Question Tag: Internal Audit

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  • 10 Marks

AAA – Nov 2024 – L3 – Q5a – Roles of an Audit Committee in Corporate Governance

Explain four roles of an audit committee in compliance with good corporate governance practices.

An Audit Committee is a sub-group of a company’s Board of Directors responsible for the oversight of the financial reporting and disclosure process. The duties and responsibilities of the Audit Committee greatly contribute to good corporate governance practices of a company.

Required:
Explain FOUR roles of an Audit Committee in compliance with good corporate governance practices.

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  • 5 Marks

AA – Nov 2024 – L2 – Q2b – Advantages of Outsourcing Internal Audit

Explain the advantages and disadvantages of outsourcing the internal audit function.

As organisations look for ways to cut costs, the idea of outsourcing internal audit work goes on the agenda. While outsourcing may be appealing in theory, there are good reasons to keep internal audit in-house.

Required:
i) State TWO advantages of outsourcing the internal audit function. 
ii) State THREE disadvantages of outsourcing the internal audit function.

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  • 4 Marks

AAA – May 2017 – L3 – Q3b – Internal Audit and Corporate Governance

Explain the evidence needed to determine reliance on internal auditors' work.

Explain what evidence you would seek as an external auditor to satisfy yourself that you can rely on the work of internal auditors. (4 Marks)

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  • 20 Marks

AAA – May 2017 – L3 – Q3a – Internal Audit and Corporate Governance

Develop a presentation comparing the roles, independence, and responsibilities of external and internal auditors.

Your firm has been external auditors of Specific Processors Plc for some years. Specific Processors Plc. has an Internal Audit Department engaged in both compliance and operational auditing within the company.

The head of the Internal Audit Department, Mr. Lucky Suleiman, FCA, has invited you to give a talk during their annual training week on the roles of external and internal auditors, the type of work they carry out, and their specific responsibilities.

Required:

Develop a suitable presentation focusing on the differences and similarities between external and internal auditors in terms of:

i. General Role
ii. Independence
iii. The work carried out in the following areas:

  • Systems of Internal Control
  • Operational Auditing
    iv. Reporting Responsibilities

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  • 15 Marks

AAA – Nov 2022 – L3 – SC – Q6 – Internal Audit and Corporate Governance

Discuss reasons for outsourcing internal audit, advantages/disadvantages, and functions that cannot be outsourced.

The Internal Audit Unit of Oluvia Bank Limited has been accused of collusion with staff in committing monumental fraud. The following types of fraud were found to be common:

  • Cheque suppression
  • Fraudulent bookkeeping to overstate income
  • Inflation of the worth of the company’s assets
  • Intercepting replaced customers’ cards
  • Fraudsters impersonating Senior Managers or Chief Executive Officer
  • Online banking fraud, such as phishing, malware attacks, and clone websites
  • Impersonating the owner of an account or using fake documents to open an account under someone else’s name (no proper Know Your Customer conducted)

The bank examiners came and were surprised at the level of fraud in the bank and requested management to address it urgently.

After the supervisory visit, the board of directors discussed the issue with the bank’s external auditors, who suggested that the bank could outsource the internal audit functions. The Board of Directors found this suggestion favorable and mandated the Managing Director to act swiftly and report back with details at the next board meeting.

Required:

a. Discuss the main reasons for outsourcing internal audit functions. (3 Marks)

b. Outline the advantages and disadvantages of outsourcing. (10 Marks)

c. Discuss which part of the internal audit function cannot be outsourced. (2 Marks)

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  • 15 Marks

AA – Nov 2022 – L2 – Q5 – Internal Audit Necessity

Explanation on internal audit necessity, maintaining independence, and internal audit limitations.

