Factors Influencing Sample Size for Internal Audit Evidence Collection in the Public Sector in Kenya

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ISSN: 2278–3369

International Journal of Advances in Management and Economics

Available online at www.managementjournal.info

RESEARCH ARTICLE

Kamau, Charles Guandaru | Mar.–April. 2012 | Vol.1 | Issue 2|42–49 42

Factors Influencing Sample Size for Internal Audit Evidence Collection in the

Public Sector in Kenya

Kamau, Charles Guandaru*, Kariuki, Samuel Nduati

*Corresponding Author: E–mail:

guandaruaman@yahoo.co.uk

Jomo Kenyatta University of Agriculture and Technology, Kenya.

Abstract

The internal audit department has a role of providing objective assurance and consulting services designed to add

value and improve an organization’s operations. In performing this role the internal auditors are required to provide

an auditor’s opinion which is supported by sufficient and reliable audit evidence. Since auditors are not in a position to

examine 100% of the records and transactions, they are required to sample a few and make conclusions on the basis of

the sample selected. The literature suggests several factors which affects the sample size for audit purposes of the

internal auditors in the public sector in Kenya. This research collected data from 32 public sector internal auditors.

The research carried out simple regression and correlation analysis on the data collected so as to test hypotheses

and make conclusions on the factors affecting the sample size for audit purposes of the internal auditors in the public

sector in Kenya. The study found out that that materiality of audit issue, type of information available, source of

information, degree of risk of misstatement and auditor skills and independence are some of the factors influencing the

sample size determination for the purposes of internal audit evidence collection in public sector in Kenya.

Keywords

: Audit evidence, Internal auditors, Materiality, Sample size.

Introduction

ISA 500 requires that the auditors should design

and perform audit procedures that are appropriate

in the circumstance for the purpose of obtaining

sufficient and appropriate evidence. It further

explains that audit evidence is necessary to support

the auditor’s opinion and report. It is cumulative in

nature and is primarily obtained from audit

procedures performed during the course of the

audit. It may, however, also include information

obtained from other sources such as previous audits

or a firm’s quality control procedures for client

acceptance and continuance. In addition to other

sources inside and outside the entity, the entity’s

accounting records are an important source of audit

evidence. Auditors may not be in a position to carry

out 100% examination and verification of records

and transactions. Therefore auditors use sampling

concept to choose a sample of records and

transactions, carry out examination of the sample

and use the results to draw conclusions about the

fairness of a company´s financial statements.

Consequently, auditors can only provide assurance

but not absolute assurance that the financial

statements are fairly presented [1].The internal

auditing standards asserts that an internal auditor

has a professional duty and an ethical

responsibility to evaluate carefully all the evidence

and the reasonableness of his or her conclusions

and, then, to decide whether further actions may be

needed to protect the interests of the organization,

its stakeholders, the outside community, or the

institutions of society [2].Internal audit aims to

increase the accountability of government

ministries by ensuring transparency, validating key

systems of internal control, and committing

resources against key risks. To achieve this task

the internal auditors are required to collect audit

evidence to support their findings. Audit evidence

collected is on the basis of sampling technique that

helps the auditors to collect and analyze the

required information. This research looks into the

various factors affect the size of the sample that the

auditors will select for the purpose of audit

evidence collection.

Statement of the Problem

Internal auditing is defined by IIA as an

independent, objective assurance and consulting

activity designed to add value and improve an

organization’s operations. The Internal audit helps

an organization achieve its objectives by bringing a

systematic, disciplined approach to evaluate and

improve the effectiveness of risk management,

control, and governance processes [2] Internal

Available online at www.managementjournal.info

auditor’s opinion should be supported by sufficient

and reliable audit evidence. IIA proposes that

internal auditors in the process of providing

assurance should carry out objective examination of

evidence for the purpose of providing an

independent assessment on risk management,

control, or governance processes for the

organization [2]. Beasley, Carcello and Hermanson

[3] observed that the most common problem found

in 80%

Objectives of the Study

of the cases, was the auditor’s failure to

gather sufficient audit evidence. Many of the cases

which they studied involved inadequate evidence in

areas such as asset valuation, asset ownership and

management representations.Gathering internal

audit evidence is a challenge for many auditors

since they are required to carry out their work

independently yet at the same time they are part of

management. Attitude of the auditees towards the

internal auditor complicates the process of audit

evidence gathering. This study therefore sought to

explore the factors affecting the sample size for

internal audit evidence collection in public sector in

Kenya.

• To find out the effect of materiality on the sample

size for internal audit evidence collection

• To identify the effect of type of information on the

sample size for internal audit evidence collection

• To identify the effect of source of information on

Audit evidence gathering is fundamental in

carrying out audit engagements. It’s on the basis of

the audit evidence gathered that the internal

auditor makes conclusions about an audit issue.

Gathering audit evidence is a complex activity

which depends on a number of factors,

understanding these factors is important for the

internal auditors. This research may be of great

significance in improving the performance of the

auditors in the public sector.

Conceptual Framework

Conceptual framework is a visual or written

product that explains graphically or in narrative

form, the main things to be studied. It describes the

key factors, concepts, and variables and the

presumed relationship among them [4]. According

to Nachmias, “the variable that the researcher

wishes to explain is the dependent variable.” The

independent variable causes or explains changes in

the dependent variable. In this research, the

internal audit evidence was the dependent

variable.Several factors may influence the internal

audit sufficiency in public sector in Kenya. These

factors become the independent variables in this

research. They include:

Materiality of the Audit Issue

The internal audit evidence required largely

depends on the materiality level of the audit issue