniques relate to risk based auditing. Internal auditors ranked risk-based audit planning
as the most important audit tool or technique. The five most important technical skills are
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
important elements of risk-based auditing. These include understanding business; risk
analysis and control assessment techniques; identifying types of controls; governance, risk,
and control tools and techniques; and business process analysis. Analytical review and
statistical sampling are important audit tools and techniques for risk-based auditing.
Enterprise risk management, which is the fifth most important knowledge area, is also
important to understand for risk-based auditing.
Problem identification and solution skills are the second most important general
competency. Judgment is the fourth most important behavioral skill. As problems become
more complex, internal auditors need to continually improve their problem solving and
judgment skills.
Communication skills are the top rated general competency and the third most important
behavioral skill. Conflict resolution, negotiation skills, and the ability to promote the value
of internal auditing are important specialized communication skills that ranked high in the
survey. Internal auditors ranked the ethics principles of confidentiality and objectivity as
the first and second most important behavioral skills, respectively. They also ranked ethics
as the third most important knowledge area. Internal auditors should continue to develop
their risk-based audit planning, electronic communication, analytical review, statistical
sampling, and electronic work paper tools and techniques. In addition, CAEs should invest
in newer technologies and related staff training for such areas as computer-assisted audit
techniques, data mining, and continuous/real-time auditing. After developing
continuous/real-time auditing skills and processes, internal auditors should transfer these
skills and processes to management so they can do continuous/real-time monitoring.
Management can then make continuous self-assessments and corrections rather than
waiting for input from the internal auditors. Internal auditors could then shift their
attention to auditing the continuous/real-time monitoring process.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
Internal auditors may use carefully designed risk-based auditing cases to develop multiple
competencies simultaneously. For example, a comprehensive risk-based auditing case may
allow internal auditors to develop core competencies in the areas of risk-based auditing,
problem solving, communications, and ethics. The internal auditors could evaluate these
areas by using rubrics for problem solving, critical thinking, written communication, oral
communication, and ethical reasoning. Key audit tools and techniques could also be part of
the comprehensive case. By using comprehensive cases and assessing multiple
competencies, internal auditors may improve several competencies at the same time with
minimal cost.
According to the survey, CAEs recognized the improvements in the adequacy of the
guidance provided by the Standards. However, reluctance still exists to use and comply
with all the Standards, especially those on resolution of management’s acceptance of risk
and quality assurance and improvement programs.
CAE’s main stated reasons for noncompliance are size of the organization or internal audit
staff, cost, and lack of management/board support. Internal auditors should focus on the
benefits gained from following the Standards, not only on the compliance costs of
following them. An organization is not compliant with the Standards unless the
organization is compliant with each and every standard.
8 Recommendations
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
8.1 Objective of Internal Audit Department
An effective internal audit functions independently and objectively evaluates the quality
and effectiveness of a bank’s internal control, risk management and governance
processes, which assists senior management and the Board of Directors in protecting their
organization and its reputation.
8.2 Independent Function of Audit Department
The bank’s internal audit function must be independent of the audited activities. This
requires that the internal audit function has an appropriate standing within the bank,
enabling internal auditors to carry out their assignments with objectivity.
8.3 Professional Competencies
Professional competence, including the knowledge and experience of each internal auditor
and of internal auditors collectively, is essential to the effectiveness of the bank’s interna l
audit function.
8.4 Internal Audit Integrity
Internal auditors should act with integrity.
8.5 Internal Audit Department Charter
Each bank should have an internal audit charter that articulates the purpose, standing and
authority of the internal audit function within the bank.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
8.6 Scope of the Internal Audit Department
Every activity (including outsourced activities) and every entity of the bank should fall
within the overall scope of the internal audit function.
8.7 Regulatory Requirements Audit
The internal audit function should ensure adequate coverage of regulatory matters within
the audit plan.
8.8 Permanent Status of Internal Audit Department
Each bank should have a permanent internal audit function.
8.9 Responsibility of Board of Directors
The bank’s board of directors has the ultimate responsibility for ensuring that senior
management establishes and maintains an adequate, effective and efficient internal
control framework and internal audit function. Principle 15: Regardless of whether internal
audit activities are outsourced, the board of directors remains ultimately responsible for
ensuring that the system of internal control and the internal audit function are adequate
and operating effectively.
8.10 Audit Committee
The audit committee, or its equivalent, should oversee the bank’s internal audit function.
8.11 Responsibilities of Head of Internal Audit Department
The head of the internal audit department should be responsible for ensuring that the
department complies with sound internal auditing standards and with a relevant code of
ethics.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
8.12 Reporting to Internal Audit Department
The internal audit function should report to the audit committee or the board of directors
and should inform senior management about its findings.
8.13 Assessment of Risk Management
Internal audit should both complement and assess operational management, risk
management, compliance and other control functions.
8.14 Transformation of Internal Audit Requirements
Supervisors should have regular communication with the bank’s internal auditors to (i)
discuss the risk areas identified by both parties, (ii) understand the risk mitigation
measures taken by the bank, and (iii) monitor the bank’s response to weaknesses
identified.
Bank supervisors should regularly assess whether the internal audit function has an
appropriate standing within the bank and operates according to sound principles.
Supervisors should formally report all weaknesses identified in the internal audit function
to the board of directors and require remedial actions.
The supervisory authority should consider the impact of its assessment of the internal
audit function on its assessment of the bank's risk profile and on its own supervisory work.
The supervisory authority should be prepared to take informal or formal supervisory actions
requiring senior management and the board to remedy any identified deficiencies related to the
internal audit function within a specified timeframe and to provide the supervisor with periodic
written progress reports.
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
8.15 General Recommendations
Internal auditors should continually improve their most important competencies, knowledge, and
audit tools and techniques to adequately address the risks facing their organizations. This report
identifies the most important competencies, knowledge areas, and audit tools and provides
strategies for developing or improving these areas. By identifying, prioritizing, and organizing their
competency development program, internal auditors may improve their professional proficiency,
which will help them better serve their organizations.
The Standards provide guidance to internal audit departments on how they can help management
and the board deal with the risks facing the organization. The improvement and efficiency gains
from implementing the Standards, including quality assurance and improvement programs, should
exceed their associated costs. CAEs who are not currently complying with all of the Standards
should carefully consider the potential benefits for each of the standards they currently do not
follow and recognize the opportunities they offer.
9 References
KASBIT Internal Audit Effectiveness and Its Impacts on Bank’s Creditability Company Profile
Al-Twaijry, A.A.M., Brierley, J.A. & Gwilliam, D.R. (2004), “An examination of the relationship
between internal and external audit in the Saudi Arabian corporate sector”, Managerial Auditing
Journal, Vol. 19, No. 7, pp. 929–945.
AL-Twaijry, A.A.M., Brierley, J.A. & Gwilliam, D.R. (2003), “The development of internal audit in
Saudi Arabia: an institutional theory perspective”, Critical Perspective on Accounting, Vol. 14, No.
5, pp. 507-531.
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