Desalegn Thesis Finial 2020 2012 2013 2020 2021

BAHIR DAR UNIVERSITY
Collage of Business and Economics
Department of Accounting and Finance
Factors Affecting Effective Implementation of Government External

Audit Standards
The Case of Amhara National Regional State Office of Auditor General
By:
Desalegn Nega
July, 2020
Bahir Dar, Ethiopia
i
Collage of Business and Economics
Factors Affecting Effective Implementation of Government External

Audit Standards
The Case of Amhara National Regional State Office of Auditor General
By:
Desalegn Nega
A Thesis Submitted in Partial Fulfillment of the Requirement for

the Degree of Masters of Science in Accounting and Auditing.
Advisor:
Tilahun Aemiro (Asst.Professor)
July, 2020
Bahir Dar, Ethiopia
© 2020(Desalegn Nega)
ii
Declaration
This is to certify that the thesis entitled “Factors Affecting Effective Implementation of
Government External Audit Standards in Amhara National Regional State Office of
Auditor General” submitted in partial fulfillment of the requirements for the Degree of a
Master’s in Accounting and Auditing of Department of Accounting and finance, Bahir Dar
University. Is a record of original work carried out by me and has never been submitted to this or
any other institution to get any other degree of certificates. The assistance and help I received
during the course of this investigation have been duly acknowledged.
Submitted by:
Name: Desalegn Nega
Signature:-------------------------------
Date of Submission: --------------------------------------------
Place: Bahir Dar University, Bahir Dar
iii
iv
Advisor’s Approval Form
Bahir Dar University
College of Business and Economics
Approval of Thesis for Defense
I hereby certify that I have supervised, read, and evaluated thesis titled “Factors Affecting
Effective Implementation of Government External Audit Standards in Amhara National
Regional State Office of Auditor General” by Desalegn Nega prepared under my
guidance. I recommend the thesis be submitted for oral defense.
Approved by Board of Examiners:
Name Signature Date
Advisor’s: ___________________________________ ____________ ____________
Co-Advisor’s: __________________________________ _____________ _________
Department Head: _______________________________ ____________ ________
v
Examiners’ Approval Form
Bahir Dar University
College of Business and Economics
Approval of Thesis for Defense result
As members of the board of examiners, we examined this thesis entitled “Factors Affecting
Effective Implementation of Government External Audit Standards in Amhara National
Regional State Office of Auditor General” by Desalegn Nega. We here by certify that the
thesis is accepted for fulfilling the requirements for the award of the degree of “Accounting and
Auditing”.
Board of Examiners:
Name Signature Date
External examiner: ___________________________ ____________ ____________
___________________________ _____________ ____________
Internal examiner: ___________________________ _____________ ____________
_____________________________ ____________ ___________
Chair person’s: _______________________________ _____________ __________
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Acknowledgement
First of all, I would like to thank the almighty God for giving me encourage and determination to
complete my study. My special thanks go to Tilahun Aemiro (Asst.Prof.), my research advisor,
for his unreserved guidance and constructive comments throughout the course of the study.
I take this opportunity to express my gratitude to all the staffs of the Amhara National Regional
State Office of Auditor General especially for those who participated in giving responses for the
interviews and questionnaires and provision of necessary secondary data. I would also thank my
friends Fentahun Eskezia, Daniel Getaneh &Yared Abebe for their support and encouragement.
Finally, I would like to thank all my friends for their wonderful encouragement and support.
vii
Abstract
The main purpose of the study was to examine how professional competence of auditors,
independence of audit office and auditors, audit planning & supervision, appropriate &
sufficient audit evidence and staff turnover Affect Effective Implementation of Government
External Audit Standards in Amhara National Regional State Office of Auditor General. To this
end, this study covered the period from 2007-2011EC. The study is designed with both
quantitative and qualitative data analysis approaches. The researcher collected data from both
primary (through questionnaire and semi structured interview) and secondary sources. To
investigate the study findings, a participant’s of 229 respondents for questionnaires & 2
respondents for interview were used from the regional audit office and 9 respondents from
audited entities using purposive sampling were used for interview. The responses generated
from respondents were analyzed with the help of SPSS and reliability and validity test was done
to ensure that the research tools are consistent. Descriptive analysis, correlation analysis and
regression analysis were used by meeting the ordinary least square (OLS) assumptions of the
linear regression. All independent variables are making 66.7% of the contributions for Effective
Implementation of Audit Standards in the Amhara National Regional State Office of Auditor
General. With the given research methods, the results of the study show that the Effective
Implementation of Audit Standards of the office is highly affected by problems of professional
competence of auditors, independence of audit office and auditors, audit planning &
supervision, appropriate & sufficient audit evidence and staff turnover. In the end, the study
forwards that the professional competence of auditors should be enhanced through intensive
training, independence of the audit office and auditors should be maintained; audit planning &
supervision actions should be taken, audit evidence must be used in terms of appropriate and
sufficient, and to minimize the turnover of employees to achieve the Effective Implementation of
Government External Audit Standards.
Key Words: Audit, Audit Standards, Effective Implementation, Auditor, Audited Entities
viii
Table of Content
s
Declaration-----------------------------------------------------------------------------------------------iii
Advisor’s Approval Form-----------------------------------------------------------------------------iv
Examiners’ Approval Form----------------------------------------------------------------------------v
Acknowledgement---------------------------------------------------------------------------------------vi
Abstract---------------------------------------------------------------------------------------------------vii
Table of Contents--------------------------------------------------------------------------------------viii
Illustrations----------------------------------------------------------------------------------------------xii
Abbreviations and Acronyms-----------------------------------------------------------------------xiii
CHAPTER ONE------------------------------------------------------------------------------------------
1
1. Introduction -------------------------------------------------------------------------------------------1
1.1 Background of the Study-------------------------------------------------------------------------1
1.2 Statement of the Problem-------------------------------------------------------------------------3
1.3 Objectives of the Study---------------------------------------------------------------------------5
1.3.1 General Objective------------------------------------------------------------------------------5
1.3.2 Specific Objectives----------------------------------------------------------------------------5
1.4 Hypothesis of the study---------------------------------------------------------------------------5
1.5 Significance of the Study-------------------------------------------------------------------------6
1.6 Definitions of significant Terms-----------------------------------------------------------------6
CHAPTER TWO-----------------------------------------------------------------------------------------8
2.REVIEW OF RELATED LITERATURE--------------------------------------------------------8
2.1 Introduction------------------------------------------------------------------------------------------8
2.2 Theoretical Review---------------------------------------------------------------------------------8
2.2.1 Meaning and Elements of audit---------------------------------------------------------------8
ix
2.2.2 Auditing in Ethiopia----------------------------------------------------------------------------9
2.2.3 Auditing in the Public Sector----------------------------------------------------------------12
2.2.4 Type of audits----------------------------------------------------------------------------------13
2.2.5 Types of Auditors------------------------------------------------------------------------------14
2.2.6 Auditing Standards----------------------------------------------------------------------------14
2.2.7 Users of External Audit Report--------------------------------------------------------------15
2.2.8 Generally Accepted Auditing Standards (GAAS)-----------------------------------------16
2.2.9 Role of Government External Auditing in Public Finance Management--------------17
2.3 Empirical Study------------------------------------------------------------------------------------18
2.3.1 Review of Empirical Studies on Factors Affecting EIGEAS---------------------------18
2.4 Rationale of the Study----------------------------------------------------------------------------21
2.5 Summary of Literature Review & Research Gaps--------------------------------------------21
2.6 Effective Implementation of Government External Audit Standards Framework--------22
CHAPTER THREE------------------------------------------------------------------------------------23
3. RESEARCH METHODOLOGY OF THE STUDY------------------------------------------23
3.1 Introduction---------------------------------------------------------------------------------------23
3.2 Research Design----------------------------------------------------------------------------------23
3.3 Particicpants of the Study------------------------------------------------------------------------

24
3.4 Data Sources---------------------------------------------------------------------------------------

25
3.4.1 Primary Data Sources------------------------------------------------------------------------25
3.4.2 Primary Data Sources------------------------------------------------------------------------25
3.5 Data Collection Methods

------------------------------------------------------------------------26
3.5.1 Intreview---------------------------------------------------------------------------------------26
x
3.5.2 Questioner--------------------------------------------------------------------------------------
26
3.5.2.1 Questioner Design-----------------------------------------------------------------------26
3.5.2.2 Scale of Measurement-------------------------------------------------------------------27
3.5.2.3 Realiablity & Validity Test-------------------------------------------------------------27
3.5.2.3.1 Realiablity Test-----------------------------------------------------------------------27
3.5.2.3.2 Validity Test---------------------------------------------------------------------------28
3.6 Method of Data Analysis------------------------------------------------------------------------29
3.6.1 Descriptive Analysis-------------------------------------------------------------------------29
3.6.2 Correlation Analysis------------------------------------------------------------------------29
3.6.3 Regression Analysis-------------------------------------------------------------------------29
3.7 Model of Specification---------------------------------------------------------------------------30
CHAPTER FOUR--------------------------------------------------------------------------------------31
4. RESULTS OR FINDININGS---------------------------------------------------------------------31
4.1 Introduction----------------------------------------------------------------------------------------31
4.2 Response Rate-------------------------------------------------------------------------------------31
4.3 Demographic Characteristics of Respondents------------------------------------------------32
4.4 Descriptive Analysis of Independent variables-----------------------------------------------34
4.4.1 Professional Competence of Auditors------------------------------------------------------34
4.4.2 Independence of Auditors & Audit offices------------------------------------------------37
4.4.3 Audit Planning & Supervision--------------------------------------------------------------40
4.4.4 Approprate & Sufficient Audit Evidence--------------------------------------------------44
4.4.5 Staff Turnover---------------------------------------------------------------------------------46
4.5 Correlation Analysis------------------------------------------------------------------------------

49
4.5.1 Correlation Analysis between Professional Competence of Auditors & EIGEAS---50
4.5.2 Correlation Analysis between Independence of Auditors & Offices & EIGEAS-----51
xi
4.5.3 Correlation Analysis between Audit Planning & Supervision & EIGEAS------------51
4.5.4 Correlation Analysis between Approprate & Sufficient Audit Evidence &EIGEAS51
4.5.5 Correlation Analysis between Staff Turnover & EIGEAS-------------------------------51
4.6 Regression Analysis------------------------------------------------------------------------------52
4.6.1 Regression Model Diagnosis----------------------------------------------------------------52
4.6.1.1 Test for Multicollinearity----------------------------------------------------------------52
4.6.1.2 Homoscedasticity--------------------------------------------------------------------------53
4.6.1.3 Normality test------------------------------------------------------------------------------54
4.6.2 Regression Analysis of Dependent and Independent variables------------------------55
4.6.3 Linear Multiple Regression Model---------------------------------------------------------56
4.7 Teasting of The Research Hypothesis---------------------------------------------------------57
4.8 Summary of Analysis----------------------------------------------------------------------------59
CHAPTER FIVE---------------------------------------------------------------------------------------60
5. DISCUSSIONS AND IMPLICATIONS--------------------------------------------------------60
5.1 Factors Affecting Effective Implementation of Government External Audit Standard60
CHAPTER SIX------------------------------------------------------------------------------------------
65
6. CONCLUSIONS AND RECOMMENDATIONS--------------------------------------------65
6.1 Introduction---------------------------------------------------------------------------------------65
6.2 Conclusion---------------------------------------------------------------------------------------65
6.2.1 Factors Affecting Effective Implementation of Government Audit Standard-------66
6.3 Recommendations------------------------------------------------------------------------------68
6.4 Suggestions for Further Study------------------------------------------------------------------71
References ------------------------------------------------------------------------------------------72
xii
Illustrations
List of Tables
Tables Title of the Tables Page

3.1 The composition of the Participants 25
3.2 Reliability Test of Independent and Dependent Variables 28
4.1 Response Rate 31
4.2 Demographic Characteristics of Respondents 32
4.3 Descriptive Statistics on Independent Variables 35
4.3.1 Descriptive Statistics on Professional Competence of Auditors 35
4.3.2 Descriptive Statistics on Independence of Audit offices & Auditors 37
4.3.3 Descriptive Statistics on Audit Planning & Supervision 41
4.3.4 Analysis of Secondary Data on Audit planning & Supervision of ANRSOAG 43
4.3.5 Descriptive Statistics on Appropriate & Sufficient Audit Evidence 44
4.3.6 Descriptive Statistics on Staff Turnover 47
4.3.7 Analysis of Secondary Data on Staff Turnover in ANRSOAG 49
4.4 Interpretations of strength of correlation coefficient 49
4.5 Pearson Correlation Analysis for Dependent & Independent Variables 50
4.6 Test for Multicollinearity 52
4.7 Model summaries of multiple regression models 55
4.8 Beta coefficients of Factors Affecting effective implementation government 56
external audit standards
4.9 Impact of Factors of effective implementation of government external audit 59
standards
List of Figures
Figure Title of Figures Page

