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AUI4861 2020 TL 202 - Assignment answers

Advanced Internal Audit practice (University of South Africa)

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AUI4861/202/0/2020

Tutorial Letter 202/0/2020

INTERNAL AUDIT PRACTICE

AUI4861

Year course

Department of Auditing

IMPORTANT INFORMATION
This tutorial letter contains important information about
your module.

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AUI4861/202/2020

KEY TO ASSIGNMENT 02/2020

1.1 Option 4 is correct. The IIA Standards state that the nature, timing and extent of follow-
up should be determined by the chief audit executive. Options 1 and 2 are incorrect. The IIA
Standards state that follow-up work is not management’s responsibility. Option 3 is incorrect.
The auditor has to provide an opinion as to the decision made with regard to lack of action.

1.2 Option 2 is correct. According to the IIA’s Standards, “the CAE of the internal auditing
department should be responsible to an individual in the organization with sufficient authority
to promote independence.” External auditors are not individuals in the organisation. Option 1
is incorrect. The internal audit department will not have direct access to the board of
directors. The access is indirect, via the chief operations officer (COO). According to the
Standards, the “chief audit executive (CAE) should have direct communication with the
board.” Option 3 is incorrect. Whether the COO has experience with internal auditors or not
does not affect the audit department’s independence. Option 4 is incorrect. Although
desirable, the Certified Internal Auditor (CIA) designation is not mandatory for a person to
become an internal auditor. A CIA would, of course, insist on internal audit department
independence.

1.3 Option 4 is correct. Responsibility for follow-up should be defined in the internal
auditing department’s written charter. Option 1 is incorrect. Follow-up is not specified in the
content of the audit committee’s mission statement. Option 2 is incorrect. This memo may
contain a statement about responsibility for follow-up, but such a statement should be based
on the wording and authority of the departmental charter. Option 3 is incorrect. Follow-up
authority and responsibility may be cited in applicable audit reports, but the definition should
be first contained in the departmental charter.

1.4 Option 3 is correct. The IIA Standards require follow-up action. Options 1 and 4 are
incorrect. Follow-up is required. Option 2 is incorrect. Follow-up is to see that actions are
taken, not just that the auditor’s recommendations have been implemented. Lack of
resources is not a sufficient reason.

1.5 Option 3 is correct. IIA Standard 1320 states “The chief audit executive must
communicate the results of the quality assurance and improvement program to senior
management and the board”. This is the correct answer based on the IIA Standards. Option
1 is incorrect. As per the IIA Standards, this is the chief audit executive’s responsibility.
Option 2 is incorrect. A quality assurance and improvement program is designed to enable an
evaluation of the internal audit activity’s conformance with the Definition of Internal Auditing
and the Standards and an evaluation of whether internal auditors apply the Code of Ethics.
Option 4 is incorrect. It also includes training, employee performance evaluations, time and
expense control, and similar administrative areas.

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1.6 Option 3 is correct. This is not an objective of the quality assurance review. Options 1,
2 and 4 as these are objectives under the IIA Standards.

1.7 Option 3 is correct. The true cause of a finding may require additional expertise and
may be determinable only through additional management study. Option 1 is incorrect. If the
finding is significant enough to report, time must be found to determine what action would
solve the deficiency. Option 2 is incorrect. Avoiding honest differences of opinion is not an
acceptable reason for deleting a recommendation. Option 4 is incorrect. Recommendations
do not impair an auditor’s independence. Management is responsible for decision making
and implementing suggestions or formulating new solutions.

1.8 Option 3 is correct. An understanding of management principles is required of all

internal auditors. Option 1 is incorrect. Such skills should be included within the staff, but not
required for each auditor. Option 2 is incorrect. Detailed knowledge of accounting is required
only for those auditors who work extensively with financial records and reports. Option 4 is
incorrect. An appreciation of computerised information systems is required, but this is less
expertise than is needed for proficiency.

1.9 Option 3 is correct. The mix of audit skills in an audit staff affects the range of activities
that can be audited. Auditing departments that comprise only people trained in accounting
probably would be better able to examine financial and accounting systems than engineering
systems, for example. As a result, departments should strive for an appropriate balance of
experience, training, and ability in order to audit a range of activities within their respective
organizations. Option 1 is incorrect. Auditing departments that hired only CIAs or CAs and
individuals possessing accounting degrees would be better equipped to audit certain
operations, for example, financial and accounting systems, than others that did not have
these minimum standards. Option 2 is incorrect. A charter which set minimum professional
standards, that is, CIA or CA, for its department’s auditors would promote professionalism.
Option 4 is incorrect. The impact of this requirement would not affect whether consultants
were used. Standard states that when auditors do not possess adequate knowledge and
skills in certain required area consultants should be used.

