Department of Commercial Accounting

INTERNAL AUDITING
BID33B3

Supplementary Summative Assessment Opportunity

December 2014

Time: 3 hours Marks: 100

Assessor: Mr C Ackermann
Moderator: Mr M. Pete

INSTRUCTIONS:
 This paper consists of five pages (including the cover page).
 Answer all questions. Show all calculations and workings clearly (if applicable).
 Start each question on a new page.
 Silent, non-programmable calculators may be used.
BID33B3 DECEMBER 2014

QUESTION 1 [20]

You are the new Chief Audit Executive (CAE) of Cum Laude Ltd. You were confronted
with the following scenarios:

1. As part of a company-sponsored award programme, one of the internal auditors

received an award of significant monetary value. He accepted the award.

2. You were requested to perform an environmental audit. You know that the internal
audit does not possess the necessary skills and knowledge to conduct the
engagement. You still accepted the engagement.

3. During one of the audits, an internal auditor noted a change in lifestyle of the
assistant manager payroll. This is not part of the current engagement but the
auditor did note the red flag and communicated this to you the CAE.

4. An urgent audit must happen in your India branch. One of your colleagues with
whom you became good friends, asked that you please send him on this audit
because he never had an opportunity to go outside the boundaries of South Africa.
You know that he does not have the skills to do the audit and that he is booked on
another audit during that time. You still sent him to do the audit.

REQUIRED:

Identify possible violations of the Code of Ethics and the Standards in the above
scenarios.

QUESTION 2 [8]

List and briefly explain the stages in the internal audit process.
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BID33B3 DECEMBER 2014

QUESTION 3 [22]

You are an internal auditor of one of the biggest audit firms in Babatu Province. It is
your first year as an internal audit trainee at the firm and you are assigned your first
audit engagement.

Your client is Miles Ltd a large manufacturing firm of a very well known clothing brand.
You decided to immediately do a preliminary survey at the client and drove there
unexpectedly.

Seeing that no one expected you, you had meetings with whoever you could get hold
of, definitely not management personnel.

You decided to take a tour through the premises and really enjoyed all the interesting
things you saw. When you returned to the offices of the client, you obtained a draft
copy of financial statements and you quickly scanned through them.

After all these procedures you thought that you must write your findings and gave it to
client management.

When you returned to your offices your audit manager was furious as they received a
phone call from Miles Ltd Chief Financial Officer (CFO) very upset regarding the
manner in which the preliminary activities were executed.

REQUIRED:

Discuss how the preliminary activities should have been executed.

HINT: Your discussion should include actions that should be done by the internal auditor (internal audit theory) in terms
of preliminary activities AND discuss how the internal auditor above did not comply with preliminary survey practice.

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BID33B3 DECEMBER 2014

QUESTION 4 [22]

You are the internal audit senior in charge of the audit of Compliance Ltd. Your
team is busy with the audit of the Revenue and Receipts cycle. One of the first year
internal audit trainees have difficulty understanding the cycle.

REQUIRED:

4.1) Describe to the internal audit trainee the first two stages of the
Revenue and Receipts cycle. (15)
4.2) For each of the stages listed above in 4.1, list the risks which could
occur. (7)
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QUESTION 5 [18]

You work at Springbok Punch Ltd and were assigned to the audit of the Purchase and
Acquisitions cycle. The company has various branches throughout South Africa. The
company recently changed from a decentralised to a centralised purchasing function.

One of your internal audit trainees remembered while at varsity some risks and controls
exist within this function but can’t remember the specific details.

REQUIRED:

5.1) List five risks which could occur while ordering goods and
services. (5)
5.2) List five risks which could occur while receiving goods. (5)
5.3) What internal control activities can Springbok Punch Ltd implement
for recording of purchases? (8)
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BID33B3 DECEMBER 2014

QUESTION 6 [10]

During fieldwork the auditor execute audit procedures to collect evidence to support
the audit report. Part of the duties of the internal auditor is to test controls implemented
within a business within any function.
REQUIRED:

6.1) For the following controls, write the compliance procedures the
auditor could execute to test the control. (3)

Recording of sales - control Compliance procedures

Sales transactions should be recorded in
the sales journal, the debtors ledger and
general ledger by different
people/departments
Regular independent reconciliations
should be done to assess that the
summarisation and posting of the
transactions were done correctly. A
senior personnel member should follow
up on the reconciliations done.

6.2) During test of controls and substantive testing in the Acquisitions and
Payments Cycle, the auditor would inspect and review a lot of documentation
and relevant journals and ledgers as part of collecting audit evidence.

List any seven documents, journals and ledgers the auditor could review
during field work. (7)

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TOTAL [100]