s
2.1 Conceptual framework 22
4.1 Scatter plot 53
xiii
4.2 Normal probability plot 54
List of Abbreviations/Acronyms
AABE: Accounting and Auditing Board of Ethiopia
ACCA: Association of Chartered Certified Accountants
AFROSAI-E: African Organization of English-Speaking Supreme Audit Institution
AICPA: American Institute of Certified Public Accountants
ANRS: Amhara Nationa Regional State
ANRSOAG: Amhara National Regional State Office of Auditor General
EGAS: Ethiopian Government Auditing Standard
EPAAA: Ethiopian Professional Association of Accountants and Auditors
EIGEAS: Effective Implementation of Government External Audit Standards
GAAP: Generally Accepted Accounting Principles
GAAS: Generally Accepted Auditing Standards
IIA: Institute of Internal Audit
INTOSAI: International Organization of Supreme Audit Institutes
ISSAI: International standard of supreme audit institution
OECD: Organization for Economic Cooperation and Development
OFAG: Office of the Federal Auditor General
PSOs: Public Sector Organizations
ROSC: Reports on the Observance of Standards and Codes
SAI: Supreme Audit Institute
SPSS: Statistical Package for Social Sciences
VIF: Variance Inflation Factor
xiv
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
In order to harmonize the auditing activities of the world the International Auditing and
Assurance Standards Board (IAASB), under the International Federation of Accountants (IFAC)
sets highly-quality auditing and assurance standards to enhance the consistency of auditing
practice throughout the world there by strengthening public confidence in the global auditing and
assurance profession [ CITATION Del19 \l 1033 ].
The International Standard on Auditing (ISA) number 200 says the purpose of audit is to
enhance the degree of confidence of intended users in the financial statements. There is an
agency relationship between owners and management. Managers who deal with the day to day
activities are agents of owners who are not involved in the activities of a company. Agency
theory based viewpoint states that audited financial statements are a watching mechanism to
deliver users assurance of financial information. There are also other users of the audited
financial statements apart from the owners, government, investors, creditors, customers, banks.
All these users rely on the audited financial statements [ CITATION Bar19 \l 1033 ].
Audit implementation is a complex subject and there is no definition or analysis of it that has
realized universal recognition. As per International Auditing and Assurance Standards Board
(IAASB) view audit implementation is likely to be achieved when auditor’s opinion on the
financial statements can be relied upon as it was centered on appropriate & sufficient audit
evidence acquired by an engagement team that:- exhibited appropriate values, ethics and
attitudes, was sufficiently knowledgeable, experienced and had sufficient time allocated to
perform the audit work, applied a rigorous audit process and implementation procedures, and
provided valuable and timely reports and Interacted appropriately with a variety of different
stakeholders [ CITATION IIA12 \l 1033 ].
In regard to the way in which accountancy regulations are performed, many developing countries
have implemented the accounting systems from other countries, possibly because they have been
1
colonized & inherited systems were in use before gaining their independence [CITATION Bag012 \l
1033 ]. Furthermore, [CITATION Bag012 \l 1033 ] have highlighted that most developed countries
tend to be reluctant to adopt accounting and auditing standards from other countries, since these
developed countries are often affected by their own internal factors (i.e. level of the national
economy, accounting and auditing stakeholders, legal system, and culture). On the other hand,
developing countries tend to be more affected by external factors (i.e. colonial ties, the
internationalization of world trade and stock markets). Furthermore, despite the benefits of the
International Standards on Auditing, the implementation of these standards by any country may
be inadequate if that implementation is not supported by a proper plan to include the provision of
education and training to ensure that accounting and audit professionals have the knowledge and
ability to apply these standards.
Audit may be affected by numerous factors which can be simply divided into the auditor
qualifications and auditing process powers (HUSSEY et al., 1997). According to present
literatures auditing standard is affected by professional competence, audit Independence, due
professional care, Support of audited entities and stakeholders, internal control, planning &
supervision, appropriate & Sufficient audit evidence, the report should in accordance with
Generally Accepted Accounting Principle, Informative disclosure, the report should identify
circumstances of principles have not been consistently observed the current period in relation to
preceding period, and audit opinion[ CITATION Azm16 \l 1033 ].
The importance for the implementation of audit standards can be viewed as: strengthen reliable
information for the proper management and administration of the budget of the government,
ascertain the receivable and payable money, property of the government preserved and used
properly in accordance with the laws and regulations of government, make efforts in cooperation
with concerned organs to promote & strengthen accounting and audit professions, carry out or
cause to as may be necessary, program and efficiency audit or financial audit, issue directives in
cooperation with other concerned entities regarding accounts and proper auditing procedures and
standards. If the audit standards are not applied, the consequences will be: miss-use of the public
fund, the profession will demote and doesn’t go at the right direction, the Auditor General will be
toothless lion, loss of public trust & confidence, government external Auditor’s will involve
2
themselves in to money negotiation, expansion of corruption and violations of government rules
and regulations [ CITATION Wil141 \l 1033 ].
1.2 Statement of the Problem
The perception of the users of financial statements on independent government external auditors
report is declining after the auditor’s involvement in major scandals. The notable scandals in US
include big companies like Enron and World Com. The Enron scandal results the dissolution of
itself and the auditors of Enron i.e. Arthur Anderson, one of the Big Five Auditors worldwide.
Other main scandals contain International Crossing & Cendant Sunbeam (US), Self-governing
Insurance, Equitable Life, Maxwell (UK), Metallgesellscheft (Germany), & Lever Brothers,
African Petroleum, Cadbury, Savanna Bank, International Bank (Nigeria) [ CITATION Jam141 \l
1033 ].
In Ethiopia there are no reported scandals that involve auditors’ but with the increasing number
of governmental external auditor’s and the increasing number of business companies the studies
should be conducted on audit implementation to tackle or minimize similar scandals. It’s not
questionable the audit practice should be performed and implemented based on the audit opinion.
Whether they are government, not-for-profit or profit organizations all need an implementation
based on the audit standard. All of them have different stakeholders: government, taxpayers,
donors, investors and a high-quality audit is essential for systematic and objective assessment of
the auditee’s financial statement (Jenna et al., 2019).
Although,[ CITATION Mat13 \l 1033 ], [ CITATION Mes151 \l 1033 ] of their study on Kenya, Nigeria
and Pakistan SAIs respectively, concluded that on these countries the effectiveness of the audit
institutions is questionable due to several problems. The problems that pointed out like the
pressure from political powers to distort audit reports, lack of sufficient and competent
professional staff, lack of resources, lack of parliamentary/legislative and government executive
support and inadequate remuneration to attract and retain experienced audit staff weaken or
sometimes completely hinder the effectiveness of the institutions.
However the audit profession in Ethiopia has the blatant features. First, the numbers of
professional auditors’ are low compared to the size of the economy. Second, there is no strong
3
professional alliance. Third, the Ethiopian Professional Association of Accountants’ & Auditors’
has no legal patronage and not member of the International Federation of Accountants. Fourth,
the country has no worth assurance programs for Auditors. Fifth, there is no legal requirement
exists for auditors’ to have professional indemnity insurance. Sixth, international audit firm
networks are not present in the country. Seventh, the political influence on the audit findings for
the implementation of audit standards has a negative impact [ CITATION Wor17 \l 1033 ].
Largely there is no accounting and auditing standards established in Ethiopia. For accounting
Standards, there is no law or regulation that has established or involves accounting standards in
Provision of financial statements. Some laws require GAAP to be applied. However, in all cases,
GAAP is not defined. For auditing standards, According to the year 2003, Office of Federal
Auditor General (OFAG) directed all auditors to conduct audits in compliance with ISA. Still,
the directive met resistance from auditors. One of the arguments for resistance by the auditors
that is impossible to apply ISA in the absence of accounting standards. The directive
subsequently withdraws, every auditor determines their own standards, in the absence of
practical authoritative guidelines, auditors use their knowledge and best endeavors in conducting
audits. Some apply ISA, while others apply generally accepted auditing standards, so there are
no set penalties for noncompliance with the requirements on accounting and financial reporting
which affects auditing. In the commercial code, there are no penalties for noncompliance with
provision for keeping accounting records, preparing financial statements, or filing and
publication of the financial statements ( ROSC, 2007). These problems were results poor quality
audits, limited number of audits, and delays in the release of audit reports, those are the factors of
effective implementation audit standards.
Taking these considerations into account, this study were tried to identify the factor affecting
effective implementation of government external audit standards in Ethiopia and specifically in
Amhara National Regional State Office of Auditor General (ANRS OAG), how professional
competence, independence of audit office & auditors, audit planning & supervision, appropriate
& sufficient audit evidence and staff turnover can affect effective implementation of government
external audit standards.
As per the researcher‘s knowledge, there is no adequate studies in this topic for the study area.
4
The basic reason is this study basically aimed to identify the explicit factors, from the listed
literature findings, which may influence the study areas. And to recommend the ways for solving
problems identified.
1.3 Objectives of the Study
1.3.1 General Objective
The objective of this research is to identify factors affecting effective implementation of

government external audit standards in Amhara National Regional State Office of Auditor
General (ANRS OAG).
1.3.2 Specific Objectives
In order to address the above general objective, the following specific objectives are developed;
1) To examine the effect of professional competence of auditors on effective

implementation of government external audit standards.
2) To investigate the effect of independence of audit office & auditors on effective
3) To assess the effect of audit planning & supervision on effective implementation of
government external audit standards.
4) To test the effect of appropriate & sufficient audit evidence on effective implementation
of government external audit standards.
5) To determine the effect of staff turnover on effective implementation of government
1.4 Hypothesis of the study
In light of the objectives articulate above, the following hypotheses were investigated:-
H1: Professional competenc of auditors have positive significant effect on effective

Implementation of government external audit standards.
H2: Independence of audit office & auditors have positive significant effect on effective
H3: Audit planning & supervision has positive significant effect on effective implementation
Of government external audit standards.
5
H4: Appropriate & sufficient audit evidence has positive significant effect on effective
H5: Staff turnover has significant influence on effective implementation of government
1.5 Significance of the Study
The importance of this study was mainly for the government external audit industry in Amhara
National Regional State (ANRS). This study was use as an input to Amhara National Regional
State Office of Auditor General (ANRS OAG). The office may be able to learn some lessons and
build some corrective measures for the weaknesses based on the effective implementation of
audit standards that were be forwarded.
The study was also giving information to external auditors’ about the effect of the variables on
the implementation of auditing standards. Furthermore, the study was creating awareness to the
audit office stakeholders particularly the auditors’ about the determinants of the SAI of the
region to take corrective actions on those problems.
Finally, the study were used as an initiation for those who are interested in further studies on the
effective implementation of auditing standards and it may serve as reference for future
researchers.
1.6 Definitions of significant Terms

For the objective of this study, the following terms were defined as follows:
Auditor General: - refers to a person who heads the Regional Audit Office and reports back to
the regional council on the audit of government departments and agencies.
Auditing Standards: - provide minimum guidance for the auditor that helps determine the
extent of audit steps and procedures that should be applied to fulfill the audit objective. They are
the criteria or yardsticks against which the qualities of the audit results are evaluated.
Effective: - is something that is able to achieve a desired outcome or end result.
External Audit (EA):- It is the type of audit which is conducted by an external audit body i.e.
external to the organization. It is the examination by an independent third party of the financial
6
statements of the organization. It results in the publication of an independent opinion on whether
or not those financial statements are relevant, accurate, complete, and fairly presented.
Generally accepted auditing standards (GAAS):- are a set of principles that auditors follow
when reviewing a company's financial records. GAAS helps to ensure the accuracy, consistency,
and verifiability of an auditor' actions and reports.
Implementation: - referred to the process of setting audit standards made by the office of
ANRS Auditor General’s into action by responsible officers.
International standards of audit (ISA):- refer to professional standards dealing with the
responsibilities of the independent auditor while conducting the financial audit of financial info.
These standards are issued by International Federation of Accountants (IFAC) through the
International Auditing and Assurance Standards Board (IAASB).
Supreme audit Institutions (SAI):- key government agencies responsible for auditing how
public funds are being spent have been traditionally seen as insulated and tech nocratic entities
serving other government organizations and having little to do with citizens and broader
governance issues.
Reliability: - refers to the level of internal consistency or stability of the measuring device.
Validity: - refers to the appropriateness of an instrument in measuring whatever it is intended to

measure.
7
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 Introduction
This chapter describes the conceptual and theoretical basis for the study. A literature search
undertaken has involved reviewing of applicable documents such as published and unpublished
materials from various sources including internet, audit manuals, books and journals on the
subject under study.
2.2 Theoretical Review
2.2.1 Meaning and Elements of audit
Different scholars have presented many definitions and reasons as to what auditing really means.
Cyasi (2001) cited in [ CITATION Ber16 \l 1033 ]. defined auditing as the independent examination
and investigation of the evidence from which a financial statement has been prepared with a
view of enabling the independent auditor to submit on whether his own opinion according to the
information and explanation obtained by him, the report is properly drawn up and give a true and
reasonable view of that which is supposed to show and if not to report in what respect he is not
satisfied [ CITATION Ber16 \l 1033 ]. From this definition it can be withheld that auditing is the
process of accessing the financial statement of government institutions to which the person
undertaking the task is not a member with the goal of ensuring that these financial statement
were truly prepared from actual records of financial transaction.
The auditing standard (2004), defined as the independent examination of an expression of

opinion on the financial statement of public institutions selected by auditor in representation of
that appointment and compliance with any relevant legal obligation [ CITATION Ber16 \l 1033 ].
8
“Audit is an independent, unbiased judgment of the fairness of management’s representations on
performance or the valuations of administration’s systems and practices, against criteria, reported
to a central body or others with related duties.”(Canadian Comprehensive Audit Foundation,
1991) cited in [ CITATION Ber16 \l 1033 ].
According to [ CITATION RAY03 \l 1033 ] Auditing is concerned with the approval of accounting
data, with determining the accuracy & reliability of accounting statements and reports.
Auditing is an important activity for all types of organizations whether governmental, private for
profit, not for profit or any other. Auditing is a systematic process of objectively obtaining and
evaluating evidence regarding assertions about economic actions and events to ascertain the
degree of correspondence between those assertions and established criteria and communication
the result to interested user (Schwinger, 2005).
Auditing is a systematic process of objectively obtaining and evaluating evidence regarding

assertions about economic actions and events to ascertain the degree of correspondence between
those assertions and established criteria and communicating the results to interested users
[ CITATION COH03 \l 1033 ].
As explained by[ CITATION Luk08 \l 1033 ] government audit aims to ensure accountability of the
executive in respect of public revenue and expenditure. The central objective of an audit is to
permit an auditor to carry an opinion as to whether or not the financial statements of an entity are
set according to an appropriate financial framework.
2.2.2 Auditing in Ethiopia
The process of auditing professionalization in Ethiopia seems to show different Forms

throughout the three periods when the government followed capitalist-oriented (pre 1974),
Socialist (1974 through to 1991), and then capitalist-oriented (1991 onwards) beliefs. This
section surveys the auditing professionalization methods in the Country during the previous
periods (Government of Ethiopia, 1992).
It is seeming from the prior assessment that performance auditing in a basic intellect was
happening for the government system of Ethiopia in the early 20th century clarifies that the
contribution of distant consultants to the sovereigns of Ethiopia throughout the historical since
the 1890s through to the 1970s led to the issuance of government rules and declarations. Some of
9
the proclamations & regulations continue to define or at least strongly influence the legal basis of
accounting & audit practice in Ethiopia to this date. Examples include the 1960 Commercial
Code of Ethiopia (Government of Ethiopia 1960), the Audit Commission Proclamation of 1944
(which was the foundation for the Auditor General proclamation of 1961), and the Audit Service
Corporation (ASC) Proclamation of 1977 (Government of Ethiopia, 1977).
In deliberating the involvement of distant advisors to the expansion of accounting in Ethiopia,

