SCHOOL OF ENTREPRENEURSHIP AND BUSINESS SCIENCES

DEPARTMENT OF ACCOUNTING SCIENCES AND FINANCE

RESEARCH PROPOSAL

BY

ANOTIDAISHE NICOLE MASESE

(C20141585F)

SUPERVISOR NAME: J. MASHONGANYIKA

PROPOSED TOPIC: THE ROLE OF INTERNAL AUDITS IN ENHANCING THE

QUALITY OF INTERNAL CONTROLS. A CASE STUDY OF FANSET
INTERNATIONAL.
1.1 Background of the Study
According to an article by (Betti, 2021) the importance of internal audits in improving the
quality of internal controls within businesses has grown in recent years due to the complexity
and volatility of the business environment. Protecting assets, guaranteeing accurate financial
reporting, and maximizing operational efficiency are all reliant on well-designed internal
controls (Mungai, 2021). The need for strong internal audit operations has increased
dramatically as a result of the increased scrutiny that firms worldwide are receiving from
regulators and stakeholders.

Several high-profile corporate scandals and financial crises have brought attention to the
necessity for strong oversight measures, highlighting the significance of internal audits on a
global scale. The Institute of Internal Auditors (IIA) found that companies with robust
internal auditing processes had a 50% lower risk of serious financial theft (Alazzabi, 2023).
The European Union's adoption of the Sarbanes-Oxley Act (SOX) in response to the financial
crises of the early 2000s established a standard for rigorous internal control procedures.
According to European Commission research, 68% of EU companies have improved their
internal audit processes since SOX was implemented. This shows that the importance of
internal audit in governance and risk management is being more recognized.

Similar changes are taking place in Asia as a result of rising global interconnectedness and
fast economic development. One example is the effort by the Asian Development Bank
(ADB) to emphasize the need of internal audits as part of reforms aimed at enhancing
corporate governance frameworks in numerous Asian countries (Tran, 2021). Still, difficulties
remain. A survey by PwC indicated that 40% of firms in Asia-Pacific suffer with insufficient
resources allocated to their internal audit operations, which inhibits their capacity to
successfully increase internal controls. Additionally, cultural variables often influence the
perception of internal audits; in some countries, a lack of awareness of the audit's significance
can lead to resistance or underutilization of audit findings (Okodo, 2019). Despite the rising
emphasis on the significance of internal audits, firms across both Europe and Asia confront
major hurdles in fully achieving their potential. One of the key issues is the incorporation of
technology inside the internal audit process. As firms employ digital tools and data analytics,
internal auditors must adapt to new approaches and regularly refresh their abilities (Lois,
2020).
Despite the limitations highlighted earlier, such as resource restrictions and the need for
technology adaption, the dynamic landscape gives various opportunities for the internal audit
profession. One of the most significant potentials comes in the integration of modern
technology, such as artificial intelligence and data analytics, into the internal audit process
(Lois, 2020). These technologies can boost the efficiency and efficacy of audits, allowing
auditors to examine enormous volumes of data quickly and detect potential hazards
proactively. (Eulerich, 2023) stated that firms who employ technology in their internal audit
procedures experience a 40% boost in the effectiveness of their audit operations. Moreover,
the increased emphasis on corporate social responsibility (CSR) and ethical governance
standards has offered new possibilities for internal auditors to examine and provide insights
on non-financial issues (Rakipi, 2024). As stakeholders increasingly expect openness and
accountability, internal auditors can play a significant role in reviewing an organization's
adherence to ethical standards and social duties. This enlarged scope not only enhances the
relevance of internal audits but also positions auditors as essential players in building a
culture of honesty within firms (Sinha, 2020).

In Zimbabwe, the necessity of internal audits in improving internal controls has gained
prominence, especially in light of the economic challenges and governance issues the country
has encountered over the years. Research by the Zimbabwe National Statistics Agency
(ZIMSTAT) found that over 90% of enterprises in Zimbabwe have acknowledged the
necessity for comprehensive internal control systems to safeguard against financial
mismanagement and fraud. Despite this recognition, many businesses still struggle to develop
efficient internal audit functions due to many problems, including resource limits, inadequate
training, and a lack of understanding of the internal audit's strategic purpose (Kotb, 2020).
One of the biggest issues facing internal audits in Zimbabwe is the low supply of trained
personnel. The Institute of Internal Auditors Zimbabwe has identified a shortage of skilled
internal auditors, which limits the performance of audit operations across enterprises.
Additionally, there is often a cultural impression that internal audits are primarily a
compliance exercise rather than a strategic instrument for improving organizational
performance (Roussy, 2020). This approach might lead to insufficient support from
management for internal audit activities, thus limiting their impact.

