DIRE DAWA UNIVERSITY SCHOOL OF GRADUATE

STUDIES DEPARTMENT OF ACCOUNTING AND

FINANCE

ADVANCED AUDITING AND ASSURANCE ARTICLE REVIEW

ASSIGNMENT

EXAMINING THE REGULATORY FRAMEWORKO OF

INTERNAL AUDIT IN ETHOPIA

Prepared by: -
CHANIE TESHOME…………….DDU 1400009
YONAS TERFASA ………………DDU 14000 13
TESFAYE WORKU……………...DDU 1400020

Submitted to: - Dr.TDESSE D. (PHD)

February 14, 2023 G.C

Diredawa Ethiopia

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Table of Contents
1. Introduction..............................................................................................................................2

2. The Development of Internal Auditing in Ethiopia..................................................................3

3. Overview of Internal Audit Regulatory Framework of Ethiopia.............................................4

3.1. Examining scope and objectives of the Directive.............................................................5

3.2. International Professional Practices Framework (IPPF)...................................................6

3.2.1. Examining Framework of Internal Audit in Ethiopia................................................7

I. Duties and responsibilities of the Minister...........................................................................7

II. Duties and Responsibilities of Government Offices............................................................8

III. Duties and Responsibilities of Internal Audit Department...............................................8

4. Examining Internal Audit Framework and its Implementations in Ethiopia...........................9

5. Examining Internal Audit Framework, its Effectiveness and Challenges in Ethiopia...........10

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1. Introduction
Internal Auditing checks how well a company maintains operational efficiency and manages
accounting processes while complying with its standard rules and regulations. Conducting audits
from time to time ensures the firms are strict enough in following the administrative
fundamentals and sticking to a maximum accuracy rate so far as financial reporting is concerned.

In other words, an internal audit is conducted to properly check whether a company follows the
internal protocols, regulations, and standards. Every organization has a specific set of rules to
follow. The companies, therefore, have an auditor acquiring internal audit certification to ensure
the employees and top officials abide by all of them for legal and operational efficiency.

Internal auditing practice in any organization is an essential part in assuring organizational

objectives and an independent appraisal body is established within the organization to examine
and evaluate its activities as a service to the organization. Failure to proper internal auditing in
any organization primarily, leads to defective internal auditing in organization which results in
poor evaluation, defective output and assurance that leads to declining the wellbeing of the
enterprise and healthy flow of activities.

Internal auditors have the right and ability to access all information in every part of the
organization and their function lies at every activities of the corporate governance system. All
the stakeholders will therefore benefit from having a strong Internal Audit Function (IAF) which
will provide value to the other cornerstones of corporate governance. This is because, internal
auditors can make line managers aware of their responsibility; can act as a consultant in
monitoring risk, identifies weakness in internal control system, and facilitates the
implementation of risk management as well as IA contributes to the appropriateness of
procedures and operations of the audited body.

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2. The Development of Internal Auditing in Ethiopia
The development of auditing in Ethiopia was clearly manifested in modernized way after the
issuance of Ministry of Finance directives in 1942, which focused on public sector fund
utilization to aid the proper collection of state revenue and the necessity for procedures to control
expenditures of the public sectors. And then during 1944, there were the establishment of
Commission for Audit budget practices, an emphasis on fraud deterrence, and growth in trade
and industry subsequently added impetus to the growth of the profession (Welde Giorgis, 1998).

The same Proclamation mandated the then Ministry of Finance to audit other budgetary
institutions as a measure of internal control over the financial operations of the budgetary
institutions. It appears that this early practice of internal auditing as per Proclamation 69/1944
was, in fact, to be the root of what the Inspection Department of the Ministry of Finance and
Economic Development continued to perform to this day, until the recent reorganization
(MoFED, 2004).

The pioneers were the Ministry of Education, Ministry of National Defense and the Ministry of
Finance in implementing the internal audit practice in Ethiopia and the internal auditing function
was under the internal control. Moreover, Proclamation NO, 68/1997 requires that, the Federal
Democratic Republic of Ethiopia’s (FDRE) new economic policy be supported by a modern and
reliable audit system in order to ascertain proper implementation through effective monitoring of
administrative, developmental and service rendering institutions in the federal Public Sector
(Zeleke, 2007).