In the apex bank‟s regulatory supervisory report to Dutse Bank Limited, the management has been directed to ensure institution of an Internal Audit Unit. Prior to this time, the bank believed that internal audit staff might be colluding with other staff to suppress information on fraudulent transactions and as such the desired result might not be achieved. Apart from this, it was considered that savings could be made from transport, hotel and other allowances to be paid to staff when on official assignments. The independent auditor had earlier mentioned the need for this in the audit report but management was of the view that it is acceptable to cross-train employees in different departments to be able to audit departments other than their own. In the opinion of management, this
will provide a more independent and unbiased view through checks and balances. The audit function they perform through multitasking will best add value to the progress of the organisation. It is also the belief of management that the basic processes of both accounting and auditing are similar. The two systems use essentially the same procedures and techniques of bookkeeping, computation and analysis. To them, accounting and auditing strive to ensure that the financial statements and records provide a fair reflection of the actual financial position of an organisation. Both activities are inter-related and go hand in hand, especially in setting up processes in the organisation, hence, there is no need for any Internal Audit Unit or duplication of efforts.
As the independent auditor of the bank, you were shown the regulatory supervisory report and you have been asked to make presentation to the Board of Directors on the necessity for the Internal Audit Unit in the bank.
Required:

a. Explain the need for the internal audit functions in an organisation. (5 Marks)
b. State the various measures that can be taken to protect the independence of internal auditors. (5 Marks)
c. Explain the weaknesses and limitations of internal audit. (5 Marks)

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  • 20 Marks

AA – Nov 2014 – L2 – Q4 – Fraud and Error

Describe how internal and external auditors handle fraud and error risks, and evaluate specific fraud risks at Rock Holidays.

Fraud and error present risks to an entity. Both internal and external auditors are required to deal with risks in an entity. However, the responsibilities of internal and external auditors in relation to the risk of fraud and error differ.

Required:

a. Explain how the internal audit function helps an entity with the risk of fraud and error. (7 Marks)

b. Explain the responsibilities of external auditors with respect to the risk of fraud and error in an audit of financial statements. (7 Marks)

c. Rock Holidays is an independent travel agency. It does not package holidays itself. It takes commission on holidays sold to customers through its chain of high street shops. Staff are partly paid on a commission basis. Well-established tour operators run the holidays that Rock Holidays sells. The network reservations system through which holidays are booked and the computerized accounting system are both well-established systems used by many independent travel agencies.

Payments by customers, including deposits, are accepted in cash and by debit and credit cards. Rock Holidays is legally required to pay an amount of money (based on its total sales for the year) into a central fund maintained to compensate customers if the agency should cease operations.

Describe the nature of the risks arising from fraud and error to which Rock Holidays is subject. (6 Marks)

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  • 20 Marks

CSME – May 2022 – L2 – SB – Q2 – Risk Management and Corporate Strategy

Advise on risk management for a supermarket chain facing security challenges and new regulations.

A supermarket chain recently established more outlets in the city. Due to increased risk exposure occasioned by heightened insecurity in the country, the company saw the need to implement an effective management strategy aimed at minimizing attendant risks. The need is made even more apparent due to the introduction of more stringent regulatory requirements on handling perishable food items by the National Agency for Food and Drugs Administration and Control (NAFDAC). To this end, you have been engaged to provide advice to the company on risk management.

Required:

a.

  • i. Using the ALARP principle, advise the management on how to effectively manage the company’s risks. (2 Marks)
  • ii. Advise the company on the need to engage a risk manager. (2 Marks)
  • iii. Enumerate the roles of a risk manager. (5 Marks)

b.

  • i. What is a risk audit? Should the firm engage internal or external auditors (or consultants) to conduct a risk audit? Justify your position. (7 Marks)
  • ii. Illustrate to the management of the company the stages involved in conducting a risk audit. (4 Marks)

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  • 30 Marks

AA – Nov 2016 – L2 – Q1 – Internal Audits

This question addresses internal audit functions, the differences between internal and external auditors, outsourcing internal audit, and risk categories considered by internal auditors.

KEMTA Nigeria Limited is a private electrical and mechanical engineering company. The company is one of the major players in the provision of cutting-edge engineering construction services in the Nigerian electrical, mechanical, and communication engineering industry. The company has sites in all 36 States of the Federation, including Abuja. They also work for major financial institutions, educational institutions, Federal, State, and Local Governments. The company has over 500 professionals, skilled, and unskilled workers on its payroll.