Kinfu (1990) reflects as early charities the character of advisors during the Structure of the
Ethio-Djibouti railway in the 1890s and of the legal, military, and foreign affairs advisers in the
1930s. The writer then features expansions of accounting from 1934 to the early-1970s to the
Anglo-American legal and financial advisors to Emperor Haile Selassie I (1928-1974).
This was monitored by the creation of the Audit Commission by Proclamation No. 69/1944 to
assume external audit of accounts of the Ministry of Finance (Government of Ethiopia 1944),
which was subsequently mandated to conduct external audit of other budgetary institutions as
well. This inscriptions the start of today’s Office of the Federal Auditor General of Ethiopia
(OFAG), which, between other responsibilities, displays and controls the accounting & auditing
profession in the country. In around the identical time frame, the Ethiopian Highway Authority
and Ethiopian Airlines remained well-known. In addition, the Ethiopian Telecommunications
Corporation and the Ethiopian Electric Light and Power Authority became autonomous state-
owned enterprises. These phenomena led to involvement of foreign companies as partners,
financiers or consultants to the Ethiopian state-owned enterprises. As a significance of the
development of demand for skilled manpower in accounting and auditing up to the first-1940s,
the Addis Ababa College of Commerce was recognized in 1943. The Colleges of Business were
then established at Addis Ababa University in 1963 and Asmara University in 1969. These
organizations have frolicked vital part in the expansion of the accounting and auditing profession
in Ethiopia by creating trained manpower (Argaw, 2000a; Kinfu, 1990).
Restrictions that maybe forced the code’s involvement to the expansion of accounting and
auditing in the country embrace that it does not: (a) specify the accounting standards to be
followed in financial reporting; (b) define the qualifications of an auditor; (c) require compliance
10
With professional standards on auditing; or (d) impose an audit requirement upon private limited
companies with less than 20 members (World Bank, 2007).
From 1974–1991 following a revolution, a military government with a communist ideology took
power in Ethiopia in 1974. Subsequently, private companies were nationalized & the number of
state owned enterprises in the country increased. As a result of these changes, international
public accounting firms, i.e., Price Water house Peat & Co. & Mann Judd & Co. Closed their
Ethiopian branches. However, creation of the Audit Service Corporation (ASC) (Government of
Ethiopia 1977) to bearing external audit of public enterprises was a significant milestone in the
history of accounting & auditing in this period. This growth was a consequence of the
requirement to fill the gap created by the closure of global accounting firms.
Furthermore, internal audit as a separate function appeared during this period (in 1987) when the
Auditor General was mandated by Proclamation No.13/1987 to monitor and regulate internal
auditing in government offices and state-owned enterprises. This proclamation also gave the
auditor general the authority to issue minimum requirements for recruitment of internal auditors,
provide training to internal auditors, and entail reports on internal audit of administration
establishments As this period is largely measured as a time when the development of accounting
and auditing was directly or indirectly forced, imperfect successes were made in terms of
advance of audit profession.
Post 1991: Post 1991 was a dated when Ethiopia moved posterior to a free-market economic
scheme later existence organized as a command economy for seventeen years. This shift led to a
number of public enterprises being privatized. The subsequent new business authority assembly
in the private sector would be predictable to improve the significance of financial reporting and
external auditing. Revolution of government and the type of administration incline to be vital
effects on the development of the accounting and auditing profession in Ethiopia. The free-
market system has been considered as one of the signals of hope for a better future for the
accounting and auditing profession. Proclamation No. 7/1992 of the transition period has laid
down the basis for the establishment of regional SAIs. The proclamation gives the right and
power for regions to establish the Audit and Control Office. Therefore, after the overthrow of the
Military regime in1991 (1983 E.C.) and the establishment of a Federal State Structure, the whole
arrangement of government auditing structure changed, and relevance to this duties and
responsibilities were separated in to the Federal and Regional audit institutions (Tadele D, 2012).
11
Following this Law, the government of ANRS has taken a positive step and established the
regional external audit office based on the region’s constitution of Article 11 sub article (1-4).
Based on this, proclamation No 6/1993 was enacted to establish the ANRSOAG. Latter on this
proclamation was ammended in 2003 & 2011 by proclamation numbers 186/2003 and 267/2011
respectively. The office has been established as an autonomous and oversight organ to prevail
accountability, transparency, sound financial administration, good governance and elimination of
wastage and inefficiency in public sectors of the region [ CITATION ANR11 \l 1033 ].
2.2.3 Auditing in the Public Sector
Auditing is an important element of the public institutions’ management because of the public
control that grows bigger and bigger as municipalities are getting more and more responsibility
(Shlomo & Idit, 2007).
Auditing is an important function to Public Sector Organizations (PSOs) as it supports the

governance roles of PSOs in respect of oversight, insight and foresight as explained below:
[ CITATION Ber162 \l 1033 ].
Oversight: - Auditing assists decision makers in exercising oversight by evaluating whether PSOs
are doing what they are supposed to do i.e. using resources for the intended purposes/objectives,
complying with laws & regulations, designing & implementing effective internal control systems
to minimize risks etc.
Insight: - Auditing provides insights to PSO management team with areas which need
improvements in their day to day managerial functions. Example, advance in internal control
systems, authority methods etc.
Foresight: - Auditing helps PSOs to look forward by identifying trends and bringing attention to
emerging challenges before they become crises. Through risk based audit approaches, auditing
identifies potential risks such as possible occurrence of frauds, thefts, etc.
By focusing on foresight, auditors play a key role in helping PSOs to understand, initiate and
implement risk management systems which provide assurance for successful achievement of
objectives. Overall, through these roles, auditors protect core PSO’s values. They further help in
ensuring that PSO officials conduct their responsibilities or work transparently, fairly & honestly
12
with equity and probity. Largely the part of government auditor is to care the authority
accountabilities of oversight, insight, and foresight oversight statements whether government
entities are doing what they are supposed to do & serve to identify and prevent public corruption
[ CITATION Ber162 \l 1033 ].
2.2.4 Type of audits
As it is described by Arens et al., (2012) Audits are mainly three typs; which are financial audits,
compliance audits and operational/performance audits.
Financial Statement Audit:- It is conducted to determine whether the overall financial

statements/the information being verified/ are stated in accordance with specified criteria like
GAAP.The financial statements most often included the statements of financial positions,
income statement and statement of cash flows. In determing whether financial statements are
fairely stated in accordance with the criterias, the auditor performs appropriate tests to determine
whether the statements contain errors or misstatements. As operations of auited entities increase
in complexity, it is no longer sufficient to focus narrowly on accounting transactions. The auditor
must have a thorough understanding of the audited entity & its control environment. This
includes knowledge of the audited entity’s regulatory and operational environment, the work
flows & the general internal control systems. Knowledge of the audited entities helps the auditor
to assess & identify risks that may affect the fair presentation of financial statements.
Compliance Audit:- It’s purpose is to determine whether the audited entity is following specific
procedures, rules and regulations set by some higher authority. In the audit of governmental
units, there is considerable compliance auditing because of the extensive regulation by higher
government authorities. Management of the audited entities, as opposed to outside users, is the
primary group concerened with the extent of compliance with certain prescribed procedures and
regulations.
Operational Audit/Performance Audit:- conducted to review an organizations operating

procedures and methods for the purpose of ensuring economy, efficiency and effectiveness. The
reviews are not limited to accounting. They can include the evaluation of organizations structure
and operations. It is more difficult than the audits of finance and compliance. This is because
efficiency and effectivness of operations are far more difficult to evaluate objectively than
13
compliance or the presentation of financial statements in accordance with specified criteria like
GAAP. In addition, establishing criteria for evaluating the information in performance audit is an
extremely subjective matter. In this sense, performance auditing is more like management
consulting than what is generally regarded as auditing.
2.2.5 Types of Auditors
According to Robert & Herbert (1999) and INTOSAI Lima Declaration (ISSAI 1) audit activates
and auditors are generally classified into the following ways:
Internal Auditors: are employees of the organization being audited but who are independent of
the activities that they audit. Internal auditors evaluate and provide reasonable assurance by
evaluating whether the internal control systems of an organization are implemented as intended
to allow the organization’s goals to be met. They are accountable to the head of the organization.
External Auditors: External audit is the process by which the annual accounts of public and
private sector bodies are subject to external examination to provide independent assurance that
they have been prepared in accordance with relevant legal and professional standards and give a
true and fair view of the financial performance and financial position of the audited entities.
These may be:
a) Private External Auditors: are independent contractors and are primarily engaged to ensure
the reliability of financial information provided to investors, creditors, and other third parties.
b) Government External Auditors; are indepndent auditors who report to a Parliament on the
audits conducted on the various operating units within the government organizations.
2.2.6 Auditing Standards
There are several auditing standards that are applied throughout the world, such as for example,
the ISAs as previously mentioned. In the US, the generally accepted auditing standards are the
US-GAAS, as well as local (national) standards. Such standards have numerous purposes such as
to assist auditors in performing their jobs, to promote consistency, and to serve as the first step in
ensuring the quality of audits. Additionally, they aim to define the role of audit, providing a
method for judging performance, and providing assistance in terms of what should be included in
the education of auditors (Francis et al., 2009; Burns & Fogarty, 2010).
14
(Bradshaw & Miller, 2008) point out that financial statement have gained more credibility since
the use of recognized international auditing standards, as investors believe they can be more
confident in their decision-making. Nevertheless, in some countries there is insufficient expertise
amongst auditors to implement these standards, & consequently, the local standards are still used
in preference.
Baker et al., (2010) indicate that since the late nineteenth century, many countries have tried to
improve the quality of auditing by introducing new legislation to promote the professionalism
and independence of auditors, and generally to improve the code of conduct associated with this
aspect of financial work.
(Simunic et al., 2014) state that the audit standards aims at improving the validity & reliability of
the financial statements. The Public Company Accounting Oversight Board (PCAOB) upholds
external auditing standards for public companies (issuers) recorded with the Securities and
Exchange Commission (SEC).
As of 2012, PCAOB has 15 enduring standards accepted by the SEC and a number of
provisional standards that reproduce generally accepted auditing standards, as defined in
standards conveyed by the Auditing Standards Board (ASB), which is portion of the American
Institute of CPAs (AICPA). The ASB also concerns Statements on Auditing Standards (SASs)
that spread on to formulating and discharging audit reports for non-issuers (companies not
essential to record with the SEC). AICPA members who audit a nonissue are vital by the AICPA
Code of Professional Conduct to fulfill with these standards. In place of 2012, there are more
than 60 active standards.
2.2.7 Users of External Audit Report

Auditors are mostly and finally agreed by the shareholders and report to them right or via the
audit committee (or its equivalent) and others charged with governance. Though, various
companies audited financial statements, and mainly public companies are on public record. The
following are users of audit report with their needs (framework for the Preparation and
Presentation of Financial Statements, 2014).
Investors:- The providers of risk capital and their advisers are concerned with the risk inherent
in, and return provided by, their investments. They want evidence to help them control whether
15
they should buy, hold or sell. Stockholders are also concerned in evidence which enables them to
evaluate the capability of the entity to pay dividends.
Employee:- Employees and their representative groups are interested in information about the
stability & profitability of their employers. They are also concerned in evidence which allows
them to evaluate the ability of the entity to deliver payment, leaving benefits and employment
chances.
Lenders:- Lenders are involved in evidence that permits them to control whether their loans, and
the interest attributing to them, will be paid when due.
Suppliers & other trade creditors:- Suppliers & other creditors are interested in information
that enables them to determine whether amounts owing to them will be paid when due. Trade
creditors are probable to be involved in an entity over a dumpier dated than investors if they are
reliant upon the continuance of the entity as a foremost customer.
Customers:- Customers have an interest in information about the continuance of an entity,

especially when they have a long-term involvement with, or are dependent on the entity.
Governments and their agencies:- Governments and their agencies are interested in the
allocation of resources &, therefore, the activities of entities. They also need information in
directive to control the activities of entities, govern taxation policies & as the base for state
income and related figures.
Public:- Entities affect members of the public in a variety of ways. For instance, entities may
make a considerable influence to the native cheap in many ways counting the number of people
they employ and their support of native suppliers. Financial statements may contribution the
public by provided that information about the tendencies and new expansions in the wealth of the
entity and the variety of its activities.
To increase credibility of audit for the intended users & since the profession is coming under
increased scrutiny due to high profile audit failures like Arthur Anderson (auditors of Enron)
standard setters & regulators of the profession have tried to introduce three initiatives. 1.
Harmonization of auditing procedures, so that users of audit services are confident in the nature
of audits being conducted around the world. 2. Focus on audit standard, so that the expectations
of users are met. 3. Adherence to a strict ethical code of conduct, to try and improve the
16
implementation of auditors as independent, competence, & due professional care to the providers
(IASB & FASB, 2005).
2.2.8 Generally Accepted Auditing Standards (GAAS)
Audit standards are guidlines to aid auditors to fulfill their professional responsibilities.
They include professional qualities such as competence & independence, reporting requirements
and evidence (Arnes et al., 2005).
According to AICPA (1947) cited in Arnes et al.(2005) there are 10 generally accepted auditing
standards which are categorized in to three as General standards, Fieldwork standards and
reporting standards.
Therefore, these GAAS are stated as follows;
a) General Standards
i. The audit is to be performed by a persons having adequate technical training and
proficiency as an auditor.
ii. In all matters relating to the audit, independence in mental attitude is to be maintained.
iii. Due professional care is to be excercised in the planning and performance of the audit
and the preparation of the report.
b) Standards of Fieldwork
i. The work is to be adequetly planned.
ii. A sufficient understanding of internal control is to be received to plan the audit and to
determine the nature, timing and extent of tests to be performed.
iii. Sufficient and competent evidence is to be obtained through inspection, observation,
inquiries and conformation to forward reasonable audit opinion.
c) Standards of Reporting
i. The report shall state whether the financial statements are presented in accordance with
established criteria.
ii. The report should identify those issues in which such criterias have not been consistently
observed in the current period in relation to the preceding period.
iii. Informative disclosures are to be regarded as reasonably adequate unless otherwise
stated in the report.
17
iv. The report shall either contain an explain of opinions includeding the statements, taken as
a general or an assertion to the effect that an opinion cannot be explined.
2.2.9 Role of Government External Auditing in Public Finance Management

Government auditing is a basis of good public sector governance. Auditing activities of SAIs
should be protected from any intervention of executive branch of government which would make
use of audit reports of the institutions in strengthening public financial management. SAIs can
fight corruption in public organizations and they can contribute in safeguarding the interest of the
general society by ensuring the effective utilization of public resources (IIA, 2006).
[ CITATION Nos99 \l 1033 ] cited in Matendera (2013) also explained that government auditors
conduct a variety of audits for the purpose of fulfilling the goals and objectives of public
financial management. Auditing in government organizations supports to ensure good
governance; it also acts as a supervisory body and guardian against theft or illegal waste and
practices.
2.3 Empirical Study