1.10 Option 2 is correct. The IIA Standards address this aspect of working paper content.
Options 1, 3 and 4 are incorrect as they do not address working papers.

1.11 Option 1 is correct. The IIA Standards states that auditors must continually develop
their skills and knowledge. Option 2 is incorrect. Diversified tasks enhance an auditor’s
experience by allowing him to become familiar with various components of the audit. Option 3
is incorrect. Internal auditors must be aware of current events in the field. Independent study
is one means of accomplishing this. Option 4 is incorrect. Rotating supervisors is desirable
because it helps to broaden on-the-job training.

1.12 Option 1 is correct. The internal auditor discusses conclusions and recommendations
at appropriate levels of management before issuing a final engagement communication.

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Discussion with the engagement client not only provides a quality control review but is also a
courtesy that enhances the internal audit–client relationship. Option 2 is incorrect. An interim
engagement communication would have been used to obtain immediate action on a
recommendation. Option 3 is incorrect. The distribution of communication is not a secondary
purpose of an exit meeting. Option 4 is incorrect. Ordinarily, senior management should be
given a summary of results.

1.13 Option 3 is correct. The audit manager dramatically changed the nature of the audit
function without consulting with the audit committee, management, or the audit department
charter. A second violation is the omission of negative findings. Option 1 and 4 are incorrect.
Highlighting potential cost savings is appropriate for an audit report. Option 2 is incorrect.
Item II is also a violation.

1.14 Option 3 is correct. The company secretarial function is not part of the oversight
responsibilities of the audit committee.

1.15 Option 3 is correct. Lapsed time since the last audit is a factor affecting audit
scheduling, not staffing. Options 1,2 and 4 are factors to consider in a staffing decision.

1.16 Option 1 is correct. since audit programs are not included in developing the audit work
schedule and this occurs during the planning phase of an individual audit.

1.17 Option 2 is correct. Option 2 is correct. The skills of the internal audit staff do not affect
the risk associated with potential audit clients. Options 1, 3 and 4 are factors that should be
considered in a risk analysis.

1.18 Option 2 is correct. The CAE must ensure resources are appropriate, sufficient and
effectively deployed to achieve the approved plan (Standards 2030). Option 1 is incorrect
since the decision to outsource is not primarily based on existing resources. Option 3 is
incorrect as the amount of resources is not a factor in establishing credibility. Option 4 is
incorrect as succession planning is not related to the amount of audit resources.

1.19 Option 1 is correct. The internal audit department would, in composite, have the
requisite skills to perform the audit. The other key element is that the staff auditor is carefully
supervised such that significant deviations from good business practices would be noted.
Option 2 is incorrect. The audit would not be conducted in accordance with the Standards
because the staff auditor might not have noted significant deviations to include in the audit
report. The review by the director at the time the report is generated would be too late. Option
3 is incorrect. Response 2 would not meet the Standards. Option 4 is incorrect. Response 1
would be consistent with the Standards.

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1.20 Option 4 is correct as that states the role of internal auditing as per the Definition of
Infernal Auditing “Internal auditing is an independent, objective assurance and consulting
activity designed to add value and improve an organization's operations. It helps an
organization accomplish its objectives by bringing a systematic, disciplined approach to
evaluate and improve the effectiveness of risk management, control, and governance
processes”.

1.21 Option 3 is correct. Option 3 is correct since the length of the CAE’s tenure should
not be codified in the charter; it is a matter of ongoing judgment for the board.

1.22 Option 3 is correct. If the internal auditors lack the necessary expertise, external
service providers should be employed who can provide the required knowledge, skills and
other competencies. Option 1 is incorrect. The audit is within the scope of the internal audit
activity. Option 2 is incorrect. Performing the audit using the current staff is inappropriate.
Option 4 is incorrect. Accepting the contractor’s representation without adequate testing is
inappropriate.

1.23 Option 4 is correct. External assessments must be conducted at least once every
five years by a qualified, independent reviewer from outside the organisation (IIA Standards
1312). Options 1,2 and 3 are incorrect since these can be achieved by conducting internal
assessments.

1.24 Option 3 is correct. The chief audit executive must communicate the results of the
QAIP to senior management and the board (IIA Standards 1320.

1.25 Option 1 is correct. Internal auditors must possess the knowledge, skills and other
competencies needed to perform their individual responsibilities. The internal audit activity
collectively must possess or obtain the knowledge, skills and other competencies needed to
perform its responsibilities (IIA Standards 1210). Therefore, option 1 is correct since not all
applicants need to have an accounting degree.

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UNISA 2020

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