A notable incident in Zimbabwe that demonstrates the vital function of internal audits in
establishing internal controls is the Zimbabwe Revenue Authority (ZIMRA) scam involving
the theft of monies. In 2016, it was revealed that numerous ZIMRA executives were
embroiled in a fraud that resulted in the misuse of over $1 million in income. Internal audits
had previously identified abnormalities, but the lack of adequate follow-up and enforcement
processes allowed the fraud to continue unchecked. This incident underlined the necessity for
robust internal controls and the importance of a competent internal audit department that can
provide independent assurance on the integrity of financial reporting and compliance with
legislation.

1.2 Statement of the Problem.

Insufficient internal controls at Fanset International have led to major inefficiencies and
possibly financial malfeasance, weakening the organization's operational integrity. According
to (Maulidi, 2022), firms with insufficient internal controls face fraud at a rate of 20% greater
than those with effective procedures in place. Currently, Fanset International has issues such
as inconsistent compliance with regulatory standards, greater risk of fraud, and lost
stakeholder confidence, which cumulatively hamper its overall performance and growth. This
problem primarily impacts management, staff, and stakeholders who depend on accurate
financial reporting and effective operations. Ideally, Fanset International should have a
thorough internal audit function that systematically strengthens the quality of its internal
controls, assuring transparency, accountability, and operational efficiency, thereby promoting
a culture of trust and reliability inside the organization.

1.3 Research Objectives

1.3.1 Primary Objective.

1. To evaluate the effectiveness of internal audits in enhancing the quality of internal

controls within organizations.

1.3.2 Secondary Research Objectives.

2. To identify the key factors that contribute to the effectiveness of internal audit functions
in improving internal controls.
3. To assess the challenges faced by internal auditors in implementing effective internal
control systems.
4. To recommend best practices for optimizing internal audit functions to enhance the
quality of internal controls.

1.4 Research Questions.

1. How effective are internal audits in enhancing the quality of internal controls within
organizations?
2. What are the key factors that contribute to the effectiveness of internal audit functions in
improving internal controls?
3. What challenges do internal auditors face in implementing effective internal control
systems?
4. What best practices can be recommended for optimizing internal audit functions to
enhance the quality of internal controls?

1.5 Significance of the Study

1.5.1 To Chinhoyi university of technology

The findings of this study significantly contributed to the academic discourse surrounding
internal audits in enhancing the quality of internal controls, particularly within the context of
Fanset International. The study will serve as a foundational reference for students and faculty
alike, fostering a deeper understanding of how internal audits will enhance the quality of
internal controls. Also, it will encourage the university to explore interdisciplinary
approaches, linking auditing with organizational management and governance.

1.5.2 Fanset International

This study on improving internal control quality at Fanset International has major difficulties
for the company. For Fanset International, the results will offer vital new perspectives on the
performance of its current internal control systems and the function of internal audits in
pointing up areas needing development. Understanding the strengths and shortcomings of
their internal controls helps Fanset International to improve operational efficiency, lower
risks, protect its assets, and so increase financial performance and stakeholder confidence.

1.5. 3 Regulatory Bodies.

This study is important since it adds to the larger conversation on industry compliance and
corporate governance, therefore influencing regulatory agencies. Therefore, stressing the
need of strong internal controls and efficient internal audits, the study can guide policy
creation and regulatory systems meant to improve corporate governance criteria. That is, the
knowledge acquired from this study can help to create a stronger regulatory environment
supporting best practices all throughout the industry.

1.6 Scope of the Study

This study will be conducted at Fanset International. The research will span a period of three
months, focusing specifically on the role of internal audits in enhancing the quality of internal
controls". The investigation will delve into the experiences and perceptions of employees
within the auditing company, ensuring that the analysis is grounded in practical insights.
However, the study will not extend beyond this timeframe of 3 months or geographical
location, thereby maintaining a focused approach to addressing the research questions.