2.3.1 Review of Empirical Studies on Factors Affecting Effective Implementation of
Audit Standards
In the following paragraphs the researcher like to show the empirical studies on implementation
of audit standards.
In Pakistan, confidence of the overall public in government is feeble as of different scandals of

government entities underlined by government auditors. Conferring to corruption Index (CI)
2012 set by transparency Global, CI scores of Pakistan 27, New Zealand 90, Canada 84,
Australia 85, UK 74, China 39, India 36, Afghanistan 8, North Korea 8 which shows that scores
nearer to 100 are less corrupt, comparatively Pakistan is one the most corrupt country because of
lack of accountability and proactive supervision. So, this phenomenon leads our attention to the
implementation of the audit standards.
The government collects revenue from people in the form of taxes, and those taxes are planned
and allocated in the form of budget in Parliament, who is representative of the public. Parliament
assigns that budget to different ministries, e.g. training, diet, law, service sector; transport,
command expansion, sheltering and trade deliver services to the public at their best. These
18
ministries exertion as the agent of parliament because they use public funds on behalf of
Parliament. In order to ensure that they are working economically, effectively and efficiently, the
Parliament appoints auditors as watch dogs to evaluate performance of those ministries and to
make them accountable for the proper appropriation of public money. Government auditors have
to bring accountability, transparency and good governance to manage public funds (IFAC,
2013). As per researcher’s knowledge, no prior research is conducted to explore factors which
affect effective implementation of government external audit standards to achieve their goal.
Issues and problems faced by government auditors in Western and Asian countries serve as a
basis for this study (Katou, 2010). In addition to it, nonexistence of qualified staff and properties
hindered operational of government auditors.
In the United States, the characteristics of the audited firm and proficiencies of auditors
positively affected audit effectiveness (Irena Macerinskien, 2008).
In Estonia, government auditors were deprived of human resources & sufficient time to complete
audit. Top level management was not committed to support auditors. Political interferences to
change audit reports were high. On Cayman Island, government auditors hurt from nonexistence
of social, economic, informational and public services resources. Considerable postponements in
advancing reports for attention to parliament & partial independence of government auditors as
main issues, not only faced by Cayman Island but other four countries St Lucia, Trinidad and
Tobago, Jamaica and Montserrat (Tsui, J.S.L, 2010).
In Israeli settings, advertising & job expansion occasions, top management provision for
auditors, free from political interventions increased auditor’s competence to conduct effective
audit. Research works in Bangladesh exposed that audit group; characters of the auditee and
auditor, planning on how much audit was succeeding approvals were main pointers of audit
success. The extent of the auditor’s duties, operational independence, funds handling capacity,
degree of national accountability and up to date auditing standards were determinants of
effective public audits in Indonesia (Tsui, J.S.L., 2010).
In Turkey, autonomy of government auditors, capacity for further investigations on suspected
cases and competency to take actions against malpractices was key performance indicators of
audit quality (Tsui, J.S.L, 2010).
In Ghana, independence of government auditors, resource availability, audit’s cooperation,
relations & involvement with stakeholders, audit evaluation criteria and conformance to auditing
19
standards was determinants of audit implementation. In the Gauteng region of South Africa,
independence of government auditors, appropriate suggestion of audit reports to government,
follow up of recommendations, collaboration of audit parties, effective audit opinion, advanced
auditing procedures & experienced audit staff were the main success factors of public audit
implementation. In Latin America, considerable significance was cited on the connection among
civil contribution and effectiveness of government audits. General public must participate in
whistle blowing activities to detect frauds (Tsui, J.S.L, 2010). Generally, government auditors in
Greece, Ireland, Netherlands, Slovakia & the Czech Republic, Poland, Ireland and Hungary did
not have full financial independence, whereas these European Union countries have operational
independence (Irena Macerinskien, 2008).
Mansouri et al., 2009 researched on Audit Competence and Audit implementation. Their
objective was to see the relationship between audit competence and audit implementation in
Iranian environment.
Matendera (2013) on the survey of factors affecting performance of Kenyan National Audit
Office concluded that although the Constitution of Kenya provides for the independence of the
Auditor General Office, there is more that needs to be done for the audit to be able to realize
such independence and supremacy in reality. The resercher stated that the existing regulatory
framework needs to be revised to include provisions such as giving of prosecutorial powers to
the Audit Office because currently the office is rendered a watchdog institution without any
power. The findings of study also revealed that the public audit institution needs to enhance the
proficiency of the staff & minimize turnover so as to foster implementation of audit standards.
Akhidime & Ozedonmi (2012) on their study findings on the problems of the Auditor General
of Nigeria stated Several challenges at varying degrees of severity are revealed to confront,
weaken or sometimes completely hinder the effective performance of the Auditor General of the
Nigeria, notably in the areas of capacity building, independence and effectiveness against
corruption, parliamentary/legislative and government executive support.
Gideon & Zinyama (2012) on the study of auditing government Institutions in Zimbabwe
indicated that the challenges facing the office of the comptroller and auditor general are sever in
nature & need urgent government attention if government is committed in restoring and adhering
to principles of prudent financial management & control of public funds and state property. They
20
concluded matters related to the independence of the audit office, executive response to audit
reports, high turnver professionals & capacity gaps of the auditor general needs improvement.
Most of the variables are positively related with ineffective government audits. Lack of financial
resources, limited time available for the audit, lack of human resources, restricted access to the
records of audited, lack of technological resources, ineffective training institutes, lack of
qualified trainers, massive corruption, use of manual auditing techniques, lack of power to
recommend audited and take actions against malpractices, lack of financial independence,
demotivated auditors are positively related with ineffective government audits. After that, lack of
financial resources, limited time available for audit and low morale of government auditors is
strong antecedents behind ineffectiveness for the implementation of government audits (Irena
Macerinskien, 2008).
2.4 Rationale of the Study
In general, as it is stated in the empirical literature part above, researchers conducting research
on SAIs in different countries pointed out the problems of SAIs in their respective countries.
The results mainly focused on the problems of the professional competency, independence, audit
planning & supervision, appropriate & sufficient audit evidence and staff turnover of the audit
institutions in terms of resource, administrative and legal issues.
In Ethiopia, although [ CITATION Get12 \l 1033 ] and Lukas (2008) tried to study the issue of
external auditing in OFAG, they advocate further study on this topic due to the shortage of
empirical findings & literatures in the country.
Lukas (2008) in his study on OFAG tried to state the problems that auditors are facing in each
audit phases & audit working papers. He mainly focused on the technical aspects of the problems
in the planning, fieldwork and reporting phases. The extent of Implementation government
external audit standards is also possibly associated with country & organizational level. This
means, countries (even regions) have different systems, rules, attitudes and working
environments. Thus, researchers were conducted in one area may not fully implement the other
one. It is in light of the above reasons were led the researcher keen interest to conduct a research
on the issue of professional competence of auditors, independence of the audit office and
auditors, audit planning & supervision, appropriate & sufficient audit evidence and staff turnover
21
are identified as factor’s affecting effective implementation of government external audit
standards to test and were describe their degree of influence by using evidence from ANRSOAG.
2.5 Summary of Literature Review & Research Gaps
This chapter reviewed literatures on Theoretical Review, Meaning and Elements of audit, types
of audit, types of auditors, auditing in the public sector, auditing standards, users of external
audit report, GAAPs, external audit implementation, & rational of the study. It also reviewed
empirical studies both done in and out of Ethiopia on audit standard implementation. It also
identified the knowledge gap that the study were be tried to fill. And finally it identified the
various variables that were used in the empirical studies that have effect on audit implementation
and also the variables used for the study. In general, from the empirical studies effective
implementation of government external audit standards are done outside Ethiopia and those
standards are not fully Practice in Ethiopia and they are limited to few variables. This paper were
attempted to fill this knowledge gap by using many variables.
2.6 Effective Implementation of Government External Audit Standards Framework
As indicated in the literature, Beyashe (2008) point out from Challenges Faced by Ethiopian
Government Auditors point of view: Lack of independence, Difficulty in collecting the necessary
data for audit and Lack of motivation can affect government public auditors in discharging their
responsibilities, Turnover of professionals that affect competency, proper planning and
supervisions of the audit work.
Based on this the following conceptual frame work has been developed to guide this particular
study.
Independent Variables Dependent Variable
 Professional competency of auditors
 Independence of audit office & auditors Effective Implementation of

 Audit planning & supervision government external audit
standards
 Appropriate & sufficient audit evidence22
 Staff turnover
Source: Researcher own construction based on literature review
Figure 2.2: Conceptual framework
CHAPTER THREE
RESEARCH METHODOLOGY OF THE STUDY
3.1. Introduction
This chapter presents the methodology that would be used to collect & analyze the data required
to describe the participants and answer the research objectives. The discussion includes the
research design, participants of the study, data collection, and data analysis according to the
objectives and hypotheses of the study.
3.2 Research Design
Various scholars have defined research design in different ways that attempt to say that research
design is a comprehensive plan and procedure that provides answer to the research questions.
According to (Brown et al., 2003) research design that holds the research project together.
A design is used to structure the research to show how all of the major parts of the project, which
include the samples or groups, measures, treatments or projects, and methods of assignment that
work together to try to address the central research questions.
Designing a research is making a road map to a study were leads all functions & steps
undertaken. Kothari (2004) defines research design as the conceptual structure with in which
research is conducted; & it consists of the blue print for the collection, measurement & analysis
23
of data. It is also a strategy of describing procedures about sample size, data sources, means of
collection & methods of data processing, analyzing and presenting based on available time &
resources (Kothari, 2004). Explanatory study design using mixed method used to analyze the
data which collected from the employees. The researchers were used descriptive analysis that
describes the independent variables that lead to dependent variables.
A researcher is able to collect the two types of data concurrently, during a single data collection
phase. It offers a study with the benefits of both quantitative and qualitative data. In addition, by
using the two different methods in this approach, a researcher can gain from perspectives the
different types of data or from different levels within the study (Creswell, 2003).
This study also was used explanatory study design to: explaining, understanding, predicting &
controlling the relationship between variables.
3.3 participants of the Study
For the purpose of this study the audit staffs of the ANRS OAG were target. Moreover, in order
to verify the collected data from the staff of ANRS OAG, In the audit office currently there are
231 auditores (including, General auditor & Vice General auditor). Since the population was
small in number no need of sample that means the researcher addressed the entire auditors of the
ANRS OAG.
Regarding the audited entities, as it is indicated in the audited entities master list prepared by the
regional audit office, at the regional level there are about 30 bureaus, agencies and offices. Out
of the 30 audited entities located at the regional level using non-probability purposive sampling,
only 3 has been selected for the verification of the data collected from the regional audit office
through interview. Those 3 audited entities were selected based on the assumptions that the
annual budget they manage and the functions they perform are wide as compared to the
remaining bureaus, offices and agencies; and they are also expected to be audited repeatedly by
the regional audit office.
As a result, the selected 3 government organizations/audited entities located at the regional level
were Bureau of Finance and Economic Development, Bureau of Education & Health Bureau.
Based on this, in each audited entity there is head of the bureau, procurement, finance & property
administration directorate & internal audit directorate.
24
Therefore, in each selected audited entity 3 respondents has been used and the total respondents
were (3*3= 9).
In general, for this study, the sample size taken in total were 240 (i.e., 231 from the auditors of
the Regional Audit Office and 9 from selected audited entities located at regional level).
In addition, data were collected by interviewing general auditor & vice general auditor of the
ANRS OAG, who directly involved in the directing & managing the audit activity of the office.
Participants of the Study
Table 3.1 the composition of the participants is shown below
No Total Sample Size = For For

Types of the participants participants (100% of the Question Inter
participants) naires view
1 From ANRSOAG 231 231 229 2
1.1 General auditor 1 1 - 1
1.2 Vice General auditor 1 1 - 1
1.3 Directorates 4 4 4 -
1.4 Audit managers 17 17 17 -
1.5 Auditors 208 208 208 -
2 From audited entities 9 9 - 9
2.1 Bureau Heads 3 3 - 3
2.2 Finance, procurement &
property admin. directorate 3 3 - 3
2.3 Internal audit directorate 3 3 - 3
Total 240 240 229 11
25
Source: Developed by the researcher (2020)
3.4 Data Sources
To make the study more comprehensive the researcher used both primary and secondary sources
of data.
3.4.1 Primary Data Sources
The primary data sources for the questionnaires were only the auditors of ANRS OAG and semi
structured interviews were the staffs of ANRS OAG (i.e., General auditor, Vice General auditor)
and the selected respondents of audited entities i.e., Bureau head, finance, procurement &
property administration directorate and internal audit directorate.
3.4.2 Secondary Data Sources

The secondary data sources were found from like audit reports of ANRS OAG and other relevant
materials related to this study were used.
3.5 Data Collection Methods
3.5.1 Interviews:
The interview technique of gathering data includes exhibition of oral-verbal stimuli and answer
in terms of oral-verbal answers. This method can be used through personal interviews and, if
possible, through telephone interviews (Creswell J, 2012).
Interviews were use as they allow capturing the perspectives of the selected respondents of
selected staff & audited entities. For the credibility of the research & to explore the issues & get
detailed information on the subject, semi structured interview questions were prepared &
forwarded to the audited entities. Moreover, General auditor & Vice General auditor were
selected for interview purpose. Furthermore, Secondary data were collected from secondary
sources like audit reports, i.e. the annual audit reports of the Regional Audit Office from year
2007 to 2011E.C were used by the researcher.
3.5.2 Questionnaires
The questionnaire is defined as a set of questions for gathering information from individuals
(Johnson & Turner, 2007). A questionnaire is in the form of closed-ended questions was used so
that each item can be analyzed efficiently (Bryman & Bell, 2007).
26
Questionnaires was used because the information that is used can be collected from a sample that
is large & confidentiality in respect of the information collected is upheld & in addition Self-
administered questionnaires are considered cheaper & quicker way to surveying a large number
of respondents. The questionnaire was developed based on the literature reviewed & by
modifying questions from previous researches.
3.5.2.1 Questionnaire Design
Closed-ended questions were used in the survey questionnaires. Closed-ended questions are as
long as multiple-choice answer to the respondents that need the respondents to select the answer
based on the given multiple-choice answer. Hence, this can reduce the amount of thinking and
effort required by the respondents. According to Bryman and Bell (2007) closed questions have
particular benefits: it is cool to practice answers; it increases the comparability of answers, and
marks them cooler to display the connection between variables. Furthermore, closed ended
questions are easy to code and analyze.
On the other hand, the questionnaire was prepared in English languages. The beginning of the
questionnaire includes the introduction, title of the research, & purpose for conduct the research
study. The questionnaires consisted of two major sections. The first section is for acquiring
demographic & personal profile of the respondents and second section of questionnaire consisted
of questions regarding on the subject of effective implementation of government external audit
standards and its determinant factors.
3.5.2.2 Scale of Measurement
Five-point Likert rating scale method of questionnaires were used in this study. The Likert-style
ranking method of survey design allows numerical value to be allocated to cases for cool
measureable analysis.
According to Hair et al. (2010) Likert scales are most appropriate for research designs that use
self-administered surveys, personal interviews, or online surveys. The response scale statements
in the survey questionnaire ranges as 1= strongly disagree, 2= Disagree, 3= Neutral, 4= Agree,
5= strongly agree. For the purpose of the study, respondents were asked to indicate the degree to
which they agreed or disagreed with each statement in every dimension in the questionnaire.
3.5.2.3 Reliability and Validity Test
27
3.5.2.3.1 Reliability Test
A reliability test is required in all research in order to ensure that the results achieved are indeed
reliable. To test for reliability, the researcher first conducted the pilot study to assess the validity
and reliability of the data collected via the research instrument.
Walliman (2001) argues that in the social sciences, the research tools cannot guarantee 100%
accuracy, a point which Sekaran (2003) makes when arguing that the instrument used in the
research must be totally free from bias, & be able to generate firm & consistent results over time
in order to increase the confidence of the goodness of a measure. In these respects, the researcher
implemented test retest during the pilot study and the main data collection process to assess the
stability of a measure. Furthermore, in order to confirm the internal consistency of measures, the
researcher implemented the Cronbach Alpha test, which is considered the most effective way to
assess the reliability of construct measures (Sekaran, 2003).
As stated by (Gliem, 2003), the closer the Cronbach’s alpha coefficient is to 1.0 the greater the
internal consistency of the items in the scale. A Cronbach’s alpha coefficient of at least 0.70 is
considered to be sufficient and acceptable. Among these, to test the reliability of the instrument,
the researcher used internal consistency reliability using coefficient alpha by distributing the
questionnaire to 15 respondents & the result is shown in table 3.2 below.
Table 3.2 Reliability Test of Independent and Dependent Variables
No. of No of Cornbach’s
respondents items Alpha
No Variables of the study
1 Professional competence of auditors 15 5 0.716

