Internal Control Systems Effect on Profitability at ADNOC

It also improves operational efficiency in an organization and encourages adherence to preserved managerial policies. The main objective of this research is to analyze whether internal control of company operations has a positive effect on profitability. This is because most organizations are geared towards increasing profits, and this research seeks to find what role internal control systems play towards increasing profits in an organization. Also, management plays a definite role in making of internal control structure and ensuring profitability of the company and this research seeks to prove that through internal control of company operations a manager can improve the bottom line of a company (Moore, 2018). The research and data analyzed in this paper include primary and secondary data. The survey made use of a Likert scale that consists of five variables used in questionnaires to gauge participants' levels of acceptance and refusal to proposed statements.

The scaling measure selected for this survey is strongly agree, agree, strongly agree/ disagree, disagree and strongly disagree. The statistical tool chosen to analyze the survey results is ANOVA single factor as it is more efficient and allows one to test one factor with numerous observations levels. The survey was conducted with 20 queries on October 10, 2018, and was sent out to the target group. After a one week period, 25 respondents had participated in the exercise, and a summarized chart was created from the data to be used in the analysis. Table 1 below contains demographic data on gender, and from the analysis, we see that of the participants 6 were men who represent 24% while 19 were women who represent 76% of the entire group. Table 2 below contains demographic data on the ages of the test participants.

From the analysis we see that ages 18-24 had 12 participants representing 48%, ages 23-34 had 9 participants representing 36%, ages 45-54 had 2 participants representing 8%, and 65+ had 2 participants representing 8% of the entire group. Table 1-Demographic Data_Gender Table 2-Demographic Data_Age Based on the variety of respondents the researcher is assured of the range of their opinions on the various statements suggested. Survey related to general opinions on internal control Table 3- Respondents' Opinions on Internal Control Systems Supporting Managerial Function The table above represents the respondents’ opinions on whether internal control systems support managerial functions like safeguarding assets. It is also important to notice that on the last survey area pertaining to the relationship between internal control and profitability, which is the main point of focus for the research, a small group of about 14% does not agree with the hypothesis statement hence requiring the need for further quantitative analysis to prove or disapprove the hypothesis.

ANOVA analysis ANOVA 1 Null-hypothesis: There is no significant difference between different levels of education and their opinion on internal control supporting managerial function. This first ANOVA test analyses the correlation between the levels of education and the statement that the existence of internal control system in companies will support managers in safeguarding assets and generating accurate information. The difference is non-significant hence accepted as the p-one tail value is (0. for the groups in level of education. The researcher hence finds that there is no relevant difference between with different levels of education and their opinion on internal control affecting profitability. Table-ANOVA 3 Financial performance analysis The question that the research sought to answer was whether internal control has a positive effect on profitability. Using the financial statements of ADNOC, I focused on two major areas to carry out a quantitative analysis to try and prove the hypothesis being tested.

First I looked at the company's profit levels and EBITDA for the specified period as this would show whether ADNOC's profits increased or decreased during the period when the internal controls came into effect. Subsequently, I went into ratio analysis focusing primarily on profitability ratios as they are a class of ratios that are used to assess a business ability to create earnings in comparison to its expenses and other costs incurred during a specified period. It is, therefore, a measure of a company's performance based on its operations and hence influenced by internal controls (Altamuro & Beatty, 2010). During the period 2016-2017 EBITDA rose by 7. which is indicative of an increase in earnings based on ADNOC’s operating performance after effecting internal controls on operations. Profits for the period 2016-2017 grew by 1.

This is quite low compared to the percentage increase in EBITDA but might be due to financial, accounting and taxation decisions encompassed in profits for the period but ignored in the calculation of EBITDA. as well indicative of both assets growing. There is a higher variance for the growth of non-current assets as compared to current assets which indicate a higher deviation of growth rate in non-current assets. All this indicate that both assets classes are growing together though non-current assets at a higher rate. Hence the null-hypothesis is accepted as there is a significant difference between growth in current and non-current assets. Table- Current and non-current assets T-test Current and non-current liabilities T-test Null-hypothesis: There is no significant difference between growth in current and non-current liabilities. The T-test analysis shows that the difference is significant therefore null-hypothesis is rejected as there is a significant difference between the growth in ROE and that of ROA.

Table- Profitability T-test analysis Summary of quantitative analysis From the above sets of analysis, it is clear from the data that internal controls can have a positive effect on profitability. The data showed a clear increase in profits and EBITDA during the period when internal controls on operations were put into effect. The profit margin and the ROA ratios also grew in the same period which denotes improved profitability of the period in question. Conclusion The research paper sought to find out whether internal controls on a company’s operations can have a positive effect on profitability. html. Moore, John D. Internal Control System: Definition, Components, Features (Explained).  IEduNote. com, 21 Sept. E. G. I. N. A.  Journal of Accounting and Economics, 56(1), 1-18.