1.7 Assumptions of the study

i. Internal audit processes at Fanset International are effective and adhere to established
standards and practices.
ii. Employees at Fanset International possess the necessary knowledge and experience to
provide valuable insights regarding the roles of internal audits in enhancing the
quality of internal controls.
iii. Participants will provide honest and unbiased responses during interviews or surveys,
reflecting their true experiences and perceptions.
iv. Internal audit procedures are consistently applied across different departments within
Fanset International, allowing for a uniform analysis.

1.8 Limitations

This study acknowledges several limitations that could impact the generalizability of the
findings:

1.8.1 Sample Size: The sample size may be limited, potentially reducing the generalizability
of the findings to other auditing firms.

1.8.2 Focus on Fanset International: The study is focused on a single firm, which may not
fully represent the broader context of the topic in Zimbabwe. It is important to consider that
the findings of the study may not be generalizable to other firms in Zimbabwe or in different
industries.

1.8.3 Subjectivity: Qualitative data analysis relies on interpretation and can be influenced by
researcher bias. It is important for researchers to acknowledge their own biases and strive to
remain objective throughout the analysis process.
2.0 Literature Review

According to an article by (Betti, 2021) the importance of internal audits in improving the
quality of internal controls within businesses has grown in recent years due to the complexity
and volatility of the business environment. Protecting assets, guaranteeing accurate financial
reporting, and maximizing operational efficiency are all reliant on well-designed internal
controls (Mungai, 2021). The need for strong internal audit operations has increased
dramatically as a result of the increased scrutiny that firms worldwide are receiving from
regulators and stakeholders.

For instance, in the United States, the (Sarbanes-Oxley Act, 2002) aimed to improve
corporate governance but revealed that 40% of companies still reported issues with their
internal controls (Ahmed et al., 2023). In contrast, European countries have seen
improvements in audit quality due to stringent regulations; however, a study found that 25%
of external auditors felt under pressure from management to overlook internal control
deficiencies (Anas et al., 2023). These discrepancies in regulatory environments and audit
practices highlight the importance of global standards and consistency in financial reporting.
Without a unified approach, companies and auditors may struggle to effectively identify and
address control weaknesses. As businesses continue to operate on an international scale, it is
crucial for regulators and stakeholders to work together to establish best practices that
promote transparency and accountability in financial reporting. Only then can the true value
of audits be realized in identifying and mitigating risks in an increasingly complex and
interconnected global economy.

In Africa, the internal audit profession is still developing. A study indicated that only 15% of
organizations in sub-Saharan Africa have fully functional internal audit departments
(Alexandre, 2018). This lack of robust internal auditing often leads to higher instances of
fraud and mismanagement, which in turn affects the quality of external audits. According to
(Perez, 2024), 40% of African companies reported delays in financial reporting due to
ineffective internal controls. The lack of robust internal auditing in Africa not only impacts
financial reporting but also leaves organizations vulnerable to increased risks. Without proper
internal controls, companies are at a higher risk of fraud and mismanagement, which can
ultimately lead to reputational damage and financial losses. It is crucial for organizations in
Africa to prioritize the development of their internal audit departments in order to strengthen
their risk management practices and ensure the accuracy and reliability of their financial
reporting.

European firms generally have stronger internal audit functions due to regulatory frameworks
like the EU Audit Regulation. However, a survey revealed that 20% of external auditors still
face challenges stemming from inadequate internal audit support (Roberta, 2023). The
European Commission found that 15% of companies experienced financial misstatements
linked to poor internal auditing practices.

In Asia, the situation varies significantly among countries. For example, while Japan has a
robust internal audit framework, studies indicate that in India, only 30% of companies have
effective internal audit functions (Charles et al., 2024). This disparity often leads to
inconsistencies in external audits. A report from (Ines et al.,2024) indicated that 35% of
Asian firms experienced issues related to internal controls affecting external audits. the Asian
Corporate Governance Association highlighted the need for improved internal audit functions
in the region to ensure accurate financial reporting and compliance with regulations. Without
strong internal audit support, companies may continue to face challenges with external audits
and risk facing financial misstatements that could ultimately harm their reputation and bottom
line. It is crucial for companies in Asia to prioritize strengthening their internal audit
processes to mitigate these risks and ensure sustainable business practices.