3. Overview of Internal Audit Regulatory Framework of Ethiopia

The directive and administration policy of Internal Auditors of Ethiopia was issued by the
Ministry of Finance and Economic Cooperation in 2010, and later on modified in 2016. The
earlier version of the directive was named as “Federal Government Internal Audit Directive No.
7/2010” while the later is named as “Federal Government Internal Audit Directive No. 47/2016”.

In the following paragraphs, a clear discussion about Ethiopian regulatory framework of internal
audit was made. Furthermore, the internal audit regulatory framework and internal audit process
is examined in terms of their implementations and effectiveness.

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The Federal Government Internal Audit Directive No. 7/2010 has 5 (Five) sections, and later
revised in 2016 having 4 (Four) sections. These are:

a) Section one describes the issuing body of the directives, short title of the directive,
interpretations of terms, scope of implementation, objectives and accountability of
internal auditors and the department as a general.

b) Section two summarizes duties and responsibilities of related parties. This includes duties
and responsibilities of the minister, duties and responsibilities of government offices, and
duties and responsibilities of internal audit department.

c) Section three summarizes issues related with internal auditors in particular and staff
administration in general. This includes employment of staffs, their development level,
staff transfer, staff evaluation, staff resignation, miscellaneous permits, and working
experience.

d) Section four summarizes miscellaneous items related with effectiveness date of the
directive and related issues.

3.1. Examining scope and objectives of the Directive           

Under section one of the Federal Government Internal Audit Directive No. 47/2016, scope of the
directive was clearly indicated. It says “This directive will apply to all persons deemed to be
government agencies under the Federal Government Finance Administration Proclamation
No. 648/2009 (amended).”

This implies that, without any arbitration the rules and policies in the directive, the rights and
responsibilities in the directive are equally and fairly applicable to anyone that has believed to be
government agency in auditing profession.

In addition, the directive specifies the following points as its basic purposes:

- To ensure the independence of the internal auditors of federal government offices when
they perform their professional duties.

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 - To establishing an effective, efficient and competent internal audit department in the
public bodies.
- Strengthen internal audit units in public bodies to ensure that government resources and
assets are used for the sole purpose.

It is clear that independence of the auditors is the most crucial issue in auditing profession.
Because it helps the auditors to be free from any kind of burden and bias in conducting their
professional work. Otherwise, the reliability, effectiveness and efficiency of their work would
fail under great debt.

In addition to its main objectives, the directive specifies the following points regarding
accountability of related parties (Audit department).
- Administratively, internal audit department of the public offices is accountable to the
Ministry;
- Administratively, internal audit department of the branch is accountable to the internal
audit department of the head office;
- For daily duties, internal audit department of the branch is accountable to the branch
public body head, and also they submit their audit report directly to the branch public
body head and a copy to the internal audit department of the head office.

3.2. International Professional Practices Framework (IPPF)

The Global Institute of Internal Auditors has developed a comprehensive range of standards,
guidance and guides to help internal auditors around the world in their work. The International
Professional Practices Framework (IPPF, 2017) has been developed to organize the full range of
internal audit guidance from IIA Global in an accessible way. It includes two types of guidance:

1. Mandatory Guidance
IIA members are required to comply with mandatory guidance. This guidance is developed after
consultation with members. These are:
- Core Principles

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 - Definition of Internal Auditing
- Code of Ethics and
- International Standards of internal auditing

2. Recommended Guidance
IIA members are recommended to comply with this guidance. It describes practices for the
effective implementation of The Core Principles, The IIA's Code of Ethics and the International
Standards for the Professional Practice of Internal Auditing (International Standards).

3.2.1. Examining Framework of Internal Audit in Ethiopia

The regulatory framework of internal auditing consists of rules and regulations that fall under the
scope of national legislations, quoted companies and also corporate governance.

