Assessment of factors that management considers when relying on the internal audit function in Tanzanian oil and gas companies

This study focused on examination of factors that management considers and the extent of reliance on the work of IAF in Tanzanian oil and Gas companies. The research applied positivism paradigm, and it was performed in Tanzania mainland involving 51 respondents from 17 oil and gas companies that were selected using Yamane’s formula and a total of 42 CEO’s, CFO’s and Members of the audit committee completed those questionnaires. Data analysis was performed using both SPSS and STATA, relationships of variables both dependent (reliance of internal audit function) and independent factors (communication, independence, objectivity, competence, work performance) were modelled by ordinal logistic regression after testing hypothesis using Krusker Wallis. Agency theory, grounded theory of manipulating legitimacy and the resource dependency theory were used to test whether the IAD are compromised in their activities of which may lead to lack of proper operationalization of reliance factors. The study found that the senior management was seen to have overall reliance on works of their internal audit functions whereas some differences were revealed between propositions on competence requirements in oil and gas sector with non-oil sectors. Knowledge of conventional accounting methods was observed to influence reliance significantly, but awareness on risk management skills was seen not to have the significant decrease over reliance. Education and experience were not observed to influence reliance of internal audit function significantly, only on-job training was seen to influence reliance of the internal audit works. The study further revealed lack of significant independence of internal auditor’s function in the sector due to subordination of its human and financial resources to senior management rather than having the autonomy in budgetary approvals and expenditures. Furthermore, it was noted that recruitment policies and authority of day to day operations of internal audit departments were under senior management. The study recommends oil and gas companies to mix experiences and junior auditors in their IADs, to educate their IAF’s on unconventional accounting methods, provide on-job training to IAD’s especially on risk management. The study findings help policy makers both in government and those charged with governance in oil and gas companies to come up appropriate training, recruitment and governance polies that trigger effective functioning of internal audit functions in oil and Gas sector. The study helps in pinpointing strength of internal audit functions in oil and gas sector as part of internal control system and recommends further studies to be conducted on the rest of factors that influence reliance of internal audit function in the sector as only 71.282% of factors have been captured by this study. Also limited number of studies has been conducted on the effect of accounting choices on earnings and divided policies in oil and gas sector which creates avenues for further studies. Lastly I recommend studies to be conducted on the effect of external audit to achieving external auditors in achieving company goals in oil and gas sector.