AN ASSESSMENT OF AUDIT PROCESS AND THE IMPORTANCE OF INTERNAL CONTROL IN MANUFACTURING COMPANIES IN CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the study

It is said that the world is progressively transforming into a technological one in which competition governs every aspect, including the health sector with the proliferation of hospitals. These necessitate the provision of cost-effective and efficient products to clients or patients seeking good health in order to sustain the nation's economic growth; this is impossible without the organization's effective implementation of internal control mechanisms (Jimoh, 2019).

In profit-oriented organisations, the effective execution of internal control measures is a prerequisite for attaining the profit maximisation objective. This requirement is explicitly stated in the mission statement of the organisation and serves to actualize the goals of optimising returns on shareholders' investments. This relates to the organization's capital and human resource utilisation that is both effective and efficient through compliance with laws and regulations, employee welfare, and customer satisfaction maintenance, among other factors (Duyile, 2018).

Internal control, as stated by Amanam (2021), is centred on the accomplishment of the mission of the organisation. Consequently, it is critical for an organisation to have a mission statement that is unambiguous and comprehended by all members. Furthermore, it is critical to comprehend that although effective internal control will furnish "reasonable assurance" that organisational goals and objectives are achieved, it cannot ensure success. However, insufficient internal control significantly reduces the likelihood of accomplishing goals and objectives (Amanam, 2021).

Currently, enterprises function within a dynamic, competitive, and rapid-evolving landscape. Their success is predicated on their capacity to effectively manage risks, conform to shifting organisational objectives, and adapt to an ever-changing business environment.

According to Leech (2020), "Once-leading companies in their respective industries, such as Kodak, Blackberry, Sears, and Macy's, have experienced significant decreases in both value and standing within the industry. Sectors such as transportation, retail, taxicabs, and travel have undergone profound transformations in their business models since the emergence of disruptive competitors like Amazon and Uber. Alongside solely strategic risks, organisations must also be cognizant of an extensive array of financial and reputational hazards (Alma, 2019).

Currently, corporations function within a more competitive and demanding landscape. Their success is predicated on their capacity to manage risks and adapt to shifting business environments, given that their organisational structure evolves daily. Corporate and accounting controversies at the start of the twenty-first century led to the demise of corporations such as Enron and WorldCom. As a consequence, numerous laws and regulations were enacted, including the Sarbanes-Oxley Act of 2002 and several others. The primary objective of these laws and regulations is to provide shareholders with confidence and mitigate risks that have arisen as a result of inadequate or ambiguous internal control during the audit process (Maine, 2018).

To manage these risks and provide assurance to shareholders, businesses have increased their focus on internal control and internal audit. "The skills, perspective, and objectivity of Internal Audit can benefit stakeholders and offer invaluable insight" (McDonnell 2019). The importance of internal control as a corporate governance mechanism is widely acknowledged. In the aftermath of the financial scandal, the disclosure of information regarding internal control systems is considered a crucial element in the restoration of public confidence in the integrity of corporations (McDonnell 2019).

The implementation of the Sarbanes-Oxley Act and the COSO Framework accelerated the growth and development of the organisational significance of those two concepts. This characteristic renders them a significant and captivating area of research, with ongoing developments anticipated in the future.

1.2 Statement of the problem

Internal control is a critical component of the private and public sector auditing processes. An organization-wide framework of policies and processes known as internal controls provides assurance that the business is operating efficiently and in accordance with all applicable regulations. The internal control system serves as an indicator of the reporting process of a company. Internal control consists of the submission of a comprehensive and precise annual report and the planning of administrative functions (Duyile, 2018). Due to the possibility of errors and fraud, it is critical to implement safeguards to ensure that fiduciary responsibilities are adequately carried out. The internal control system of sizable multinational corporations may encompass numerous tiers of supplementary control systems, such as corporate governance and corporate ethics (Amanam, 2021).

The repercussions of the absence of a properly implemented internal control system are readily comprehensible. The absence of controls may result in employees misusing company assets, misrepresenting asset values, or infractions of applicable laws. Effective controls aid in ensuring that financial statements are dependable, plan information is complete and accurate, and the plan complies with applicable laws and regulations, thereby reducing the risk of asset loss. This study will be on the assessment of audit process and the importance of internal control in manufacturing companies in Cameroon.

1.3 Objectives of the Study 

The aim of this study is to assess audit process and the importance of internal control in manufacturing companies in Cameroon. Specifically the study seeks to:

Determine whether there is a relationship between audit process and internal control in manufacturing companies in Cameroon.

Examine the functions of auditing in manufacturing companies in Cameroon.

Assess how audit processes aid internal control in manufacturing companies in Cameroon.

1.4 Research Questions

The following research questions will be answered in this study:

Is there a relationship between audit process and internal control in manufacturing companies in Cameroon?

What are the functions of auditing in manufacturing companies in Cameroon?

How does audit processes aid internal control in manufacturing companies in Cameroon?

1.5 Research Hypothesis

The following null hypothesis will validate this study:

Ho1: There is no relationship between audit process and internal control in manufacturing companies in Cameroon.

1.6 Significance of the study

This research is on attempt to survey the constructive parts, which internal auditing can play in Cameroon with reference to manufacturing companies.

A lot of problems are facing manufacturing companies as not having an effective audit central system. One of these problems is the management seems to gloss over the operation of the public organizations, which are carried out in disorganized manner. This is so because an efficient control system will enable the management to monitor the performances of the executives and take necessary and adequate corrective actions to ensure high performances at all levels.

This study will aid in ascertaining the extent to which fraud and errors can be prevented or detected early and highlighting areas of under performance, weakness and specific failures connected to internal control system in order that corrections may be effected for performance to improve.

1.7 Scope of the study

The study aims to evaluate the influence of internal controls in the productivity of business organizations in Cameroon. Empirically, this study will determine whether there is a relationship between audit process and internal control in manufacturing companies, examine the functions of auditing in manufacturing companies and assess how audit processes aid internal control in manufacturing companies in Cameroon.

This study will be carried out in Cameroon.

1.8 Limitation of the study

The researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing that audit process and the importance of internal control in manufacturing companies in Cameroon discourse is vast thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size covering only residents of Cameroon. Thus findings of this study cannot be used for generalization for other regions within Cameroon. Additionally, the researcher will simultaneously engage in this study with other academic work will impede maximum devotion to the research. Howbeit, despite the constraint encountered during the research, all factors were downplayed in other to give the best and make the research successful.

1.9 Definition of terms

Internal Control: Internal control, as defined by accounting and auditing, is a process for assuring of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.

Embezzlement: This is an act of dishonesty withholding assets for the purpose of conversion (theft) of such assets, by one or more person to whom the assets were entrusted, either to be held or to be used for specific purposes.

Appraisal: A valuation of property (i.e., real estate, a business, an antique) by the estimate of an authorized person. In order to be a valid appraisal the authorized person will have a designation form a regulatory body governing the jurisdiction the appraiser operates within.