TEST AUD679

SEPTEMBER 2019

QUESTION 1

A. Risk management is the key responsibility of management. Internal auditors should assist
both the management and the audit committee by examining, evaluating, reporting and
recommending improvements on the adequacy and effectiveness of the risk management
processes.

Required:

a. Define the process of “risk management”.

(2 marks)

b. Explain the THREE (3) key objectives of the risk management processes.

(6 marks)

B. In the internal auditor’s working environment, conflicts may exist either between the internal
auditors or between the internal auditor and other staff within the organization (auditees).
These conflicts which are inherent should be dealt with professionally as internal auditors
routinely deal with organizational conflicts’ that affect the internal auditor’s reputation and the
efficacy of the profession.

Required:

a. Explain what is meant by “conflicts” within the internal audit profession and how conflicts
would exist.
(6 marks)

b. Discuss the recommended practices that can help internal auditors to reduce the
likelihood of avoidable conflicts.
(6 marks)
(Total: 20 marks)

QUESTION 2

Encik Abu is a sole-proprietor who operates a textile shop along Jalan Tuanku Abdul Rahman.
He has eight employees to assist him in his daily operations. Three of the employees manage
the accounts department while the other five employees are sales personnel who attend to
customers during business hours. Trading has been good for the first six months as the
turnover ratio increases two-fold compared to the same period last year. However, he notices
that his business is incurring losses over the past six months. A friend suggested that he hires
an internal auditor or outsource the internal audit function to assess his operations, although
he insisted that he does not need an internal auditor to audit his operations as he operates as
a sole-proprietor.

1
Required:

a) i. Explain “outsourcing” and why a company needs to outsource its internal audit
function.
(4 marks)

ii. Suggest the advantages and limitations that Encik Abu would face if he decides
to outsource the internal audit function.
(6 marks)

b) Whistleblowing has come into the limelight of the corporate scene much lately as a
residual effect of the financial scandals that led to the collapse of many corporate
giants such as Enron and WorldCom.

i. Differentiate the internal and external reporting channel of inappropriate

company activities by an employee.
(4 marks)
ii. Suggest how internal auditors should respond to a report on inappropriate
company activities provided by a whistleblower.
(6 marks)
(Total: 20 marks)

END OF QUESTION PAPER