The internal audit framework details the purpose, objectives and deliverables Audit and explains
the methodology and standards used to achieve independent assurance outcomes. Auditors, both
internal and external, must be aware of the regulatory framework for auditing applicable to the
industry of their client because a key objective of any organization will be to comply with
appropriate regulations.

The directive and administration policy of Internal Auditors of Ethiopia would be applicable to
all persons that were deemed to be government agencies under the Federal Government Finance
Administration Proclamation No. 648/2009. This includes the minister, government offices, and
internal audit department.

Both of the Federal Government Internal Audit Directive No. 7/2010 and No. 47/2016 have the
same concepts and contents, with the exception to some modifications. Under section two of
directive No. 47/2016, the duties and responsibilities of auditors and related parties were
specified. This includes the duties and responsibilities of the minister, the government offices
and the audit department.

Some of those duties and responsibilities were discussed below in relation to their effectiveness.

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 I. Duties and responsibilities of the Minister             
Among many activities, the Ministry was required to perform the following main activities:
 Prepares internal audit organization and allocation of public offices, based on the budget
allocated to them, the size of the property they manage, and the scope of their work;
 Assigns and dismisses the internal audit head and Professionals of Government Offices.
In addition, before the appointment of the internal auditor to the public offices, it ensure
the applicant professional qualification.
 Hires internal auditors, provides rankings and generally manages the human resources of
internal audit staff of public offices, and transfers internal audit professionals
from one public office to another.
 Develops, modifies and monitors the policies, standards and procedures of internal audit
of public bodies.
 Maintains the internal audit staff records and special information by using modern
information technology, and provides periodic personnel information service by
implementing modern and efficient information management systems.
 By undertakes need assessment related to training needs of internal audit department
staffs, and it organizes in the form of short and long-term training needs; 
 Maintains training budget, builds capacity of internal audit staff by providing short and
long term training.
 Periodically evaluates the effect of the trainings on the public offices, and takes measures
by identify their strengths and weaknesses.

II. Duties and Responsibilities of Government Offices             

As per the directive, the Government Offices were required to perform the following activities:
 Create a conducive working environment and healthy working relationships for
internal audit departments and establish appropriate offices;
 Properly allocate office management assistants and other support staffs (like cleaning,
dispatcher, etc.);
 Ensure the benefits of internal audit Staffs as other staff members’ benefits of the
institution;

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  Internal audit department employees shall be paid salaries, allocate a reasonable
operating budget for the work, and adequately meet the necessary equipment;
 Oversee the overall performance of the internal audit department, supervise work entry
and exit time of the internal audit staffs and report to the Ministry on a quarterly basis;
 Provides appropriate close support for effective audit activities ;   

III. Duties and Responsibilities of Internal Audit Department             

Internal Audit department will perform the following activities as per the directive:
 Prepares the internal audit department's budgeting needs and provides them to the office;
 Organize details of internal audit personnel;
 The Internal Audit head shall evaluate the performance of internal audit staffs in every
half year and send the results to the Minister;
 Receive, evaluate and provide feedback an audit report of the branch internal audit
department and merge with the head office report, and submit the report to the Head of
the department at the address and to the Ministry;
 The Internal Audit Department shall identify the vacant position and notify the Minister to
complete it by employment or promotion or transfer;
 Based on the government working hours, internal audit head supervises the working
hours of the employees at his/her office;
 The internal audit department head shall notify in writing by the end of each month that
the employees are active and inactive to the concerned department for the payment of
salary;
 Performs planning, audit reporting and feedback of the internal audit departments of the
public office as set forth in the Federal Government Internal Audit Directive No. 7/2010. 

4. Examining Internal Audit Framework and its Implementations in Ethiopia

One of the most importances of developing internal audit framework is it provide guidance,
policies and regulations required by audit department, the minister and the auditors. These
policies and regulations are equally applicable for all parties in performing their professional
work.

