BACHELOR OF ACCOUNTANCY (HONS.

AUD 679

INTERNAL AUDITING

PYQ- MANAGING IA

PREPARED BY:

NO. NAME STUDENT ID GROUP

1. MUHAMMAD ALIF SHAFIQI BIN 2018226706 ELEK5A3

MUHAMMAD SHUKRI

2. NUR LAILATUL JAIZAH BINTI SAIM 2018226132 ELEK5A3

3. NURUL HUDA BINTI SAPEIA 2018226566 ELEK5A3

4. SYAZA DARWISYAH BINTI 2018226506 ELEK5A3

SHAHARANI

5. SITI NUR AFIQAH BINTI AHMAD 201860442 ELEK5A3

SABRI

PREPARED FOR:
MADAM ROSLINA ABD RAHIM
QUESTION 1 - FEB 2021

a. A poor management of internal audit function would impair the independence and
objectivity of internal auditors.

Discuss two (2) matters that could impair the independence and objectivity of internal
auditors (ethics).

(4 marks)

● Inherent Conflicts
○ Inherent conflicts are those that exist naturally within a company, such
as a lack of communication which can be misconceptions about the
audit function among the Audit Committee and management, as well
as a lack of cooperation from auditees.
● Avoidable Conflicts
○ Avoidable conflicts are conflicts that exists within the internal audit
department and process such as unclear direction or references,
unclear assignment instructions, insufficient examination of working
papers, and assignment favouritism.

b. Companies that decide to outsource the internal audit function rely on the third-party
providers' expertise in performing the internal audit tasks to gain such benefits.

Discuss three (3) benefits of outsourcing the internal audit function.

(6 marks)

● Focus on core competencies

○ Outsourcing helps management to concentrate on core
compentencies rather than time-consuming low-return operations. As
a result of the better staff allocation, businesses can afford to have
access to global experience and cutting-edge technology. This will
boost business profits and help to manage existing resources more
effectively.
● Cost reduction
○ Internal audit outsourcing allows a company to reduce cost by
transforming fixed internal audit costs into variable costs. Overlapping
 roles and audit effort can be decreased, allowing for greater flexibility
in growing and decreasing task demands.
● Improve business efficiency
○ While performing internal audit activities, an external source can also
perform quality checks 24 hours a day, seven days a week. This
constant assessment ensures that a business process or function runs
smoothly and in line with current technology.

c. The ability to deal with conflicts would increase internal auditors’ confidence and
morale.

Advise four (4) considerations should be taken by internal auditor in dealing with the
conflict.

(10 marks)

● Develop trust
○ Internal auditors need to develop trust. This can be accomplished by
demonstrating a genuine desire to help the organisation to improve,
by improving cooperation among internal auditors. For example,
internal auditors may coordinate their efforts with the manufacturing
department to examine high raw material waste. Internal auditors will
then provide recommendations to the production manager with the
goal of lowering the proportion of waste and thereby improving the
production department's efficiency and profitability.
● Becoming a “salesperson”
○ In order to present audit findings recommendation, internal auditors
needs to be a salesperson. They cannot expect that when their
recommendations are submitted, everyone would respond positively
right away. Instead of identifying problems and instructing auditees on
how to solve them, internal auditors should be able to explain them to
them.
● Take the good out of the bad
○ Consider the good aspects of the conflict, as some of them may assist
an organisation in achieving its goals. Some negative conflicts may
have a good impact on the audit process for example, having a formal
 interview with senior management may be despised, but it may be
viewed as a valuable information collection approach for internal
auditors.
● Be objective and factual
○ Internal auditors should report their findings objectively and factual.
The auditees' value judgement can be influenced by different words or
phrases. As a result, allowing auditees to evaluate findings and make
revisions before submitting them to the Board of Directors or
management might help avoid conflicts.

(Total: 20 marks)
QUESTION 2 - DEC 2019

a. Discuss two (2) importance of internal audit charter.

(4 marks)

The internal audit charter helps clarify the internal audit activity position within the
organisation. It is a formal written agreement with the board and management in managing
the internal audit activity which also formally defines the internal audit’s purpose, authority
and responsibility.

The internal audit charter also establishes independence by defining the reporting lines of
the Chief Audit Executive to the governing body functionally and also to the executive
management administratively.

b. Discuss three (3) approaches that the internal auditors had considered on
handling the conflict with the client.

(6 marks)

The three approaches that the internal auditors had considered on handling the conflict with
the client includes developing trust, acting as salespersons and also

Firstly, internal auditors need to develop a bond of trust with the client, by showing a genuine
intention to assist in improving the organisation which would ensure cooperation from the
client. The advice given by the internal auditors should also be objective and unbiased,
without taking any sides.