You have been the auditor of the company for the past five years. During your audit, you observed some weaknesses in the internal control system of the company. Your review of the domestic reports showed that your firm has been recommending the establishment of an internal audit department for the past three years. However, you observed that the Managing Director is not favorably disposed to this idea, seeing it as an additional cost to the company. He requested to know more about outsourcing the internal audit department.

Required:
a) State and explain the purpose and functions of internal audit in an organisation. (5 Marks)
b) Enumerate the fundamental differences between the internal and external auditors. (10 Marks)
c) Present:
i) The main reasons for outsourcing internal audit. (3 Marks)
ii) The benefits of outsourcing. (2 Marks)
iii) Possible problems of outsourcing. (4 Marks)
d) Identify and explain the THREE main categories of risks usually considered by internal auditors. (6 Marks)

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q2a – Public Sector Audit

Discuss the external auditors' reliance on internal audit functions and reasons for rising public expenditure.

An internal audit is an independent appraisal activity within an organisation for the review of accounting, financial, and other operations with the objective of assisting members of the organisation to discharge their responsibilities effectively. It is a sound policy to establish constructive working relationships with internal audit units to foster the development, promote coordinated coverage, and avoid duplication.

Required:
Explain the five criteria employed by the external auditors to assess the likely effectiveness and relevance of the internal audit functions and five areas where the internal audit functions can be of assistance to the external audit.

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  • 10 Marks

AA – May 2019 – L2 – Q2a – Audit and Assurance Risk Environment

Explains differences in audit approach between interim and final audit and discusses factors for relying on internal auditors' work.

a) You are the Audit Manager in charge of the audit of Adepaye Ltd (Adepaye) for the year ended 30 April 2016 and you are currently planning the year-end audit. Adepaye specialises in the sale of provisions at its head office. The company has opened branches in Ofankor Barrier, Makola, Nanakrom, Kasoa, and Kanda within ten years of incorporation. During the interim audit, you noted that due to the present economic challenges in Ghana, the company has suffered increases in costs. Also, the presence of competitors is driving the sales prices of the company downward, affecting the profitability of the company.

Furthermore, the company has not recorded profit for over five years, thus threatening the going concern of the company. Due to the consistent cash flow challenges, the company has financed its operations with bank overdrafts and huge long-term loans as part of its capital structure.

In a discussion with management and those charged with governance during the interim audit, you were informed that the company plans to improve the customer relationship management of its operations to maintain its market share. The company has asked its bank for a loan to finance its working capital. This they believe would improve the liquidity of the company.

The company has prepared a cash flow forecast for five years from the end of the reporting year 30 April 2016 to support its bank loan request. The internal audit department has reported on the forecast to the board of directors. However, the bank has said it would like a report from the external auditors to confirm the reasonableness of the forecast amidst the current challenges in Ghana after their final audit.

The company has approached your firm to examine the cash flow forecast and then to report to the bank.

Required:
i) Explain TWO (2) differences in audit approach that the Audit Manager would adopt during the interim audit and the final audit.
(6 marks)
ii) Explain FIVE (5) factors you will consider before placing reliance on the work of the internal auditors of Adepaye Ltd.
(10 marks)

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  • 10 Marks

AA – Nov 2018 – L2 – Q2a – Internal Audit and Its Relationship with External Audit

Discusses the advantages and disadvantages of outsourcing the internal audit function compared to maintaining an in-house team.

a) Proper Banking Limited (PBL) has been trading for 20 years selling banking products and has recently become a listed company. In accordance with corporate governance principles of Bank of Ghana, PBL maintains a small internal audit department. The board of directors feels that the authorized business of the Company is banking which is core to the success of PBL. On 20 November 2017, the Operational and Governance Committee of the Board met to discuss whether to maintain the internal audit department and increase its size and build its expertise or to outsource the whole function to their external auditors, International & Co with headquarters in Accra, Ghana, with a global presence in over ninety-nine (99) countries.