2 Independence of audit office and auditors 15 5 0.719
3 Audit planning and Supervision 15 5 0.711
4 Appropriate and sufficient audit evidence 15 5 0.713
5 Staff turnover 15 5 0.760
Effective Implementation of
6 15 5 0.828
Government external audit standards
Source: SPSS Output, 2020
28
From table 3.2 above, the Cronbach’s alpha value for each item is greater than the minimum
requirement 0.70. This shows the responses generated for all of the items used in this study were
reliable enough for data analysis.
3.5.2.3.2 Validity Test
Validity is the degree by which the sample of test items represents the content of test is designed
to measure. The researcher tried to test content validity through distributing questionnaires to 15
ANRS OAG auditors and audit managers and received a need to be added, deleted and other
relevant comments during pilot test. Therefore, the researcher considered the study as suitable
and illustrative. To achieve content validity, an expert panel discussion with my advisors and
four audit managers from ANORS OAG was held to get some comment on the instrument and
make some rearrangement in some questions.
Even most of the Questions prepared in the Questionnaires are customized from Getachew
(2012) and Shewamene (2014) the researcher tasted the content validity.
3.6 Method of Data Analysis
To analyze the data both descriptive and inferential statistics was used. After the quantitative
data‘s were collected, edited, coded and checked to have the required quality, accuracy and
completeness. Then the data‘s were analyzed using IBM SPSS (statistical package for social
science) statistical software programs which provide descriptive outputs. Correlation analysis
was conceded available to establish the power of the connection between variables. The
researcher also used the multiple regression analysis to determine how the predictor variables
explain the dependent variable. This is because there is more than one independent variable that
affects the dependent variable.
3.6.1 Descriptive Analysis
Descriptive analysis is used at the first phase of the analysis which to analyze general
characteristics of the respondents.
The collected data from study population using different sources and instruments would be
summarized by using SPSS version 20 to analyze in terms of descriptive statistics such as
percentages, mean and standard deviation.
3.6.2 Correlation Analysis

29
In this study Pearson’s correlation coefficient was used to analyze the data obtained from the
respondents in relation to the variables of the study & used to analyze the relationships between
the dependent variable (effective implementation of government external audit standards) and
independent variables (professional competence, independence, audit planning & supervision,
appropriate & sufficient audit evidence and staff turnovers).
As a statistical tool, Pearson product-moment correlation used to test relationship and directions
pairs of variables.
3.6.3 Regression Analysis
It was also the third statistical analysis used in this study. Regression is the determination of a
statistical relationship between all explanatory & dependent variable of the study. The basic
objective of using regression equation (model) on this study was to mark the researcher further
effective at relating, accepting, forecasting, and governing the specified variables.
3.7. Model Specification
This research uses the following multiple (Ordinary Least Squares (OLS)) regression model to
examine the impact of independent variables on effective implementation of government
The regression model
EIGEAS = Bo + β1(PC) + β2(IAOA) + β3(APS) + β4(ASAE) + β5(ST) + ε
Where:-
Dependent Variable =
Effective Implementation of Government external Audit Standards (EIGEAS)
Independent Variables =
Professional competence (PC)
Independence of audit office & auditors (IAOA)
Audit planning & supervision (APS)
Appropriate & sufficient audit evidence (ASAE)
Staff turnover (ST),
30
Β0 is the intercept term:- it gives the mean or average effect on EIGEAS of all the variables
excluded from the equation, although it’s mechanical interpretation is the average value of
EIGEAS when the Stated independent variables are set equal to zero. β1, β2, β3, β4 and β5 refer
to the coefficient of their respective independent variable were measures the change in the mean
value of EIGEAS, per unit change in their respective independent variables and ε i = Error term.
CHAPTER FOUR
RESULTS OR FINDINGS
4.1. Introduction
As stated in the prior chapters, the main purpose of this study is to examine the effective
implementation of government external audit standards in Amhara National Regional State
Office of Auditor General (ANRS OAG). ANRS OAG is a SAI of the region that conducts the
external audit service to public organizations. This part of the research discusses the findings
based on the information gathered from the questionnaires, interviews & secondary data by the
researcher. The chapter includes background information of respondents, descriptive analysis
and the statistical methods of analysis i.e., correlation & multiple regression.
4.2 Response Rate
The respondents in this research were staffs of ANRS OAG. A total of 229 questionnaires were
distributed. The following table shows the response rate of the respondents.
Table 4.5 Response Rate
Respondents Questionnaires Returned & usable Returned & Not Returned
31
Distributed (in Rate) unusable (in Rate)
(in Rate)
Staff of 229 220 2 7
ANRSOAG
(100%) (96.1%) (0.9%) (3.0%)
Source: SPSS output data (2020)
As shown in table 4.1 above, Out of 229 questionnaires distributed to the respondents, 220
(96.1%) questionnaires were returned and usable, which is excellent enough. According to
(Davidoff, 2002) there’s no magic figure on response rates. Higher is better: 60% would be
marginal, 70% is reasonable, 80% would be good and 90% would be excellent. The cause that
lesser response rates are challenging is, of course, that people who don’t answer may well be
different from those who do. Low response rates therefore can create sampling bias; the lower
the rate, the greater the risk of such bias. So the analysis was based on 220 respondents’ level of
agreement. Then, the collected data is representative & use to make analysis and conclusions.
4.3 Demographic Characteristics of Respondents
This section provides general background information about the respondents who are
participated in answering the questionnaires of the study.
During data collection the basic characteristics of respondents like sex, age, education level, and
education background and work experience were collected and discussed.
Table 4.5 Demographic Characteristics of Respondents
Table 4.2.1 sex

Sex Frequency Valid Percent Cumulative Percent
Male 152 69.1 69.1
Valid Female 68 30.9 100.0
Total 220 100.0
Sex: As indicated in above, the majority of the respondents 152(69.1%) are male and the
remaining 68 (30.9%) are female.
Table 4.2.2 age
Age Brackets Frequency Valid Percent Cumulative Percent
32
20 -30 97 44.1 44.1
31- 40 93 42.3 86.4
Valid 41- 50 22 10.0 96.4
> 50 8 3.6 100.0
Total 220 100.0
With regard to age: 97 (44.1%) of the total respondents range in the age of 20-30 years which
is followed by 93 (42.3%) that ranges within an age of 31-40 years, 22 (10%) between 41-50
years & 8 (3.6%) greater than 50 years. The age of respondents implies that the audit
professionals in the regional audit office are in their productive age.
Table 4.2.3 Educational Level
Level of qualification Frequency Valid Percentage Cumulative Percentage
Diploma & below 2 .9 .9
Degree 209 95.0 95.9
Valid Master’s degree 8 3.6 99.5
Above masters 1 .5 100.0
Total 220 100.0
Education Level: From the above table, it was established that 2 (0.9%) of the respondent
indicated their level of education as a diploma, 209 (95%) of the respondents stated their highest
education level as Bachelor’s Degree, 8 (3.6%) of the respondents indicated their level of
education as a master’s degree, 1 (0.5%) above masters. This is an indication that the majority of
the respondents focused in this study had a university degree & above as their highest level of
education. This is important for the activity of the office to be effective in performing its duties
and they can contribute more to the Implementation of audit standards.
Table 4.2.4 field of study
field of study Frequency Valid Percentage Cumulative Percentage
Accounting 110 50.0 50.0
Management 69 31.4 81.4
Economics 17 7.7 89.1
Valid
Business edu. 22 10.0 99.1
Others 2 .9 100.0
Total 220 100.0
33
Field of study: As shown in table above, the respondents were composed of from Accounting
110 (50%), Management 69 (31.4%), Economics 17 (7.7%), Business Education 22 (10%) and
Others 2 (0.9%). Here, the majority of the audit professionals of the regional audit office were
studied accounting and management fields which show the good assignment of professionals for
their appropriate job.
Table 4.2.5 Work experience
Experiences Frequency Valid Percentage Cumulative Percentage
< 1 years 17 7.7 7.7
1- 3 years 160 72.7 80.5
4- 6 years 19 8.6 89.1
Valid
7- 10 years 13 5.9 95.0
> 10 years 11 5.0 100.0
Total 220 100.0
Work Experience: The findings of the study established that 17 (7.7%) of the respondents
indicated that they had worked for a period of less than 1 year, 160 (72.7%) of the respondents
indicated that they had worked for a period ranging between 1 to 3 years, 19 (8.6%) of the
respondents indicated that they had worked for a period ranging from 4 to 6 years, 13 (5.9%) of
the respondents had served for a period between 7 to 10 years, and the remaining 11 (5%) of the
respondents had more than 10 years’ work experience. From this one can understand that above
more than half of the respondents has less than 3 years’ work experience. This implies that the
majority of the respondents had less work experience in the audit profession which can affect the
Effective Implementation of audit standards in the audit activity.
34
4.3 Descriptive Analysis of independent variables
In this study four variables (Professional Competence, Independence 0f auditors & audit office,
Audit planning & supervision, appropriate & sufficient audit evidence & staff turnover) were
identified. Descriptive analysis was conducted on the whole data set for variables in order to
understand its nature and types of distribution (average mean and standard deviation) and the
results show in the table.
Table 4.3.1 Descriptive Statistics
Variables N Mean Std. Deviation
PC 220 1.72 . 401

IAOA 220 1.61 . 360
APS 220 1.53 . 364
ASAE 220 1.64 . 369
ST 220 3.41 . 413
EIGEAS 220 1.55 . 362
Valid N 220
The descriptive statistics used are the means and standard deviations. The main purpose of using
this statistical parameter is to interpret the average response rate of respondents for each item. In
order to understand the nature and types of distribution (average mean and standard deviation)
for the study, descriptive analysis has been conducted on the whole data set of variables. The
descriptive results of means and standard deviation were analyzed and ranked 33 in increasing
order for each of the construct. A mean scale of 1.00 – 5.00 was used, with a mean < 3.00
indicating low level of agreement by the respondents, mean = 3.00 indicating respondents are
neutral and mean > 3 indicating high level of agreement by the respondents. The descriptive
statistics results of this study have been presented and interpreted in the following way.
Professional Competence variable have a mean of 1.72 shows that the extent of agreement is
high and standard deviation of .401 that is far from the mean. So, the above level of agreement
35
indicates that most of the activities in the Professional Competence in the audit office not ensure
effective implementations of government external audit standards. Independence 0f auditors &
audit office variable have a mean of 1.61 shows that the extent of agreement is low and standard
deviation of 0.360 shows data point that is far from the mean. So, the above level of agreement
based on response rate of respondents indicates that Independence 0f auditors & audit office not
ensure effective implementations of government external audit standards.
In general Audit planning & supervision have a mean of 1.53 shows that the extent of agreement
is low and standard deviation of 0.364 shows data point were widely spread from the mean. So,
the above level of agreement based on response rate of respondents indicates that Audit planning
& supervision not ensures effective implementations of government external audit standards.
appropriate & sufficient audit evidence have a mean of 1.64 shows that the extent of agreement
is low and standard deviation of 0.369 shows data point were widely spread from the mean
among respondents. So, the above level of agreement indicates that appropriate & sufficient
audit evidence not ensures effective implementations of government external audit standards.
Staff turnover have a mean of 3.41 shows that the extent of agreement is high and standard
deviation of 0.413 shows data point were widely spread from the mean among respondents. So,
the above level of agreement indicates that Staff turnover ensures effective implementations of
Finally, effective implementations of government external audit standards have a mean of 1.55
shows that the extent of agreement is low and standard deviation of 0.362 shows data point were
widely spread from the mean difference among respondents. So, the above level of agreement
indicates that an outcome of effective implementations of government external audit standards is
not a good condition, even though there are not some statements that should be improved.
Therefore, based on the above level agreement the study conclude that the average mean ranged
from 1.53 (Audit planning & supervision) to 3.41 (Staff turnover) which means that the
respondents had positive response towards the constructs being measured. In addition, the
standard deviation for the constructs was ranged between .360 and .413 which indicate a narrow
spread around the mean.
36
Analysis of Secondary Data on Audit planning and Supervision /Follow up/:
The office of auditor general where ensure appropriate audit planning and supervision on the
audit work timely and the audit entities audit opinions quality reduce year to year, the researcher
examined the audit reports of 2007-2011 E.C the office of auditor general.
Table 4.3.2 Analysis of Secondary Data on Audit planning & Supervision
Years
Description
2007 2008 2009 2010 2011
Planned Entities audited by ANRSOAG 139 177 391 268 309
125 163 368 221 262

Entities audited by ANRSOAG during the year.
(90.0) (92.1) (94.1) (82.5) (84.8)
Entities supervised by audit managers during 112 145 341 199 230
the year. (89.6) (88.9) (92.7) (90.0) (87.8)
Entities not supervised by audit managers 13 18 27 22 32

during the year. (10.4) (11.1) (7.3) (10.0) (12.2)
Audit opinions per years.
Entities audited by ANRSOAG during the year. 125 163 368 221 262
Unqualified audit opinion during the year 7 11 9 5 4

(%) (5.6) (6.8) (2.5) (2.3) (1.5)
Qualified audit opinion during the year 115 147 352 206 245
(%) (92.0) (90.2) (95.6) (93.2) (93.5)
Adverse audit Opinion during the year 2 3 3 6 8
(%) (1.6) (1.8) (0.8) (2.7) (3.1)
Disclaimer audit Opinion during the year 1 2 4 4 5
(%) (0.8) (1.2) (1.2) (1.8) (1.9)
Source: ANRSOAG Annually Report, 2007 to 2011 E.C
37
As indicated in table 4.3.4 above, 10.4%, 11.1%, 7.3%, 10.0% and 12.2% of entities which are
not supervise by audit managers on audit work during the year from year 2007 to 2011 E.C
respectively. The opinions of report during the year were Adverse audit opinion indicated in
table above, 1.6%, 1.8%, 0.8%, 2.7% and 3.1% and disclaimer audit opinion 0.8%, 1.2%, 1.2%,
1.8% and 1.9% increases year to year respectively from year 2007 to 2011 E.C. Then the audit
managers are not frequently supervises the audit work on time it influenced the quality of audit
report opinions and it affects effective implementation of audit standards.
In general, the above findings imply that the supervision of audited entities & stakeholders to the
regional audit office in terms of providing the necessary support for the implementation of the
audit activity, the necessary supervision about external auditing roles, taking timely corrective
actions on audit reports & recommendations of audit institution & auditors is low this would
have a negative impact on their implementation of audit standards & the overall audit quality.
Interview responses and secondary data results show that supervision of audited entities and
stakeholders by audit managers are also low.
Analysis of Secondary Data on Staff Turnover
To confirm the consistency of the information obtained from the questionnaire and interview
responses the researcher examined the trends of staff turnover from the annual reports of the
regional audit office which provide the following information:
Table 4.3.3 Analysis of Secondary Data on Staff Turnover in ANRS OAG.
Total number of Annual turnover of Annual turnover of

Year Audit Professionals audit professionals audit professionals (%)
2007 215 22 10.23 %
2008 215 28 13.02 %
2009 231 26 11.25 %
2010 231 30 12.98 %
2011 231 12 5.19 %
Source: ANRSOAG Human Resource Report, 2020
As shown in table 4.3.7 above, 10.23 %, 13.02 %, 11.25 %, 12.98 % & 5.19 % employees
turnover in regional audit office from the year 2007 to 2011 E.C respectively.
Out of the year 2011 E.C, Over 10 % of the employees who leave the office were audit
professionals especially at senior auditor and audit manager level. This implies the existence of
38
high staff turnover in the office, which affects effective implementation of audit standards. When
skilled audit professionals leave, the cost is enormous to the audit institution. From the above
findings it is clearly observed that the SAI of the region faces shortage of well experienced audit
professionals that may affect to perform its duties and responsibilities.
4.4 Correlation Analysis
Pearson correlation coefficients reveal magnitude and direction of relationships (either positive
or negative) and the intensity of the relationship (–1.0 to +1.0). Correlations are possibly the best
and most valuable extent of suggestion between two or more variables. As a statistical tool,
Pearson Correlation coefficient is used to test relationship, strength and directions between pairs
of variables (Marczyk & Festinger, 2005).
Table 4.1 Interpretations of strength of correlation coefficient
Values of coefficient Relations b/n variables

