University of the Western Cape

Department of Accounting

Auditing 241
Solution Test 1 – 14 March

Question 1

1.1 He is not acting with Integrity

1.2. by stating that he is in the progress of getting his CIA accreditation, it is lying.”- reasoning
provided

2.1. He obtained a written contract which is in terms of the standards

2.2. A Verbal approval will not be legally presentable
2.3. The audit scope should be agreed with the director/s
2.4. The standard on proficiency states that the internal audit activity, collectively must possess or
obtain the knowledge, skills, and other competencies needed to perform its responsibilities

6 marks
We have done a similar tutorial question.
We discussed, that a team collectively should have the skills to perform the audit. We also discussed
that people external to the firm can be temporarily employed on assignments.
As per point 2.4 repeated from your tutorial solution.
Note- to be a qualified Internal Auditor, you do not have the CIA designation, as discussed in class.
Senior management are not the directors and cannot make decisions on internal audit assignments.
Please do not use words like “culprit
Students seem to be confused as to the structure of Internal Audit activity in the work place. It could
be one of two:
1. There is an in- house internal audit department with a CAE, who reports to the audit
committee.
2. The company does not have an internal audit department. They outsource internal audit
activity to a firm such as Deloitte, KPMG etc. In this case there is no CAE, nor audit
committee. Instead there are external internal auditors.The external internal auditors report
to the director of the company who has engaged them.

Question 2

1. The code of ethics requires the internal auditor to apply competency and receiving training
enables them to be competent.
2. Standard 1230 CPD requires that Internal auditors enhance their knowledge, skills, and other
competencies through continuing professional development
2 Marks
In answering questions, please don’t offer emotional feelings.
Please refer to the standards and code of ethics as per the question, and then apply directly to
the question.
 Note, it is not your employer’s or management responsibility to ensure that CPD, standards and
ethics which apply personally to the career of the internal auditor is maintained.

Question 3

1. The duty of confidentiality is overridden where the organisation is breaching the law. -Apply
to the question.
Integrity which states that the auditor shall not knowingly be a party to any illegal activity or
engage in acts that are discreditable to the profession of internal auditing or to the
organisation
The internal auditors’ duty of objectivity and integrity applies
2. She/CAE should inform the managing director and board of directors, in writing that the
actions of tax evasion presents a risk of fines, penalties and other costs to the organisation
3. She/CAE should in writing inform the audit committee, about her findings

5 marks

Generally well answered.

A few students applied the standards and code of conduct applicable to an internal auditor to
the managing director, Burt. He is not bound by the IIA standards and ethics .Feelings about his
behaviour are not awarded marks.”

Please don’t use words such as :

1. Culprit ,interfering, he/she is wrong. Must resign. He will lose his job

Stating that there is a violation of the code of ethics will not be awarded marks. State which
ethic and apply to the question by quoting referring from the question.

Question 4

1. Independence may be compromised refer to Standard 1110).

2. Reporting line to CFO not acceptable (refer to Standard 1110) –
3. Internal audit activity must report functionally to the BOD/audit committee
and administratively to the CEO
4. Furthermore, the internal audit activity must have direct contact with the BOD.
5. short staffed in auditing
6. assurance services (Standard 1130.A1) – perform and audit work not allowed.
7. Training, acceptable as a consulting engagement, and part of risk management

5 marks

Generally answered well. Note that training is an acceptable consulting activities. Note that Internal
Auditors test controls as part of internal audit activity

Question 5

1. Internal Assessment is
a. On- going monitoring of the performance of the internal audit activity
b. Periodic self- assessments/ assessments by other persons within the organisation
with sufficient knowledge of internal audit processes. 2
2. External assessment
 a. Conducted every 5 years by
b. a qualified, independent assessor /team from outside the organisation2
3. a. Scope and frequency
b. Qualification and independence of assessor
c. Conclusion of assessor
d. Corrective action plans 4
8 marks
1. Internal assessment is of work done already, it’s a review of completed files.
2. Many students, who I found to be repeats confused external internal assessments with
external auditors. Note , external internal audit assessment is a review of the files done by
the internal audit department. They are outside the company..
3. Poorly answered.
Question 6

1. standard requires the external assessor to be independent, as he is a staff member. In

addition, he may not be competent 2
2. The form and frequency of external assessments and
Qualifications and independence of the external assessor/team including any potential
conflict of interest 3
3. Report should not state Conforms to the International Standards for the Professional
Practice of Internal Auditing”
a. He is not allowed to use word “in conformance with….” (Standards 1321 and 1322)
because external assessment hasn’t been performed. 1
6 marks
Answered well

Question 7

1. Celine lacks objectivity due to her experience at the organisation

a. Standards preclude her from offering assurance activities where she previously

Standard 1130.A1 states that “Internal auditors must refrain from assessing specific
operations for which they were previously responsible. Objectivity is presumed to be
impaired if an internal auditor provides assurance services for an activity for which the
internal auditor had responsibility within the previous year.” 2

2. The standards of proficiency

Must collectively have knowledge skills (Standard 1210), this is not currently the case, if
Celine is removed
Shafi does not have the skills yet to perform the audit. 2

3. He should assign another technically competent team member, where Shafi can receive on
the job training and consider an additional team member, so that at least 3 audit staff on the
team. 1
5 marks
Answered well, marks lost in point 2 – Shafi can remain on the assignment if another
competent person is assigned. Collective skills.
Question 8

1. Fraud
a. IA must have sufficient knowledge to evaluate the risk of fraud and manner
managed by the organisation
b. But not expertise of person whose primary responsibilities to detect and prevent
fraud.
2. Due Professional care does not imply infallibility, exercised by considering
a. Extent work needed
b. Complexity of matters
c. Adequacy effectiveness of governance, risk management and control processes
d. Probability of significant errors, fraud and non- compliance
e. Cost vs benefits of assurance

5 marks

Response was disappointing. This was a class discussion, as it was a real case. Students expressed
their feelings on the “blame” and who they felt was responsible. We did this in class, and
mentioned it as a possible test question.

To score marks – students should have stated what the internal auditors responsibility with
regards to fraud and due care as stated by the standards.

Question 9

The purpose of Internal audit activity is to evaluate and improve the effectiveness of risk
management, controls to mitigate risks, and governance process.

3 marks
Answered well. Note that the marks allocated did not warrant the lengthy answers produced.

Question 10

According to the Attribute Standards (Standard 1210.A3), not all internal auditors should be IT
experts,
but all internal auditors should be able to identify key IT risks and controls.
2marks
Note, to score marks – elaborate that they should be IT literate.

Question 11 3 marks

Internal audit charter – what it is and contains

The nature of assurance services provided must be defined in the internal audit charter

It includes:

1. An introduction
2. A description of
2.1. the internal audit activity’s
2.2. authority,
2.3. organisation
2.4. and reporting structure
2.5. independence
 2.6. objectivity
2.7. responsibility
2.8. quality assurance and improvement
2.9. signatures of the chief audit executive, designated board of directors’
representative, individual to whom the chief audit executive reports.

2marks
Was not answered well. Many students confused the IIA standards and handbook with the
internal audit charter.