In North America, particularly in the U.S., research shows that an effective internal audit
function can reduce external audit fees by up to 25% (Waled et al.,2023). However, a
significant portion (35% of companies) reported that their internal audit departments lack
sufficient resources to perform their duties effectively (Ulrich, 2019).

In South America, particularly in Brazil, there is growing awareness about the importance of
internal audits. However, a study indicated that only 20% of Brazilian companies have fully
operational internal audit departments (Giuseppe, 2021). This gap results in a higher risk of
errors in financial reporting. A survey by (Ahnaf et al.,2023) found that 25% of South
American firms experienced issues with compliance due to inadequate internal auditing. This
lack of resources and operational internal audit departments can lead to increased financial
risks for companies in South America. Without proper internal controls and auditing
measures in place, errors in financial reporting and compliance issues can easily go
unnoticed. It is crucial for companies to invest in strengthening their internal audit
departments to ensure accurate and compliant financial reporting. Failure to do so can result
in serious consequences for the organization.

In Zimbabwe, the internal audit profession faces unique challenges due to economic
instability and regulatory ambiguities. A study indicated that only 10% of organizations
possess an effective internal audit function (Favourate, 2023). This inadequacy often leads to
increased risks in financial reporting and poor-quality external audits. According to a report
by (Bwakura, 2023), 50% of Zimbabwean companies reported issues with financial statement
accuracy due to ineffective internal controls. This lack of effective internal audit functions in
Zimbabwean organizations not only puts the companies at risk of financial mismanagement
and fraud but also undermines investor confidence in the country's economy. The need for
stronger regulatory oversight and enforcement of internal control standards is crucial to
address these challenges and improve the overall financial reporting landscape in Zimbabwe.
Without proper internal audit functions in place, organizations will continue to struggle with
maintaining accurate and compliant financial reporting, ultimately hindering their growth and
sustainability in the long run.
3.0 Research Methodology

This research study aims to explore the role of internal audits in enhancing the quality of
internal controls focusing on the case of Fanset International. This section outlines the
methodology employed to conduct this investigation, detailing the chosen research design,
population, sample, sampling techniques, research instruments, data collection procedures,
data analysis methods, reliability and validity considerations, and ethical considerations.

3.1 Research Methodology

The study will adopt a mixed-methods research design, combining both quantitative and
qualitative approaches to provide a comprehensive understanding of roles of internal audits in
enhancing the quality of internal controls within Fanset International.

3.2 Research Design.

Study design, as defined by (McMillan ,2015), refers to the choices made by the researcher
about the research location, participants, and methods of data collection

3.2.1 Case Study Research Design.

The study will employ a case study research design. A case study design involves an in-depth
investigation of a specific phenomenon within its real-life context. In this study, the research
would focus on Fanset International. Through using a case study design, researchers can
gather rich, detailed data about the roles of internal audits in enhancing the quality of internal
controls

3.3 Population and Sample

The study population consists of all employees of Fanset International in Zimbabwe involved
in in the internal audits of the company. The population of the study is an estimate of 48
people in totality according to the company HR employee records.

3.4 Sampling Techniques.

3.4.1 Stratified Sampling: The population will be stratified based on departments involved
in auditing, ensuring representation from internal audit teams, external audit teams, and
support functions like risk management and quality control.
3.4.2 Simple Random Sampling: Within each stratum (department), a simple random
sample will be drawn to select participants for the study. This ensures that each employee
within a stratum has an equal chance of being selected.

3.5 Sample Size

The sample size of this study will make up of 43 individuals. Raosoft calculator was used to
come up with this projected figure.

Fig 1:1 Showing Sample size projection using the Raosoft Calculator.

3.6 Research Instruments

The study will utilize two primary research instruments:

3.6.1 Questionnaire

A structured questionnaire will be administered to collect quantitative data on the

effectiveness of internal audit processes, employee perceptions of these processes. The
questionnaire will be designed using a combination of Likert scales, multiple-choice
questions, and open-ended questions to assess compliance with auditing standards, resource
allocation, internal control effectiveness.