0.00 – 0.20 Very weak
0.21 – 0.40 Weak
0.41 – 0.60 Moderate
0.61 – 0.80 Strong
0.81 – 1.00 Very strong
Source: Evans, 1996
Table 4.2 Pearson Correlation Analysis for Dependent & Independent Variables.
Correlations Matrixes
Variables PC IAOA APS ASAE ST EIGEAS
PC Pearson Correlation 1 .355** .347** .612** -.492** .613**
39
Sig. (2-tailed) .000 .000 .000 .000 .000
N 220 220 220 220 220 220
Pearson Correlation .355** 1 .504** .752** -.463** .565**
IAOA Sig. (2-tailed) .000 .000 .000 .000 .000
N 220 220 220 220 220 220
** **
Pearson Correlation .347 .504 1 .502** -.452** .636**
APS Sig. (2-tailed) .000 .000 .000 .000 .000
N 220 220 220 220 220 220
** **
Pearson Correlation .612 .752 .502** 1 -.494** .695**
ASAE Sig. (2-tailed) .000 .000 .000 .000 .000
N 220 220 220 220 220 220
Pearson Correlation -.492** -.463** -.452** -.494** 1 -.600**
ST Sig. (2-tailed) .000 .000 .000 .000 .000
N 220 220 220 220 220 220
** **
Pearson Correlation .613 .565 .636** .695** -.600** 1
EIGEAS Sig. (2-tailed) .000 .000 .000 .000 .000
N 220 220 220 220 220 220
**. Correlation is significant at the 0.01 level (2-tailed).
4.2.1 Correlation Analysis between Professional Competence of Auditor & effective
Pearson correlation test was also conducted to these variable & the results are shown in table 4.5
above there is positive and significant correlation between professional competence of auditors
and effective implementation of government external audit standards. In other words
professional competence of auditors and effective implementation of government external audit
standards have positive & strong relationship (r = 0.613 with p < 0.01).
40
4.2.2 Correlation Analysis between Independence & effective implementation government
The results of the correlation between these variables are shown in table 4.5 above there is
positive and significant correlation between independence of audit office & auditor and effective
implementation of government external audit standards. In other words independence of audit
office & auditors and effective implementation of government external audit standards have
positive & moderate relationship (r = 0.565 with p < 0.01).
4.2.3 Correlation Analysis between Audit Planning & Supervision & effective
implementation government external audit standards.
For these variables Pearson correlation test was conducted and the results of the correlation
between these variables shown in above there is positive and significant correlation between
audit planning& supervision & effective implementation of government external audit standards.
In other words audit planning& supervision & effective implementation of government external
audit standards have positive & strong relationship (r = 0.636 with p < 0.01).
4.2.4 Correlation Analysis between Appropriate & sufficient audit evidence & effective
implementation government external audit standards.
For these variables Pearson correlation test was conducted and the results of the correlation
between these variables are shown in table 4.5 above there is positive and significant correlation
between appropriate & sufficient audit evidence and effective implementation of government
external audit standards. The result of correlation analysis prove that appropriate & sufficient
audit evidence and effective implementation of government external audit standards are
correlated with a positive & strong relationship (r = 0.695 with p < 0.01).
4.2.5 Correlation Analysis between Staff Turnover and effective implementation

Pearson correlation test was also conducted to these variable and the results are shown in table
4.5 above there is negative and significant correlation between staff turnover and effective
implementation of government external audit standards. In other words staff turnover and
effective implementation of government external audit standards have a negative & strong
relationship(r = -0.600 with p < 0.01).
41
4.3 Regression Analysis
This section mainly focused on regression analysis to identify key determining factors of
effective implementation of government external audit standards in ANRS OAG.
Mainly linear regression analyses were used to determine the effect of independent variables.
4.3.1. Regression Model Diagnosis
The study engaged regression to examine the effect of independent variables on effective
implementation of government external audit standards in the ANRS OAG. Model diagnosis
tools including Multicollinearity tests, Homoscedasticity & normality were conducted and
analyzed in detail in order to ensure that the study was done based on scientific methods that
fulfill basic assumption of the regression analysis.
4.3.1.1 Test for Multicollinearity
Multicollinearity exists when there are strong correlations among the predictors and the
existence of r value greater than 0.80, tolerance value below 0.10 and Variance Inflation factor
(VIF) greater than 10 in the correlation matrix are the causes for the multicollinearity existence
(Gada, 2016).
Table 4.3 Test of Multicollinearity between independent variables
Unstandardized Standardized Collinearity

Coefficients Coefficients Statistics
Model Std. Toler
B Beta t Sig. VIF
Error ance
(Constant) 0.816 0.225 3.629 .000
PC 0.202 0.049 0.223 4.150 .000 .538 1.858
IAOA 0.019 0.064 0.019 0.290 .772 .381 2.623
APS 0.314 0.048 0.316 6.534 .000 .668 1.497
ASAE 0.284 . 0.071 0.289 3.973 .000 .294 3.403
ST -0.172 . 0.044 -0.196 -3.933 .000 .629 1.590

The mutual of the tolerance is known as the Variance Inflation Factor (VIF). The VIF display us
how much the variance of the coefficient estimate is being inflated by multicollinearity. From the
multicollinearity test of the model, VIF which is less than 10 as shown above in table 4.6 that in
42
the study minimum VIF was 1.497 and the maximum was 3.403. On the other hand, the
tolerance was minimum of .294 and maximum of .668. Hence, both the tolerance and VIF values
indicated that the regression model had no problem of multicolinearity, and then accepted
variables were fit to be used for analysis.
4.3.1.2 Homoscedasticity
One of the assumptions in multiple linear regression models is homoscedasticity of the error term
that is the variance of unobserved factors unchanged across different segments of the population.
To check this researcher drown scatter plot for residuals using SPSS version 20 as it is presented
in the figure. As we see the scatter plot they are in symmetric form that is residuals have equal
variance. Hence the theory is fulfilled.
Figure 4.1 Scatter plot
The researcher conducts a test of linearity regression assumes that variables have a linearity
relationship (Berry & Feldman, 1985).
There are Several Pieces of information that are useful to the researcher in testing this
assumption: among those visual inspection of scatter plot was used by the researcher to have
43
information about linearity. The researcher observes the figure of linearity and there are no
outliers from the regression line. This implies as the linearity assumption is fully satisfied.
4.3.1.3 Normality Test
This assumption states that value of residuals should be normally distributed across independent
variables. To check this assumption, use SPSS to draw P-P plot for residuals (spring, 2002).
As shown in figure 4.2 residuals are normally distributed across observations so that the
assumption of normality is satisfied.
Figure 4.2 Normal probability plots
The above figure 4.2 shows the relationship between variables the researcher trying to predict
is linear because the scatter plot of residuals shows no large difference in the spread of the
residuals.
44
4.3.2 Regression Analysis of Dependent and Independent variables
The predictive power of the model is shown by R Square. R-Square is a degree of how fit the
model is capable to forecast the changes in the actual data. R-Square ranges between 0 and 1,
with values over 0.5 indicating a good fit b/n the predictions and actual data (Gujarati, 2004).
In this study a regression was run to determine the predictive power of the independent variables
(professional competence of auditors, Independence of audit office and auditors, audit planning
& supervision, appropriate & sufficient audit evidence and staff turnover) have the power to
explain effective implementation of government external audit standards.
Table: 4.4 Model summaries of multiple regression models
Model R R Square Adjusted R Std. Error of the

Square Estimate
1 .816a .667 .659 .211

a. Predictors: (Constant), Staff turnover, Audit planning & supervision,
Professional competency, Independence of audit office & auditors,
Appropriate & sufficient audit evidence
b. Dependent Variable: Effective Implementation of government
As it is indicated in table 4.4, the value of R square is 0.667, which indicated that independent
variables (professional competency of auditor, independence of audit office and auditor, audit
planning & supervision, appropriate & sufficient audit evidence and staff turnover) can account
for 66.7% of the variation in effective implementation of government external audit standards.
The five independent variables (professional competency of auditor, independence of audit office
and auditor, audit planning & supervision, appropriate & sufficient audit evidence and staff
turnover) & other unknown variables may explain the variation in effective implementation of
The remaining accounts for about 33.3% are by extraneous uncontrollable variables. This result
also indicated that there may be other variables that could have been neglected by the current
study in predicting effective implementation of government external audit standards.
45
4.3.3 Linear Multiple Regression Model
A linear multiple regressions was done to determine the relationship between effective
implementation of government external audit standards and all the independent variables i.e.
professional competency of auditor, independence of audit office and auditor, audit planning &
supervision, appropriate & sufficient audit evidence and staff turnover.
Regression analysis aims to predicting a change in the dependent variable resulting from changes
in the independent variables. Also, it is used to enable the researchers to explain the bivariate by
assessing the relative contribution of each independent variable to the regression equation. The
significance of the independent variables was analyzed through the regression model to see their
level of significance in explaining the dependent variables.
Table 4.5 Beta coefficients of Factors Affecting effective implementation government

Unstandardized Standardized
Coefficients Coefficients
Model
B Std. Error Beta T Sig.
(Constant) 0.816 0.225 3.629 .000

PC 0.202 0.049 0.223 4.150 .000
IAOA 0.019 0.064 0.019 0.290 .772
APS 0.314 0.048 0.316 6.534 .000
ASAE 0.284 . 0.071 0.289 3.973 .000
ST -0.172 . 0.044 -0.196 -3.933 .000
a. Dependent Variable: effective implementation of government external audit standards.

As shown in table 4.8 above professional competences of auditors had 0.202, independence of
the audit office and auditor had 0.019, audit planning & supervision 0.314, appropriate &
sufficient audit evidence had 0.284, staff turnover had -0.172 beta coefficient values & all are
significant at 5% probability level and 95% level of confidence.
This implies that if the level of professional competences of auditors increases by 1% effective
implementation government external audit standards increase by 20.2%, if the independence of
46
the audit office and auditor increase by 1% effective implementation government external audit
standards increase by 1.9%, if audit planning & supervision increases by 1% effective
implementation government external audit standards increase by 31.4%, if appropriate &
sufficient audit evidence increases by 1% effective implementation government external audit
standards increase by 28.4%, and staff turnover of audit office increase by 1% effective
implementation government external audit standards decrease by 17.2%.
Therefore the equation of the model based on the above table using standard coefficient is:-
EIGEAS = Bo +β1 (PC) + β2 (IAOA) + β3 (APS) + β4 (ASAE) - β5 (ST) + ε
EIGEAS = 0.816+0.202(PC) + 0.019(IAOA) + 0.314 (APS) + 0.284(ASAE) – 0.172(ST)
Where: - β0 = intercept of the regression line

 β1 to β5 = slop coefficients of the regression line
 EIGEAS = Effective Implementation of Government external Audit Standards
 PC = Professional competence
 IAOA = Independence of audit office & auditors
 APS = Audit planning & supervision
 ASAE = Appropriate & sufficient audit evidence
 ST = Staff turnover
The researcher conducted a linear regression analysis to determine the relationship between
Effective implementation government external audit standards & the five independent variables.
4.4 Testing of the Research Hypothesis
Hypothesis 1: Professional Competence has Significant Effect on Effective Implementation

of Government external Audit Standards.
The results of multiple regressions, as presented in table 4.8 above, revealed that professional
competence of auditors has a positive and significant effect on effective implementation of
government external audit standards at 99% confidence level (p< 0.01). Therefore, the researcher
concludes that the alternative hypothesis; professional competence of auditors has a positive &
significant effect on effective implementation of government external audit standards.
47
Hypothesis 2: Independent has Significant Effect on Effective Implementation of
Government external Audit Standards.
The results of multiple regressions, as presented in table 4.8 above, revealed that independence
of audit office and auditors have a positive and significant effect on effective implementation of
concludes that the alternative hypothesis; independence of audit office & auditors has a positive
and significant effect on effective implementation of government external audit standards.
Hypothesis 3: Audit planning & supervision has Significant Effect on Effective
Implementation of Government external Audit Standards.
The results of multiple regressions, as presented in table 4.8 above, revealed that audit planning
& supervision has a positive and significant effect on effective implementation of government
external audit standards at 99% confidence level (p< 0.01). Therefore, the researcher concludes
that the alternative hypothesis; audit planning & supervisions have a positive and significant
effect on effective implementation of government external audit standards.
Hypothesis 4: Appropriate & sufficient audit evidence has Significant Effect on Effective
Implementation of Government external Audit Standards.
The results of multiple regressions, as presented in table 4.8 above, revealed that appropriate &
sufficient audit evidence has a positive & significant effect on effective implementation of
concludes that the alternative hypothesis; appropriate & sufficient audit evidence has a positive
and significant effect on effective implementation of government external audit standards.
Hypothesis 5: Staff Turnover has Significant Influence on Effective Implementation of
Government external Audit Standards.
The results of multiple regressions, as presented in table 4.8 above, revealed that Staff turnover
has a negative and significant effect on effective implementation of government external audit
standards at 99% confidence level (p< 0.01). Therefore, the researcher concludes that the
alternative hypothesis; staff turnover has a negative and significant influence on effective
48
4.5 Summary of Analysis
The impact of explanatory variables on effective implementation of government external audit

standards is summarized as indicated in the following table.
Table 4.6: Impact of Factors of effective implementation of government External audit

standards
Explanatory Variables Expected impact Results

Professional competency of auditors No Impact Positive and Significant
Independent of audit office & auditors No Impact Positive and Significant
Audit planning & supervision No Impact Positive and Significant
Appropriate & sufficient audit evidence No Impact Positive and Significant
Staff turnover No Impact Negative and Significant
Source: Own Constructed Data, 2020
In general, from the table 4.9 above: findings of this study, the independent variable
(professional competence of auditors, independent of audit office & auditors, audit planning &
supervision, appropriate & sufficient audit evidence & staff turnover) for those, four independent
variable (professional competence of auditors, independent of audit office & auditors, audit
planning & supervision and appropriate & sufficient audit evidence) has a positive and
significant effect on effective implementation of government external audit standards.
Whereas, the one that independent variable staff turnover has a negative and significant influence
on effective implementation of government external audit standards.
49
CHAPTER FIVE
DISCUSSION AND IMPLICATION
5.1 Factors Affecting Effective Implementation of Government External Audit