Secondly, internal auditors have to put themselves as salespersons wanting to sell their
‘product’ which is the recommendations for audit findings. This means that the internal
auditors should be able to explain the problems or issues and its effects to the client, instead
of just identifying the problem and telling the client on how to fix them.

Lastly, the internal auditors should make sure the clients are able to understand the audit
objective. Before the audit activity process is undertaken, the internal auditors should make
clear on the purpose, objectives and also the information that would be needed for the audit
process to the client. By making sure the client is clear on these things, future conflict can be
avoided between the auditor and the client.
 c. Compile five (5) strengths of the internal audit function.

(10 marks)

The first strength of the internal audit function is regarding the internal audit charter. In
Elektrik Laungan Sdn Bhd, the purpose, authority and responsibility of the internal auditors
are formally defined in the internal audit charter. This would enable smooth operations of the
internal audit activity to accomplish its objectives.

Secondly is regarding the continuation of professional development. In this regard, the

internal auditors participate in client meetings and internal staff meetings in order to be
up-to-date in the client’s status and industry. The internal auditors also continue on improving
their professional knowledge by keeping themselves up-to-date on the new accounting
standards that would be pertinent to the client’s industry and also discussing audit and tax
work regularly with the client in meetings.

Next is the fact that the internal auditors are proactive and are always ready to face conflicts,
instead of waiting for conflicts to unfold before responding to their clients. This is true to the
fact that conflict in workplaces would be unavoidable, and the ability to recognize and
understand the nature of the conflict, and also to be able to bring out a quick and appropriate
resolution to the conflict would bring a positive environment to the client.

The internal audit function’s strength also lies in the fact that the internal auditors report
functionally to the board of directors. This is an indication of the internal audit’s
organisational independence, and the internal auditors are able to have an appropriate
channel for suggestions, such as their suggestion on co-sourcing in order to save on cost
and time.

Lastly is the co-sourcing itself, which is a relevant outsourcing management. Co-sourcing is

able to reduce the pressure and amount of work on the internal auditors, while also being
able to effectively reduce cost and time in this case as the recruitment is particularly
challenging. While the external service provider takes up part of the internal audit functions,
the organisation is still holding the complete control over the business-critical tasks and also
the final say on the co-sourcing part as the external service provider are still working under
their guidance.
QUESTION 3 (JUNE 2018)

a. Proficiency is developed by means of education, experience, continuing professional

development opportunities, and professional qualifications such as the Certified Internal
Auditor.

Required:

Discuss two (2) characteristics of proficiency.

(4 marks)

1. Internal auditors that are able to effectively and efficiently apply the Standards
(ISPPIA), procedures, and techniques. Internal auditors interact with financial
records and reports frequently, therefore they should be familiar with
accounting and auditing principles and techniques.
2. Internal auditors are capable of using their expertise and experience to
circumstances that are likely to arise and dealing with them without the need
for thorough technical investigation and support. Internal auditors who can
make solid and fast decisions with limited information and a tight timeline.

b. Unresolved conflict often results in loss of productivity and the creation of barriers to
cooperation and collaboration. Consequently, the internal auditors have to be
forward-looking to a situation of serious disagreement or argument rather than just
respond to it after it has happened.

Required:

Discuss three (3) proactive approaches to deal with the inherent conflicts.

(6 marks)

1. Internal auditors need to make clients understand the audit objectives by

explaining the importance of gaining the need information to them. The
internal auditors could enlighten the client the roles and responsibilities of the
internal auditors.
2. Internal auditors must be objective and factual about their findings. Internal
auditors should allow the client to review their findings as there might be
differences in words or phrase used which can affect the judgments of client.
 Therefore the internal auditors should allow the client to suggest changes
before handing it to the CEO and BOD.
3. Internal auditors must anticipate any potential conflicts and think about how to
resolve them. Internal auditors must be well-versed in order to prevent
agitating the client. Internal auditors must devise a plan of action that will turn
the existing conflicting condition into one where the audit objective may be
met in order to find solutions to the conflicts.

c. The internal audit department of Birai Plantations Sdn Bhd (BPSB) is headed by En.
Daud, as the audit manager and he reported to the chief executive officer. Recently,
BPSB converted part of its only estate in Puncak Alam from the oil palm estate to
commercial land.

In order to accommodate the new business venture, the Board of Directors is

deciding to promote En. Daud to the new position as the chief audit executive and
outsource the position of audit manager to Amico LLP, an internal audit service
provider.

Therefore, under the proposed new internal audit structure, the in-house team served
the company in a wide variety of auditable areas, and call on outsourced service
provider for specialist skills in planning and coordinating the audit on the BPSB’s in
developing the commercial land.

Required:

Advise four (4) attributes to convince on the relevance of the outsourcing

arrangement decided by the Board of Directors.

