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1 Assignment1 Internal Audit and the Audit Committee; and Types of Audit

1. Describe the relationship between internal audit and the audit committee?

Internal auditors shall supply the committee with the required information. The data they have
direct access to, as well as the management of the company, in order to allow the audit committee
to carry out its supervisory and monitoring duties. In the other hand, the audit committee supports
the position of the internal audit function and, having resolved these matters, reports to the board
of directors on managerial problems and other associated management and financial concerns.
Issues with internal auditors and with other stakeholders.

2. The Chief Audit Execuitve (Internal Audit Office, reports administratively to the CEO, this
administrative reporting  line is necessary for Internal Audit to carry out efficiently its role or
mandate. What are the typical inclusions in the administrative reporting of internal audit to the
CEO?

Administrative reporting to the chief executive officer generally includes:

 Internal audit resources and annual budget.

 Provision of corporate services to internal audit including office accommodation, computers and
equipment.
 Human resource administration.

3. In the conduct of internal audit engagement, how does internal audit obtain and sustain the
expertise it needs?

It is in the interest of both the customer and the auditor that an engagement letter is submitted
by the auditor, preferably before the engagement begins, to help prevent misunderstandings with
regard to the engagement. The letter of engagement documents and confirms the approval of the
appointment by the auditor, the intent and nature of the investigation, the extent of the auditor's
obligations to the consumer and the form of any findings.

4. How is the internal audit plan developed and what does the internal audit plan not cover?

According to the standard, audit planning requires the creation of an overall communication
audit policy and the creation of an audit plan, which contains in particular prepared procedures for
evaluating the risk and expected responses to the risks of content misrepresentations. Planning is
not a separate audit phase, but rather a continuous and iterative process that can begin shortly after
the conclusion of the previous audit (or in conjunction with it) and continue until the new audit is
completed. Also, the audit plan is required to cover all in order to be acceptable.

5. How are internal audit findings reported? How corporate managers required to respond to
internal audit findings and recommendations? Please elaborate

a. How are internal audit findings reported?

 In order to confirm the integrity of the control process, boards, audit committees and senior
management are subject to internal audit reports. Where the number of audit reports is high, the
chief audit officer can prepare summaries at an appropriate level of detail. If the internal auditor has
finished the review, the results will be published in a written report. The audit report explains how
the audit was carried out, what it found and, if applicable, recommendations as to what changes
might be made. It is usually addressed to the company's top executives.

b. How corporate managers required to respond to internal audit findings and recommendations?

Management reviews are of the highest significance for one corporate plan, and any successful
leader understands that. They help them monitor and manage their companies and make more
educated choices. Management reports reveal operating and financial statistics, thereby allowing
administrators to determine the importance of their company over a particular period of time. They
say how the business is doing, provide the requisite input for decision-makers to step in the right
direction and improve organizational performance.

6. Who audits the Internal Audit?

-External Auditor

7. Please answer the following questions pertaining to the different types of audit?

a. Environmental Audit - Give at least 3 reasons why businesses should improve their environmental
performance.

1. Environmental audits are important to determine the impact of businesses and their development
on natural resources. Also, to ensure the continual enhancement of environmental protection,
environmental auditing is a necessary process.
2. In order to guarantee the conservation of natural resources, the environmental inspector shall
properly regulate the framework for the proper disposal of waste in industry. It also effectively
prevents governmental interference, as the environmental auditor will review the relevant criteria
and apply the report to the government.
3. For the protection of the environment, the environmental auditor must consider current
environmental compliance issues and make recommendations to manufacturers to reduce
pollution. The final audit reports shall be prepared by the auditor and shall consist of the findings
and recommendations for amendment.

b. Due Diligence Audit - As auditors, we anticipate that the due diligence process will cause us to
identify checklist and additional items that we will need to request and review. Example of this is the
acquisition of a 5- hectare rawland intended to construct a power plant. Why the conduct of due
diligence audit in this particular example? What are the elements that should be looked into prior to
any decision to close the deal?

Due diligence audit is important because it involves careful investigation of the deal. These
audits usually come before an acquisition, merger or other significant decision that may have a negative
effect on one or more companies' finances. By being sceptical with the plan acquisition of the 5-hetare
rawland, possible problem will more likely to be prevented. Also, by ensuring the details listed in the
contract are legitimate will be a strong agent for the company in case that there will be court actions.

c. Program Results Audit - One of a typical example of this is Retrenchment Program of affected
employees due to automation. The important processes that HR undertakes are the following: a.
Planning and implementation; Managing complex layoffs; Communication planning; Planning
checklist; Resources to help employees. Assuming that the company has just implemented its
automation project; Why do the auditor considers with utmost confidentiality the conduct of this
particular audit?

In my opinion, the reason why auditors ensure the confidentiality of these actions is because of the
sensitivity of the decision. The auditor is responsible for maintaining the confidentiality of information
gained during the course of the performance of any professional services and should not reveal any such
information without it. The auditor will have to keep in mind the workers who are laid off, of course,
they do not want their job losses to be at the core of the problem. For the companies, it will be a huge
drawback on their part especially on the point of view of the outsiders.

d. Compliance Audit - Give 2 examples of an audit engagement and state the purposes for the
conduct of compliance audit?
1. A compliance audit could be issued to determine a textile mill is following the EPA (or
Environmental Protection Act) guidelines for disposing waste. The EPA could send someone
from their business, or they could hire a third party to assess the mill and send in the results.
2. If the corporation is listed on the stock exchange outside the country that they are operating.
Then they need to make sure that the entity complies with the requirement of that stock
exchange requirement.
e. Financial Audit - Some cases involved the auditor’s failure to examine relevant supporting
documents (for example, examining a draft, instead of a final, sales contract) or failure to perform
steps listed in the audit program. Overall, this failure contributed to management’s success in
overstating assets, the most common fraud technique. You're therefore to give statement,at least
2 on those issues that the auditor failed to apply in the audit of the financial statements.

1. Erroneously recorded the receipt of a long-term bank loan by a debit to cash and a credit to
sales.
2. During the validation of the accounts receivable, the auditor examined the date by means of
physical count and inspection instead of confirmation, reconciliation and inquiry.
f. Operations Audit - Listen carefully and please share your takeaways on The Rise and Fall of Nokia
specifically its "FALL”

The continuous innovation of technology, there are a lot of companies who followed the trend and
ignored this changes. One of the famous mobile company who experienced the fall of their market share
was Nokia. Nokia had it difficult to combat with rise of high technologies as well as the booming of name
of new phones like Samsung and Apple. The invention of the android phones and iPhone made it hard
for Nokia to follow the trend. The continuous rise of these smart phones led to the 30% fall in third
quarter profits and the smartphones sales of Nokia and later on the share was slumps to 1.3 Billion
Euros loss. Because of these, their factories in Finland were which led to the layoff of 10,000 employees.
 In conclusion, it was a huge struggle on the part of the company to follow the new trend as they
were afraid of such changes. However, the taste and preference of the customer changes gradually that
the introduction of new product become more appealing than the current one. Maybe if Nokia followed
the trend and changed their planning and operational approach, more likely this will not result to loss.

“I affirm that I have not given or received any unauthorized help on this assignment, and that this
work is my own.”