Standards
5.1.1 Professional Competency of Auditors:
The respondents insured that Training is a significant factor to improvement abilities of auditors.
In agreement with the above result (Mary B. Curtis, 2009) states that the New audit systems
essential to be erudite to make audit operational. Training institutes are developed to train
auditors, but they are not up to the mark. One of auditors said that, “Effectiveness of these
institutions is not up to the mark.” Trainers of institutions either qualitatively or quantitatively
are inefficient. Lack of Qualified trainer’s hampers purpose of these institutes then Short courses
for training of trainees were introduced, but they are still not up to mark.
The respondents disclosed that Intensive training is required to auditors in effective

implementation of government external audit standards given by ANRS Office of Auditor
General. Applicability of skills learned through training institutes is low e.g. skills learned are
connected with IT whereas training institutes failed to connect LAN & WAN with the office of
SAI to make access of auditors easy to database of audited. So, training institutes lack in the
accomplishment of its objectives. Training on NAM (New Accounting models) and FAM
(Financial accounting model) is not conducted for auditors for the previous years.”
The respondents also disclosed that the Training sessions should be conducted to upgrade audit
skills. Audit teams should comprise both new and experienced auditors to share experiences,
explicit and implicit. In this way, training cost can be saved through on the job training methods.
Employees can learn and share in good manner.
In line with the above result (Lodhi, 2018) states that the qualifications for staff members
conducting audits includes: Knowledge of the methods and techniques appropriate to
government auditing and the education, skills and experience to put on such knowledge to the
audit, Knowledge of government organizations, programs, activities, and functions, including
50
such aspects as the role of the legislature, the legal and institutional arrangements governing the
operations of the executive and skills to communicate obviously and effectively both orally and
in writing is significant to effective implementation of government external audit standards.
5.1.2 Independence of Audit office & Auditors
The respondents insured that sufficient independence of auditors ensure to work without
interference by the public institutions’ management body & other stakeholders is factors of
effective implementation of government external audit standards by ANRS Office of Auditor
General. In agreement with the above result (Universal Journal of Management 3(2): 52-62,
2015) states that Government auditors must have complete freedom to work without unnecessary
burdens. In this way they can bring accountability and transparency in the public sector. Auditors
have complete working independence, but they absence.
Financial independence because budget is allotted by Parliament. In line with the above result
(Lodhi, 2018) supposed that, “We exertion self-sufficiently of department and like working
freedom we have Active independence, although economic freedom breaks with Parliament.
“Moreover, Auditors have no powers to take actions against malpractices; they just have to
report audit findings to management. They have to put forward their recommendations to rectify
audited organization. As one of the auditors said, “We cannot implement activities contrary to
abuses; we have recommendatory authority, while the National Accountability Bureau (NAB)
has authorities to implement activities against abuses.
The audit organization must remain independent from audited entities. In agreement with the
above result (EGAS, 2002) states that It should create among audited entities an understanding
of its role and function, with a view to maintaining good relationships with them. Good
relationships can help an audit organization to obtain information freely & frankly & to conduct
discussions in an atmosphere of mutual respect and understanding. The audit organization should
not participate in the management or operations of an audited entity. The personnel of the audit
organization having close relations with the management of an audited entity, such as social,
kinship or other relationship which may have a negative effect on objectivity, should not be
assigned to audit that entity. Subsequent performance of an audit repeatedly by the same auditor
should be discouraged. The audit organization should have policies and procedures to determine
51
the extent to which the subsequent assignment of auditors would be allowed. Personnel of the
audit organization should not be involved in instructing personnel of an audited entity as to their
duties and should not engage in any decision making or approval process which is considered the
audited management responsibility. Then, the respondents disclosed that full independence of
audit office and auditors in audit functions by the audit entities, stock holders & top management
ensures that effective Implementations of government external audit standards.
5.1.3 Audit Planning & Supervision
The respondents assured that in planning the audit, the auditor would deliberate the environment,
scope, and technique of work to be completed and would formulate a written audit program (or
set of written audit programs) for all audits. In agreement with the above result (As revised,
operational for engagements beginning after December 15, 1995, by Statement on Auditing
Standards No. 77) states that the audit program would establish into view in rational detail the
audit processes that the auditor trusts are essential to complete the goals of the audit. The system
of the audit program and the scope of its fact determination differ with the conditions. In
evolving the program, the auditor would be directed by the outcomes of the planning
deliberations & measures.
As the audit developments, different situations may make it essential to adjust planned audit
measures.
In supervision, Auditors have to follow up audited to observe either audited has adopted
recommendations made in previous audit or not. In agreement with the above result (Lodhi,
2018) states that Government auditors have appropriate network and an arrangement to monitor
up audit. As one of the auditors said, “Auditors follow up audited, Next auditor has to confirm
the extent to which previous recommendations were followed. Restricted time is available for
follow up and thirty days are given to audited to respond but audited does not respond. Letters
are sent to them.
When audit reports are organized, the interdepartmental team of auditors debates reports with
audited, condition audit reports are established, formerly those reports is excepted then they are
progressive to administration. Those are factors of effective implementation of government
5.1.4 Appropriate & Sufficient Audit evidence
52
The respondents assured that Audit Evidence is the information that the auditor practices in
addressing at a decision on the source of which he formulae his opinion. In line with the above
result International standards audit (ISA) outlines the suitability of audit evidence as the “degree
of the quality of audit evidence, or in other words, its significance and consistency in providing
provision for, or detecting misstatements in, the classes of transactions, account balances, and
revelations and interrelated assertions”.
Key questions for the auditor to consider evidence therefore will be: In agreement with the above
result (ASA 500, 2018) states that Do I have enough evidence to reach a conclusion on this audit
area and is the evidence that I have, reliable enough to, allow me to reach a conclusion on this
area of the audit. Audit evidence contains: In agreement with the above result (Final Rule:
PCAOB Release No. 2010-004) states that the information limited in the accounting records
fundamental the financial statements. In addition Audit evidence power contain: Documents
(bills, acknowledgment notes, cash receipts), Accounting entries (write down to NRV,
depreciation), Responses from the management (Provisions), Information from third parties
(banks, debtors), Calculations (depreciation, accruals, and provisions) and Explanations
(inventory count). When using information shaped by the company as audit evidence, the auditor
would evaluate whether the information is satisfactory and correct for resolutions of the audit by
accomplishment measures to: Investigation the correctness and completeness of the information,
or assessment the controls over the accuracy and completeness of that information; and Evaluate
whether the information is sufficiently precise and detailed for purposes of the audit.
The respondents agreed that Auditors must document and collect evidence concerning important
issues both in preparing the report and supporting the opinion expressed and all other evidence to
prove that the audit was conducted in accordance with International Standards on Auditing that
of significant to effective implementation of government external audit standards.
5.1.5 Staff Turn over
As the respondents agreed that Staff turnover is the number or percentage of employees leaving
your organization during a certain period. Principally high or low staff turnover commonly
shows that you want to make some modifications within the business.
In agreement with the above result (Olly Good all, 2019) states that the main reasons employees
resign their jobs, although it is a factor Lack of personal development: Indeed, a survey by
docebo found that 59% of employees consider learning opportunities important to workplace
53
happiness, Too much work: Gallup, recently surveyed 7,500 full-time employees and found that
23% reported very often or always feeling burned out at work, Nearly twice that number said
they sometimes felt burned out. Lack of appreciation: 79% of people who quit their jobs cite
‘lack of appreciation’ as their reason for leaving, The wrong role: It’s worth taking the time to
hire an employee who’s the right fit for the role, 80% of employee turnover is due to bad hiring
decisions. Company culture: According to one 2018 survey, 61% of workers left or considered
quitting a job because it lacked work flexibility options. Bad bosses: An impressive 93% of
employees said they would be more likely to stay in a role if their bosses showed more empathy.
To reduce staff turnover & retain staff:- Refine your hiring process, Provide professional
development, Offer rewards, Provide work-life balance, Think about company culture.
The respondents agree that considering the costs of turnover, employers should conduct turnover
analysis to examine the number of employees who leave why they leave and their relative costs
and benefits; develop appropriate response’s to identify turnover problems and crate retention
aims; and implement retention plans (Allen, 2006).
5.1.6 Effective Implementation of Government External Audit Standards.
There are several auditing standards that are applied throughout the world, such as for example,
the ISAs as previously mentioned. In the US, the generally accepted auditing standards are the
US-GAAS, as well as local (national) standards.
In agreement with the above result states that such standards have numerous purposes such as to
assist auditors in performing their jobs, to promote consistency, and to serve as the first step in
ensuring the quality of audits. Additionally, they aim to define the role of audit, providing a
method for judging performance, and providing assistance in terms of what should be included in
the education of auditors (Francis et al., 2009; Burns & Fogarty, 2010).
Despite All the respondents insured that Effective Implementation of Government External
Audit Standards has reduces errors & frauds; possible to conduct the Effective implementation of
auditing standards by the audit entities & stockholders., helps to take necessary Corrective
actions & measures, has help to assure Laws, rules and regulations and Contribute to ensure
good governance of the audit entities & stockholders.
54
CHAPTER SIX
CONCLUSIONS AND RECOMMENDATIONS
6.1 Introduction
This chapter presents the conclusions and suggested recommendations for further research. The
study sought to determine factors affecting effective implementation of government external
audit standards in ANRS OAG.
The chapter is structured in two sections. The first section deals with conclusions while the
second section presents some recommendations suggested as a solution to problems that have
been identified in the study.
6.2 Conclusions
In the long run existence of businesses keeping the effective implementation of audit standards
has significant role for various sound decisions made by external users using financial statements
prepared by those businesses. In a decision-making process, decision makers trust upon
information, financial statements, as prepared and presented by the management of an entity.
In connection to this, the most common way for users to obtain reliable information (reducing
the information risk) is to have an independent audit performed.
To enhance the degree of confidence of the intended users in the financial statements, a financial
statement audit would be conducted through external auditors. Thus, decision makers use the
audited information on the assumption that it is reasonably complete, accurate, and unbiased.
Therefore, the existences of effective implementation of audit standards can reduce information
asymmetry during decision making, and ensures reliability of financial reports and its process.
By taking this context into consideration, this study was identified factors that affect the effective
implementation of government external audit standards in ANRS OAG.
To achieve the intended objectives of the study, the required data were collected from ANRS
OAG and selected audited entities. Based on the analysis and discussions presented in the
previous chapter the study concludes the following points.
55
6.2.1 Factors affecting the effective implementation of government external audit
standards
The effective implementation of government external audit standards of the regional audit office
increases when there is adequate professional competency of auditors, independence of audit
office & auditors, adequate audit planning & supervision, to uphold appropriate & sufficient
audit evidence and it reduces staff turnover.
The study findings in relation to the factors of ANRS OAG in performing its duties and
responsibilities in terms of professional competency auditors, independence of audit office &
auditors, audit planning & supervision, appropriate & sufficient audit evidence & staff turnover
shows:
i. With regard to professional competence of auditors, although the regional audit office has
professional audit standards, audit manuals & methodologies based on the AFROSAI-E
procedures, the office is facing shortage of experienced audit professionals who can implement
those manuals and methodologies into practice. The study findings also show that due to the
insufficiency of senior auditors, the existing auditor’s lack of adequate skill, knowledge and
experience, academicals qualification about government accounting principles, financial
directives, programs, activities & functions including legal & institutional arrangements. The
communication skill of auditors to interact with and convince audited entities on matters related
to the audit activity is also low. The ability of some auditors to evaluate audit evidence and give
reasonable audit opinions also needs improvement.
In addition, to improve the knowledge and skill of auditors sufficient and continuous trainings
are necessary. But the findings show that the office cannot arrange intensive and continuous
training opportunities on auditing standards and methodologies, government accounting
principles and financial directives, government programs and activities, new rules and
regulations.
ii. The independence of the regional audit office in reporting the audit findings, getting the
required resource (i.e. Budget) from the executive and human resource administration is
questionable, the office cannot set its own annual budget ceiling rather influenced and examined
by BOFED before approval by the regional council, the office have no its own independent
56
human resource administration policy separated from the general civil service to recruit, to fix its
own salary structures, to retain auditors and to promote its employees and the office has no
policies and procedures to determine the extent to which frequent assignment of the same auditor
would be allowed in the same audited entity. The result shows the independence of the SAI of
the region is highly compromised.
An interview response from respondents also shows the existence of independence is violate to
audit entities and stockholders.
iii. The findings of the study imply that the Implementation of audit standards of audit
institutions depends not only on their degree of independence, audit functions or institutional
capacities, but also on SAIs’ functional linkages of audit planning and supervision with
stakeholders and actors of the accountability system including government organizations and the
legislative. Audit planning and supervision for the regional audit office is an important factor
that determines the extent to which the audit institution can fulfill its mandates. Then supervision
of audited entities and stakeholders to the regional audit office in terms of the implementation of
the audit activities, providing the necessary supervision about external auditing roles, taking
timely corrective actions on audit reports and recommendations and understanding the value of
the audit and collaborating with the audit institution is very weak.
Interview responses and secondary data result shows that supervision of audited entities and
stakeholders by audit managers are reduces year to year. The consequence of planning and
supervision of audited entities and stakeholders by office of auditor general is low this would
have a negative impact on their implementation of audit standards and the overall quality of audit
report opinions.
iv. Audit evidence obtained were only be useful in reducing to an acceptably low level the risk
that the auditor could express an inappropriate opinion when the financial statements are
materially misstated and, then, permit the auditor to draw reasonable conclusions, when it is
sufficient and appropriate to the circumstances.
However the auditors of the office have not full access to appropriate and sufficient audit
evidence and information they need in conducting the audit and the auditors are not free from
any influence having the appropriate & sufficient audit evidence in all audit stages and the
57
auditors are not enough accessible data either manually or software application under each government
budget components. But the existence of obtaining appropriate & sufficient audit evidence in all
audit stages are very important to produce quality audit opinions and effectively implement the
audit standard.
v. Staff turnover is one of the critical problems of the office. There is high staff turnover in
ANRS OAG particularly well experienced and trained auditors at senior Levels and audit
manager level. This affects the functions of the audit institution to effectively discharge its duties
and responsibilities including the audit coverage and audit quality. The attractive salary and other
benefits in the external market especially financial institutions like banks, the insufficiency of the
per diem to cover the field costs of auditors, lack of incentives and motivation schemes and lack
of vision are the main reasons for the turnover of employees in the office.
The turnover shows the SAI of the region is facing shortage of well-experienced audit
professionals that affect effective implementation of audit standards.
In the interview respondents also stated that the salary structure of auditors as compared to
other similar audit institutions in the country and other business sector is low.
6.3 Recommendations
Based on the above conclusions of the study, the following recommendations were forwarded by
the researcher to minimize the problems of Amhara National Regional State Office of Auditor
General (ANRS OAG) so as to improve the effective implementation of audit standard activity in
the region.
i. Audit activity requires skilled human power having adequate skill, knowledge, experience,
academicals qualification. In addition, sufficient and continuous training related to the audit
profession are necessary. However, the effective implementation of audit standard activity in the
region is highly affected by unavailability of competency and experienced audit professionals.
Therefore,
The office of auditor general should arrange intensive training opportunities to auditors
on audit methodologies & techniques, government accounting principles & financial
directives, government programs & activities, government rules & regulations.
58
The office of auditor general training & research directorate department should arrange
with well trained & skilled manpower and as well-resourced training materials to
implement audit methodologies & techniques, accounting principles & financial
directives, programs & activities, rules & regulations of the government.
Moreover the office of auditor general should also work together with the regional
council, government, audited entities & stakeholders to retain and attract experienced
audit professionals and how to implement audit standard activities in the region.
ii. Independence of the office of auditor general and auditors is central to audit. As the study
indicates, that the independence of ANRS OAG is questionable in reporting audit findings,
administering its employees, getting the necessary resource/finance & appropriate and sufficient
audit evidence. This affects the efforts of the office of auditor general to provide quality audit
reports for decision makers to ensure accountability and good governance in the region.
Therefore,
The regional government and council should escape its pressure on the office of auditor
general & auditors to modify and suppress audit findings and reports.
The regional government and council should support the office of auditor general to
have its own independent human resource administration policy separated from the
general civil service to recruit, to fix its own salary structures, to retain and promote its
auditors.
The office of auditor general should maintain financial independence. Therefore, the
regional government and council should provide the required budget to the office of
auditor general for the effective implementation of audit standard activities.
Furthermore, the office of auditor general should rearrange organizational structure that
of federal auditor general the Audit Quality Assurance Directorate to maintain &
improve effective implementation of audit standard activities independently.
iii. The findings of this study also proved, one of the main challenges of the regional audit office
is that the planning and supervision of audited entity and stakeholders by the audit office is low.
In addition, there are problems among Audit office auditors to plan their audit task in a manner which
ensures high quality audit report in timely and audited entities in not taking timely corrective
59
measures on the audit opinions & recommendations, and auditable areas are not selected before
human & financial resources allotted. Then the audit office was highly affected by those factors on
their implementation of audit standards and the overall audit quality.
Therefore,
The office of auditor general planning & supervision or adequate follow-up actions of
audited entity and stakeholders should be scheduled and agreed up on who assigned the
responsibility, and when corrective action is to be taken and what has to be done.
To enhanced planning & supervision, the office of auditor general should increase well
experienced audit managers, and design clear & proper incentive mechanisms to attract
& retain skilled & experienced audit professionals back to the audit office.
Based on the Interview responses and secondary data result shows the offices of auditor
general should be clearly and precisely establish systems of how to plan and supervise
audited entity & stakeholders on audit work timely.
iv. The auditor should obtain sufficient and appropriate evidence which enables the auditor to
arrive at a conclusion and supports his opinion. But, the auditors have not full access to
appropriate & sufficient audit evidence and information they need in conducting the audit, and
the auditors are not free any influence having the appropriate & sufficient audit evidence in all
audit stages, and the auditors are not enough accessible data either manually or software application
under each government budget components.
Therefore, based on the result recommends that:
The auditors must be free from any influence to access appropriate & sufficient audit
evidence in all audit stages, then unbiased enough audit evidence reaching a conclusion
on the area of audit.
Auditors must be use enough accessible data either manually or software application
under each government budget components: besides the data uses, written
(documentary) data, external sources of data, direct observation, inspection, physical
verification, and computations are better to evidence obtained the auditors.
The auditors should use appropriate audit evidence in terms of (sufficiency, reliability,
source, nature and relevancy) in all stages of audit work. This implies that effectively
implement audit standard activities.
60
v. Turnover of experienced and trained audit professionals is one of the critical problems of the
Audit office, which affects its effective implementation of audit standard activities.
Therefore,
The regional government & council should support the office of auditor general auditors
are leaving in the attractive salary and benefits relative to the other external market of
financial institutions and audit institutions in the country.
The regional audit office should design clear and proper incentive mechanisms to attract
and retain skilled and experienced audit professionals.
6.4 Suggestions for Further Study
The study also suggested further research to be done on effective implementation of audit
standard activities to the private organization in order to depict reliable information that
illustrates real situation in both public and private sector organizations.
Though the researcher believes that this study is deep, it is still believed that it must be further
extended to include more factors and respondents to make it more realistic and more reliable.
In conclusion, it should be noted that examining the factors that affect effective implementation
of audit standards is essential in order to analyze its usefulness to the public sector and recognize
its future contribution to matters of accountability and transparency.
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66
APPENDICES 1
COLLEGE OF BUSINESS AND ECONOMICSE