3.6.2 Interview Guide.

Semi-structured interviews will be conducted with key stakeholders, including internal audit
managers, and senior management within Fanset International Zimbabwe. The interview
guide will focus on exploring the implementation of internal audit practices, their
effectiveness in identifying and mitigating risks, and their influence on the quality of internal
control.
3.7 Data collection procedures

3.7.1 Questionnaire Distribution.

The questionnaire will be distributed electronically to the selected sample of employees via
email or online survey platforms. Participation in the survey will be voluntary and
anonymous to ensure confidentiality.

3.7.2 Interviews.

Interviews will be conducted in person or via video conferencing with pre-selected key
stakeholders. The interviews will be audio-recorded with consent from participants.

3.8 Data Analysis Procedures

3.8.1 Quantitative Data.

The quantitative data from the questionnaire will be analyzed using statistical software like
Microsoft Excel or SPSS. Descriptive statistics will be used to summarize the data.

3.8.2 Qualitative Data.

Qualitative data from interviews will be analyzed using thematic analysis. Transcripts will be
reviewed to identify recurring themes and patterns related to the implementation and the roles
on internal audits.

3.9 Reliability and validity

3.9.1 Reliability.

The reliability of the questionnaire will be assessed through Cronbach's alpha coefficient to
ensure internal consistency among the items. Interview reliability will be ensured through the
use of a structured interview guide and the careful transcription and analysis of the recorded
interviews.

3.9.2 Validity.

Content validity will be established through expert review of the questionnaire and interview
guide. Construct validity will be assessed by examining the extent to which the research
instruments measure the intended constructs of the role of internal audits.

3.10 Ethical Considerations

3.10.1 Informed Consent.

Participants will be informed about the purpose of the study, the procedures involved, and the
potential risks and benefits of participation. Informed consent will be obtained from all
participants before they are included in the study.

3.10.2 Confidentiality.

The identities of participants will be kept confidential, and all collected data will be
anonymized before analysis. Any personal information shared during interviews or surveys
will be stored securely and only accessible to the research team. Participants' names will not
be included in any reports or publications resulting from this study to ensure their privacy and
confidentiality are maintained. The research team will take all necessary precautions to
protect the confidentiality of participants throughout the duration of the study.

3.10.3 Transparency.

Participants will be informed about the potential use of the research findings, and the
researchers will be transparent about their roles and affiliations. Participants will also be
informed about any potential risks or benefits associated with their involvement in the study.
Any questions or concerns regarding the research process or their participation will be
addressed promptly and honestly by the research team. This commitment to transparency and
communication is essential in building trust and maintaining ethical standards in research.
3.11 Organization of the research report

Chapter One: Introduction

Chapter one presents the background of the study, statement of the problem, research
objectives, research questions, significance of the study, limitations of the study, scope of the
study, and structure of the study.

Chapter Two: Literature Review

This chapter deals with the review of relevant literature based on previous studies by other
researchers. It provides the theoretical basis of the study by comprehensively evaluating what
other scholars have already done on the topic. It also deals with the theoretical or conceptual
framework as well as the identification of research gaps.

Chapter Three: Methodology

The third chapter deals with explaining what the researcher actually did to provide answers to
the research questions. It gives detail to how the study was actually carried out, and it
includes aspects to do with research methodology, research design, target population, sample
size, sampling method, research instruments, data collection procedure, data sources, and data
analysis.

Chapter Four: Presentation, Analysis, and Interpretation

The fourth chapter explains how the collected data was analyzed and prepared to be presented
in different forms.

Chapter Five: Findings, Conclusions, and Recommendations

The fifth chapter describes the outcome of the data analysis. The chapter provides a summary
of the study, major findings, and recommendations, conclusions, and limitations.
3.12 Research Schedule

Weeks 1–2: Define research objectives, review existing literature, and formulate research
questions.

Week 3–4: Design research methodology, including data collection methods and sample
selection criteria.

Weeks 5–6: Collect primary and secondary data, such as financial statements and interviews
with managers.

Week 7-8: Analyze data using statistical tools and qualitative analysis techniques.

Week 9–10: Interpret the results and draw conclusions regarding corporate governance.

Week 11–12: Write a research report, including an introduction, a literature review,

methodology, findings, and recommendations.

3.13 Research Budget

1. Research assistants: $15

2. Survey administration and data collection: $10

3. Printing and binding of the research report: $20

4. Travel expenses for on-site interviews: $25

5. Miscellaneous expenses: $10

Total Budget: $80

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