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The effectiveness of internal audit framework is mainly determined by assessing and referring
internal audit practice in Ethiopian context in comparison to international standards. With this
regard, different studies and researches were conducted on the existing practices of internal
auditing in the Ethiopian context. For example, the study conducted by Yisehak (2013) entitled
“Internal audit practices in the Ethiopian Financial sector, as compared to the International
Professional Practicing Framework (IPPF) pronounced by the IIA”, aimed to compare the
existing internal audit practices in the Ethiopian financial sector by taking the framework as a
benchmark. The financial sector in Ethiopia comprises of campuses, insurance companies and
microfinance institutions. A mix of sample was taken from all and the research deployed three
data collection methods: questionnaires, interview and document review. The results of the
research revealed that the current practices of internal audit activities (IAAs) in the Ethiopian
financial sector did not comply with the IPPF guidelines that promulgated by the IIA.
Furthermore, there were no quality assurance and improvement programs in place by those
financial institutions that can make their internal audit practices head towards the level of being
IPPF complaint.

In addition, Bethlehem Fekadu (2000) conducted research on “Internal Audit Practices: A Case
of Ethiopian Governmental Higher Educational Institutions” for the purpose of investigating
challenging factors that have influenced the Ethiopian higher governmental institutions‟ internal
audit practices. The findings of the study showed that IAAs in the sample Universities lacked the
following: none of the sample universities have established the audit committee, their Internal
Audit departments were not sufficiently resourced that affected their effectiveness, no
developmental programs for their internal auditors, risk-based internal audit plans were not
established and none of the respective universities audit departments have quality assurance
program including the internal and external quality assessment processes as required by ISPPIA
No.1300. Proper management commitment and other organizational factors were critical factors
influencing effectiveness of IAF in the respective universities.

Generally speaking, the finding of the above researches clearly shows how much effective was
the internal audit practice in Ethiopia, which was developed from internal audit framework.
Therefore, one can conclude that even if internal audit framework of Ethiopia was clear in terms
of policies and regulations required for performing auditing profession, still there are some

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difficulties and shortcomings in proper implementation of the policies. In turn, this can greatly
affect the quality and reliability of internal audit in the country.

5. Examining Internal Audit Framework, its Effectiveness and Challenges in

Ethiopia
A trustworthy, global, guidance-setting body, the IIA provides internal audit professionals
worldwide with authoritative guidance organized in the IPPF (International Professionals
Practices Framework) as mandatory guidance and recommended guidance.

The only way to determine whether an internal audit is effective is to ask the stakeholders
whether they are comfortable that they are receiving the assurance they need on the risks that
matter to them and to the organization.

In Ethiopia, the employment of internal audit staffs of public offices will be conducted in
accordance with the guidelines of the Federal Ministry of Public service and Human Resource
Development. The Ministry periodically hires internal auditors at the central office after identify
the number of vacancies of internal audit department in the public offices, and assigns them to
public offices. With this regard, the Ministry conducts an awareness raising workshop to give a
good understanding for the new recruited internal auditors before directly start their job.

In addition, the regulatory framework describes level of promotion of internal audit staff of
public office shall be conducted in accordance with the guidelines of the Federal Ministry of
Public service and Human Resource Development.

With this regard, where there is a need for hiring of internal auditors in the public office,
according to the condition the Ministry may delegate the public office for all the recruitment
procedures to be approved by the Ministry. If the public office does not find the candidates for
the level of promotion in the public office, the office shall inform the Ministry.     

Internal audits are designed as an integrated process, independent from other business operations,
for evaluating the extent to which internal control achieves its objectives in key areas, including

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appropriate risk management; efficient and effective business operations; reliable financial
reporting; and compliance.

However, different factors tend to reduce the effectiveness of internal audit. The findings of
study showed that quality of internal audit activity, competence of audit team, independence of
internal audit and support of management are main factors that positively affect IAE. The results
of study reveal that independence of internal audit is the most prominent factor.

Generally speaking, three significant challenges public sector internal auditor's face in their
execution of duties include, reporting structure and profession independence, career development
and training and non-availability of audit manuals.

With this regard, the above mentioned studies and other similar studies done in relation to audit
effectiveness in Ethiopia shows that the following are the basic challenges faced by internal
auditors while conducting their professional work.
- Lack of quality assurance and improvement programs

- Lack of developmental programs for their internal auditors, and

- Relationship-building barriers, and evolving audit skill needs.

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