DEPARTMENT OF ACCOUNTING AND FINANCE
Appendix 1:- Questionnaire Prepared for the Staff of Amhara National Regional State
Office of Auditor General
Dear Respondents,
This questionnaire is for master’s thesis entitled “Factors Affecting Effective Implementation
of Government External Audit Standards in Amhara Region: The Case of Amhara National
Regional State Office of Auditor General”. The ultimate purpose of this information is to test
and measure Factors Affecting Effective Implementation of Government External Audit
Standards in the regional audit office, to forward possible recommendation. The output of the
study depends on the truth information collected from you. Therefore your honest and genuine
participation by responding to the questions is highly appreciated.
Your answers are completely confidential. Your name will not be written on this form, and will never be
used in connection with any of the information you tell me.
Thank you in advance for your kind cooperation!
Desalegn Nega mobile: +251-918028813, Email: [email protected]
*Please, Put a tick mark (  ) for your response on the box for the following questions.
Part I: Personal Background
1.1 Sex: 1. Male 2. Female
1.2 Age: 1. 20-30 2. 31 – 40 3. 41-50 4. >50
1.3 Educational level:1. Diploma & Below 2. Bachelor degree 3. Master’s degree
4. above Masters
1.4 Field of study: 1. Accounting 2. Management
3. Economics 4. Business education 5. Others specify _____

1.5 Your position in the audit office-----------------------------
1.6 Experience on your present position.
1. < 1 year 2. 1–3 years
3. 4–6 years 4. 7–10 years 5. > 10 years
67
Part II: Main Body of the Questionnaire
1. The Questionnaire is prepared in Likert-scale form with five (5) point scales. I ask you to tick
(√) the appropriate scale (point) that indicates your opinion in table below. The values of scales
are:- SD= strongly agree (5), Agree(4), N=Neutral(3), A=Disgree(2) SA= stronglydisagree (1)
1 2 3 4 5
No Description of the Question (SD) (D) (N) (A) (SA)
1. Matters Related to professional Competency(PC)
1.1 The audit office auditors having adequate knowledge of government
accounting principles, programs, activities & functions of legal &
institutional arrangements.
1.2 The audit office auditors having adequate techniqual knowlodge on
auditng standards & audit manuals.

1.3 The audit office auditors having ability to interact and communicate
with audited entities & stackholders
1.4 The audit office auditors having the ability to evaluate audit evidence
and give reasonable audit opinions.
1.5 Sufficient & continuous training opportunities related to the audit

profession are available to improve competency & update auditors on
new rules, regulations & procedures.
2. Matters Related to Independence of audit office & auditors
2.1 In organizational arrangements the audit office performs its duties &
responsibilities independent from the executive & audited entities.
2.2 The audit office is independent in terms of the human resource
administration in fixing its own salary structure, recruitment &
performance appraisal of the employees.
2.3 The auditors have to get independently the appropriate & sufficient
audit evidence.
2.4 There is financial independence in the sense that the office can get
the requested budget to successfully carry out its duties.
2.5 auditores has Suppress independence with audit findings, conclusions
and recommendation.
3. Matters Related to Audit Planning & Supervision (APS).
68
3.1 Audit office plan to their audit task is clear and precise which ensures
high quality audit report in timely.
Audit office auditors have to plan how to complete and accurate

3.2
evidence to conclude their opinion.
3.3 The audit office has planned to auditable areas are selected before
human and financial resources allotted to conduct the audit.
3.4 The audit office has planned to supervise audited entities to takes
corrective action of the audit reports on timely.
3.5 Audit managers frequently Plan & supervise the audit work on time.
4. Matters Related to appropriate & sufficient audit evidence

4.1 The audit office auditors obtain appropriate & sufficient audit
evidence in all stages of audit work.
4.2 The clients provided for the auditor‘s the necessary data which is
pertaining to the audit task.
4.3 The auditors free from any influence having appropriate & sufficient
audit evidence.
4.4 The audit office auditors are accessible data either manually or
software application under each government budget components.
4.5 The necessary data are hidden by the client.
5. Matters Related to Staff Turn Over(ST)

5.1 Auditors’ turnover in the regional audit office is high.
5.2 The main factor of auditors turn over is mainly related to
dissatisfaction with the work.
5.3 The cause of auditors turn over is related to management
administration style.
5.4 The reason for auditors turn over in the regional audit office is due to
lack of incentives and motivation schemes.
5.5 The reason for auditors turn over in the regional audit office is due to
lack of independence.
6. Matters Related to Effective Implementation of Government

External Audit standards (EIGEAS).
69
6.1 Effective Implementation of audit standards reduces errors & frauds
of the audit entities & stockholders.
6.2 It is possible to ensure that the Effective implementation of auditing
standards by the audit entities & stockholders.
6.3 Effective Implementation of audit standards helps to take necessary
Corrective actions & measures of the audit entities & stockholders.
6.4 Effective Implementation of audit standards has help to assure Laws,
rules and regulations of the audit entities & stockholders.
6.5 Effective Implementation of audit standards Contribute to ensure
good governance of the audit entities & stockholders.
Appendix 2: Interview Questions
COLLEGE OF BUSINESS AND ECONOMICSE

DEPARTMENT OF ACCOUNTING AND FINANCE
70
Dear Respondents,
This Interview is for master’s thesis entitled “Factors Affecting Effective Implementation of
Government External Audit Standards in Amhara Region: The Case of Amhara National
Regional State Office of Auditor General”. The ultimate purpose of this information is to test
and measure Factors Affecting Effective Implementation of Government External Audit
Standards in the regional audit office, to forward possible recommendation. The output of the
study depends on the truth information collected from you. Therefore your honest and genuine
participation by responding to the questions is highly appreciated.
Your answers are completely confidential.

Thank you in advance for your kind cooperation!
Desalegn Nega mobile: +251-918028813, Email: [email protected]
Part I: Personal Background
1.4 Sex: 1. Male 2. Female
1.5 Age: 1. 20-30 2. 31 – 40 3. 41-50 4. >50
1.6 Educational level: 1. Diploma & Below 2. Bachelor degree 3. Master’s degree
4. above Masters
1.4 Field of study: 1. Accounting 2. Management
3. Economics 4. Business education 5. Others specify _____

1.7 Your position in the Your office-----------------------------
1.8 Experience on your present position.
1. < 1 year 2. 1–3 years
3. 4–6 years 4. 7–10 years 5. > 10 years
Part II: Main Body of the Interview
1. Do you think that the audit office have sufficient and competent staff in terms of educational
background, training, knowledge and skill ? If not what are the reasons to fulfill the required staff?.-
71
 የእርስዎ ተቋምና እርስዎ የዋና ኦዲተር መ/ቤት ኦዲተሮች ያላቸውን የትምርት ዝግጅት እውቀትና
ክህሎት እንዴት ይገመግሙታል? ካልሆነስ ምክንያቱ ምንድን ነው?
----------------------------------------------------------------------------------------------------------------
-------------------------------------------::
2. How do you evaluate the independence of the regional audit office interms of resources, reporting
systems, taking legal actions on audit findings.
 የእርስዎ ተቋምና እርስዎ የዋና ኦዲተር መ/ቤትን በጀት አመዳደብ፤ በኦዲት ግኝትና ሪፖርት አፃፃፍ
መሰረት አድርጎ ያለውን ነጻና ገለልተኝነት በተመለከተ እንዴት ይገመግሙታል?

----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------::
3. How do you evaluate the supervision of audit entities given by ANRS Auditor General Office
throughout the auditing year?
 የእርስዎ ተቋምና እርስዎ በዋና ኦዲተር መ/ቤት በኩል ለኦዲት ተደራጊዎች የሚደረገውን ድጋፍና ክትትል
በተመለከተ እንዴት
ይገመግሙታል?-----------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------::
4. How do you see the trend of staff turn over in the regional audit office ? if it is high what are the
main reasons ? what mechanisms the office is following to solve the problem ?
 እርስዎ የዋና ኦዲተር መ/ቤት የኦዲተሮችን ፍልሰት እንዴት ያዩታል? መ/ቤቱ ችግሩን ለመፍታት ምን ዘዴ
መጠቀም
ይኖርበታል?.--------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------::
72

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BAHIR DAR UNIVERSITY

Collage of Business and Economics

Department of Accounting and Finance

Factors Affecting Effective Implementation of Government External

The Case of Amhara National Regional State Office of Auditor General

Collage of Business and Economics

Department of Accounting and Finance

Factors Affecting Effective Implementation of Government External

The Case of Amhara National Regional State Office of Auditor General

A Thesis Submitted in Partial Fulfillment of the Requirement for

Tilahun Aemiro (Asst.Professor)

Bahir Dar, Ethiopia

Name: Desalegn Nega

Date of Submission: --------------------------------------------

Place: Bahir Dar University, Bahir Dar

Bahir Dar University

College of Business and Economics

Department of Accounting and Finance

Approval of Thesis for Defense

Approved by Board of Examiners:

Name Signature Date

Advisor’s: ___________________________________ ____________ ____________

Co-Advisor’s: __________________________________ _____________ _________

Department Head: _______________________________ ____________ ________

Bahir Dar University

College of Business and Economics

Department of Accounting and Finance

Approval of Thesis for Defense result

Name Signature Date

External examiner: ___________________________ ____________ ____________

___________________________ _____________ ____________

Internal examiner: ___________________________ _____________ ____________

_____________________________ ____________ ___________

Chair person’s: _______________________________ _____________ __________

Advisor’s Approval Form-----------------------------------------------------------------------------iv

Examiners’ Approval Form----------------------------------------------------------------------------v

Abbreviations and Acronyms-----------------------------------------------------------------------xiii

1.1 Background of the Study-------------------------------------------------------------------------1

1.2 Statement of the Problem-------------------------------------------------------------------------3

1.3 Objectives of the Study---------------------------------------------------------------------------5

1.3.1 General Objective------------------------------------------------------------------------------5

1.3.2 Specific Objectives----------------------------------------------------------------------------5

1.4 Hypothesis of the study---------------------------------------------------------------------------5

1.5 Significance of the Study-------------------------------------------------------------------------6

1.6 Definitions of significant Terms-----------------------------------------------------------------6

2.REVIEW OF RELATED LITERATURE--------------------------------------------------------8

2.2 Theoretical Review---------------------------------------------------------------------------------8

2.2.1 Meaning and Elements of audit---------------------------------------------------------------8

2.2.3 Auditing in the Public Sector----------------------------------------------------------------12

2.2.4 Type of audits----------------------------------------------------------------------------------13

2.2.5 Types of Auditors------------------------------------------------------------------------------14

2.2.6 Auditing Standards----------------------------------------------------------------------------14

2.2.7 Users of External Audit Report--------------------------------------------------------------15

2.2.8 Generally Accepted Auditing Standards (GAAS)-----------------------------------------16

2.2.9 Role of Government External Auditing in Public Finance Management--------------17

2.3 Empirical Study------------------------------------------------------------------------------------18

2.3.1 Review of Empirical Studies on Factors Affecting EIGEAS---------------------------18

2.4 Rationale of the Study----------------------------------------------------------------------------21

2.5 Summary of Literature Review & Research Gaps--------------------------------------------21

Advisor’s: _______________________

Co-Advisor’s: ____________________________ _ ___

Department Head: _______________________

External examiner: _______________

_____________________ _ ______

Internal examiner: _____________________ _ ______

___________________ _

Chair person’s: _________________________ _ ____