(10 marks)

1. Partial outsourcing is relevant to BPSB because it is a small company with only a

land in Puncak Alam. BPSB might not have the size and cash flow to support
full-time audit staff. Using both their own staff and outsource internal auditors can
help them control the cost of employment related to internal audit function.
2. Partial outsourcing help BPSB to remain their control because the outsource provider
still need to report to the CAE. The responsibility to oversight the internal audit
activity by CAE cannot be outsourced so the in-house liaison still fully responsible for
the management of internal audit activity.
3. Partial outsourcing is relevant to BPSB because the service provider executes parts
of the responsibility of the internal audit and the company still develop in-house staff
to run the company in the future. As a result, while BPSB has total control over field
work, it must outsource planning and coordination to the service provider to reduce
the load. The CAE can still focus and involve the in-house staff's time and energy on
business-critical operations.
4. partial outsourcing is relevant to BPSB because this arrangement is appropriate for
fulfilling regulatory and legislative obligations. in particular to meet the requirements
of Section 246 of the Companies Act 2016, which requires directors to implement an
internal control system. As a result, internal auditors can help the board of directors
with these issues.

(Total: 20 marks)
QUESTION 4 (JAN 18)

a. Careful management of internal audit resources leads to the path of engagement

success.

Required:

Discuss two (2) element of resource management. (4 marks)

The elements of resource management is as follows:

1. Appropriate
Appropriate is referring to the mix of knowledge, skills, and other
competencies needed to perform planned audit activities.Due to this,
the chief audit executive needs to conduct periodic skills assessment
of resources that focuses on the technical knowledge, fraud detection
and prevention competency and accounting and auditing expertise of
the audit executives.
2. Sufficient
Sufficient is referring to the quantity of resources needed to
accomplish the planned audit activities. It is important for the chief
audit executive to ensure sufficient resources are provided to all
engagements. This is to ensure that the planned audit activities are
carried out and accomplished in breadth, depth and timeliness as
stated in the internal audit charter.
b. The board of directors in a meeting had decided to invest in partial outsourcing of the
internal audit function. Earlier, the chief executive officer had emphasized that partial
outsourcing enable the company to maximize productivity of the internal audit activities and
also to have complete control over the internal audit function.
Required:
Discuss three (3) benefits of partial outsourcing.
Partial outsourcing is an arrangement in outsourcing the internal audit
function in which the organization does not fully acquired the services from external
provider. This is because the organization will still at benefits when they partially
outsourcing the services such as the organization still has complete control over the
business critical tasks. Usually, the organization will outsource when they want to
lighten the internal auditors’ load by delegating the non-core tasks to the external
providers. In a way, these could increase the productivity of the internal auditors as
they will be focusing on the business critical activities.
 Apart from that, the internal auditors will still retain their audit procedures and
tools. Eventhough the company is outsourcing the internal auditor, it is still crucial for
the internal auditors to practice audit professionally. Due to this, the company will
retain the audit procedures and monitor every execution made by the external
service provider.
Furthermore, the organization has the freedom to change the service provider
quickly in case of any unforeseeable events. Through this, it helps the organization to
increase the productivity, exercise control over business-critical tasks, and give the
opportunity to quickly change the outsourcing vendor in case any problem arise. The
company can simply terminate the contract without having to bear with significant
losses as the company still have the in-house employees to handle the tasks.

(6 marks)

c. You raised dissatisfaction with your colleagues at a tea break. You notice that others
were given preferential treatment, in particular on the task assignment. You are aware that
your peer is enjoying extra perks while your own hard work goes unnoticed and unrewarded.
Furthermore, the supervisor is always not around when they need to clarify on certain
procedures and on how to proceed when there are discrepancies noted. The policy of the
internal audit department is that the senior has to review the working paper in order to
ensure that all procedures are complied with, next the audit supervisor need to ensure the
reasonableness of the findings and determine whether any additional work is required. But at
the very last minute, there are instances that the staff auditor was being scolded by the
supervisor of not satisfactorily perform the audit procedures. At the last year staff meeting,
the chief audit executive had agreed to set up an ad-hoc committee to prepare for the
handbook, a reference for internal audit procedures. However, it has already been a year
and there is no news about the handbook.

Required:

Advise four (4) considerations in dealing with the conflict.

To deal with the conflict we have to determine whether the conflict is inherent or
avoidable. Inherent conflict arise among the internal auditors and the auditees.
However, avoidable conflict revolve around internal audit departments. Based on the
situation above, it is clear that it is avoidable conflicts thus, the auditors should
consider the following to deal with it.

1. Favouritism in task assignment

 By not treating everyone equally, the manager is fostering a sense of
resentment and separation that can demotivate the internal auditors and
damage the team unity as everyone might feel intimidated to one another. To
overcome this, the manager should give promotion or appraisal when its due
based on their performance and achievements.

