The Role of Internal Audit in UAE Companies

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When oil was discovered in 1950s in the UAE, an economy which was heavily dependent on fishing and declining pearling industry, the country has undergone drastic transformation owing to the socio-economic changes taking place. The main export of the country is of oil and gas. Today, UAE ranks 8th in the list of top 10 prime oil producing countries in the world, producing about 3.1 million barrels per day. It is also the 3rd largest oil producer in the world. In the UAE, fluctuations in the oil prices have been diminished due to diversification and hence, because of the oil resources of the country, people generally enjoy high standards of living. With the development of oil industry in the UAE, a large number of foreign workers are seeking the job opportunities that exist in the developing country. (Dorish, 2010)

The main reason that I am interested in this area is because it is highly related to my career goals and objectives. Researching this topic at this point might prove to be a big step forward in order to achieve my aim as the oil industry in UAE is expanding by leaps and bounds.

In any business decision, risk is an innate consideration. So, efforts are being made in the field of risk management practices in the oil and gas industry, with a focus on financial and regulatory risks. And recently, operational risks have been on the priority list of companies across the world. They intend to manage, monitor and mitigate all the risks in a coordinated way. According to a recent Ernst & Young Report, access to reserves has been identified as the prime business risk for the oil and gas sector, others including uncertainty around energy policy, price volatility, human capital deficits and many more.

Aims and Objectives

As mentioned above, the oil industry is highly susceptible to operational risks. Internal auditing can assist the top management of a company to identify the potential risks related to their operations and the measures that could be taken to control them effectively. The aim of undertaking this research study is to focus on the importance of internal audit in risk management in oil companies. As UAE is a part of the GCC countries, it has a joint objective with the other nations of GCC to foster technological and scientific progress of the oil industry. Hence, there is a large potential for oil companies in the country. Hence, this study would focus on the oil companies that are positioned in UAE. Also, the strength of this industry would provide a challenging task for internal audit of the same. Based on the above aim, the following objectives can hence be framed:

To find out the significance of internal audit in oil companies.

To establish a correlation between internal audit and risk management in oil companies.

To find out the oil companies on which this internal audit can be done.

To find out the improvement in the objective of GCC nations by having internal audit to improve their technological and scientific progress in the oil industry.

Overview of review of the relevant literature

Globally, many initiatives are being taken by regulatory bodies across the world to emphasize the importance of auditing in any business. To aid the managers, auditors and the IT users, the Information Systems Audit and Control Association (ISACA) and the IT Governance Institute (ITGI), in 1996, created a set of best practices framework â€" the Control Objectives for Information and related Technology (COBIT). It is a set of generally accepted measures, indicators, processes and best practices which help them to optimize the benefits of using information technology, and to develop appropriate IT governance and control in the company. Also, to sponsor the National Commission on Fraudulent Financial Reporting, a voluntary private sector organization, the Committee of Sponsoring Organizations (COSO), was formed in 1985. Internal auditing in any industry is carried out in various legal and cultural environments depending on the organization. These organizations may differ in terms of purpose, size, complexity, and structure. [1] 

Any kind of internal auditing is done by the individuals within or inside the organization. However, there might be differences in the way internal auditing is carried out due to the organizational environment. Despite these differences, it is necessary that these practices should conform to the IIA’s International Standards for the Professional Practice of Internal Auditing (Standards). [2] This conformation is essential in order to meet the responsibilities of internal auditors and the internal audit activity. The main purpose of these standards is to outline the basic principles representing the practice of internal auditing and provide a framework for performing and promoting a broad range of value-added internal auditing. These standards also establish the basis for the evaluation of internal audit performance and simultaneously are intended to cultivate improved organizational processes and operations. (The Insitute of Internal Auditors, 2010)

A number of authors have argued on the benefits of carrying out an audit of the firm. Kuhn and Figgins (1994) explained that it helps to determine the root cause of problems existing in business operations. Efficient usage of resources of the company which results in cost reduction has also been argued as a benefit by Drew (1993). Preventing business risks and developing plans and strategies has been also stated as a benefit by Donaldson (1993). Campbell, Goold and Alexander (1995) and Simpson (1995) also discuss the importance of auditing in strategic decision-making which requires company resource information capabilities so that various alternative actions can be identified and supported. (Wendy Fenwick, 2009)

Just to have a clue of the importance of internal auditing in oil based companies, there are a number of formalized training programs designed for a week to cary it out. These audits have been organized by mistieurope in the past. They can be of vital help in understanding the risks asscoaited with the business, understanding the procurement function, understanding the auditing projects etc. Hence, there certainly is a big potential for conducting internal audit for risk management of the oil companies in UAE.

Methodology

Basically, this research would be done by both secondary and primary research methods. As oil is a highly dominating sector in UAE (the country is the 8th largest manufacturer of oil in the world) [3] , a lot has been published on the Internet. This would help in understanding the risks associated with the same and further help in conducting the internal audit. A few of the forums which have information on the same are Khaleej, The Gulf and Factoidz.

The nest research to be done in this category would be primary research. Taking interviews is a time-taking as well as expensive affair. Hence, questionnaire distribution in a simple random sample amongst oil companies (including management and employees), can be done. Further, based on the formed hypothesis, z-test can be used to find out the validation of the research.

Proposed Timetable

A Gantt chart is being shown below to demonstrate the possible timeline of the project. The chart clearly depicts various phases of the project life cycle and the time/ month during which a particular phase of the project will be implemented.

It can be viewed in the MS-Project file attached with the doc.

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