2. Lack of guidance

Lack of guidance from the superior might lead to inefficient work from
the auditors and also it might demotivated them to complete the audit planned
activities. In order to deal with this, the superior or the senior should give a
clear and proper direction to the staff by communicating through emails or in a
meetings. Also, to make it easier for everyone, it is recommended to give a
handful module to every auditors as a reference in performing every task
given.

3. Incomplete review

An important standard applicable to all of internal audit work is that the

evidence of work performed is to be reviewed on all assignments. The review
process is important and must not be carried out in a superficial or
perfunctory manner. This is because the manager need to ensure the
adequacy of the audit coverage. To deal with this, the superior should review
the assignment thoroughly, timely and if needed do a frequent follow-up to
avoid any last minutes issues.

4. Poor instructions

Poor instructions often occur as a result of not having a thorough

knowledge of auditee’s operation and from a poorly prepared audit planning
memorandum. To overcome this, the auditors should consider two way
communication and discussion among each other to understand the tasks
better.

(10 marks)

(Total: 20 marks)
QUESTION 5 (JULY 17)

A. The approval of the internal audit charter resides with the board of directors.

Required:

Discuss two (2) importance of internal audit charter.

1. To define the internal audit activity's purpose, responsibility and authority. The
management along with the board will have a formal written agreement in
managing the internal audit activities.
2. To provide a recognized statement for management to review and approved
by the board. The formal written agreement facilitates periodic assessment of
the internal audit activity.

(4 marks)

B. The chief audit executive (CAE) is planning to promote either Ahmad or Mustafa as
the internal audit manager. He met with each candidate to gauge their understanding
of the responsibility as an internal audit manager.

Required:

Discuss three (3) responsibilities of an internal audit manager.

1. Planning.

Internal Audit manager is in charge of planning for the financial, regulatory,

compliance or operational audit. A manager needs to provide support for an
audit by doing research on new or technical subjects.

2. Feedback

IA managers will have to provide feedback based on the performance of the

IA. IA will analyse and advise the effectiveness and the efficiency of the
control environment.

3. Reporting

IA Managers are to prepare timely audit reports for the executive

management, audit committee and BOD.

(5 marks)
C. In 2016, Sorga Hospital Sdn. Bhd. had migrated to a new billings system. The
internal auditors noted that the accounts receivable control account in the balance
sheet is different by RM1,200,788.90 from the detailed schedule. According to the
system analyst, this is due to the delay in the year-end closing of transactions
between the general ledger system with the ward charges, doctors’ consultation and
prescriptions. The CAE is so concerned to tally the schedule with the balance sheet.
Here, the system analyst was confident that the system did not process any
erroneous transactions. The internal audit manager suggested that a staff need to be
assigned to reconcile the differences. However, another approach of the system
which suggests is more efficient and less time consuming, that is creating a
reconciling program that will identify those transactions that caused the differ
ences.As a result from the report lodged by the CAE, the board of directors
dissatisfied with the RM2.5 million investments in the new information technology (IT)
system. The report had led to a reprimand letter being issued to the system analyst
to be more thorough in reviewing the capability of the future IT system before seeking
the boards’ approval.

Required:

Advise four (4) immediate attentions in dealing with the conflict.

1. Internal auditors should not feel guilty or held responsible for events that
occur as a result of audit results, such as auditee termination, relocation, or
other types of mental illness.They have defined tasks and responsibilities as
internal auditors, and their comments on the results are not based on the
opinions of others. Internal auditors do not have the impression that the
reprimand letter was issued because of their fault.
2. Consider the positive aspects of the conflict, as some of them may assist the
organisation in achieving its goals. When there is conflict, it usually means
that people are committed to the organization's goals. The internal auditor
and the system analyst are both attempting to find the best solution. It
demonstrates its ability to solve problems and reach agreements by
developing an in-house reconciling programme at no additional cost.
3. Seek high-level support, particularly from the audit committee. As an internal
auditor, it is their responsibility to effectively communicate, respect
employees, recognise office tension, and recognise the importance of
everyone in the auditee's office. Top management involvement will aid in the
prevention of significant conflict. Internal auditors must handle it effectively
 and thoroughly, as well as quickly and using a variety of methods. The audit
committee's support is needed here to ensure that internal auditors are
included in future SDLC projects.
4. When the auditees are more responsive to important findings than to less
important findings, make a compromise. When both parties can truly listen
and try to understand the role of the governance process in producing true
and fair financial statements, they can often come to terms with their
differences. When the parties involved agree to create a reconciling
programme, the compromise process will satisfy both parties as they have
reached an acceptable solution.

(10 marks)