Required:
Advise the Board of PBL on the advantages and disadvantages of whether to outsource or maintain their internal audit function. (10 marks)

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  • 10 Marks

AA – April 2022 – L2 – Q4b – Internal Audit and External Audit Relationship

Proposes the establishment of an internal audit unit and explains the benefits of outsourcing the function to an external firm.

b) Aggya Owusu & Co is a well-established audit firm licensed by the Institute of Chartered Accountants, Ghana (ICAG). The firm is a member of a global association of over 250 independent legal and accounting firms in more than 100 countries.

Aggya Owusu & Co has been the External Auditor of BetGhana Ltd (BetGhana) for about four years. BetGhana has recently been awarded a provisional license by the Gaming Commission of Ghana to operate an Online Sports betting operation. The provisional license requires BetGhana to establish a unit with sufficient independence from the day-to-day management and control to enable the effective review of the business and promote a compliance environment, undertake betting-customer due diligence with respect to money laundering and terrorist financing.

Required:
As the Audit Manager of Aggya Owusu & Co, write a proposal to the Directors of BetGhana explaining:
i) The need for an Internal Audit Unit. (5 marks)
ii) FOUR (4) benefits of outsourcing the Internal Audit function to Aggya Owusu & Co. (5 marks)

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  • 10 Marks

AA – Mar 2024 – L2 – Q4b – Internal Audit and Its Relationship with External Audit

Explain the differences between internal and external auditors in fraud prevention, detection, and reporting responsibilities.

There are similarities and differences between the responsibilities of internal and external auditors. Both internal and external auditors have responsibilities relating to the prevention, detection, and reporting of fraud, for example, but their responsibilities are not the same.

Required:
In reference to the statement above, explain the difference between the responsibilities of internal auditors and external auditors in relation to:
i) Prevention and detection of fraud. (5 marks)
ii) Reporting of fraud. (5 marks)

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  • 20 Marks

CSEG – Nov 2018 – L2 – Q3 – Corporate governance framework | Internal control and audit

Discuss the role and responsibilities of the audit committee in relation to external audit and internal controls, and suggest changes to address internal control failures.

ABB Bank Ltd (ABB Ltd) is a listed company. It has been given a substantial fine by the Central Bank for serious breaches of the banking regulations and, in the same month, the bank reported that it had suffered large losses because of unauthorized dealings in financial derivatives by a manager in its treasury department. The company’s reported profits for the previous financial year were overstated because of these losses.

The chairman of the audit committee of ABB Ltd has resigned, accepting responsibility for failures by the committee. A newly-appointed director has been made chairman of the audit committee. He has called a meeting with you, the Finance Director. The purpose of the meeting is to review financial reporting and internal control, with a view to making recommendations to the board. ABB Ltd does not have a strong internal audit function, and the company has been using the same firm of external auditors since it acquired its listing 8 years ago.

Required:

a) Explain the role and responsibilities of the audit committee of ABB Ltd with regards to:

i) The external audit of the company’s financial statements; and (6 marks)

ii) The internal control system and internal audit function. (6 marks)

b) In relation to the possible failures in internal controls that have occurred, suggest FOUR (4) changes that might be recommended to the board at the next board meeting. (8 marks)

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  • 10 Marks

CSEG – May 2019 – L2 – Q6a – Internal control and audit

Evaluate the objectives the Board of Events Tech seeks to achieve by establishing an internal audit department.

Events Tech is a growing media company that specializes in technological solutions for events planning. Events Tech has recently established an internal audit department, and the Board is keen for this new department to cover certain broad areas of the organization and add value to the organization.

Required:
Evaluate FIVE (5) objectives the Board of Events Tech seeks to achieve by establishing an internal audit department.

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  • 10 Marks

AAA – May 2021 – L3 – Q5b – Audit-related services | Assurance services

Discuss how audit software can be used to audit revenue and trade receivables and evaluate the extent of reliance on internal auditor's use of embedded software.

Mike Developers’ Audit Manager is of the view that audit software can be used effectively in the audit of revenue and trade receivables. He has discussed this with the firm’s computer audit department and with Mike Developers’ Finance Director, and this approach has been agreed as a feasible one. Furthermore, the Finance Director has asked the internal audit team to investigate the possibility of installing embedded software to help the external auditors in their work.

Required:

i) Describe, giving examples, how audit software, in general, could assist the audit firm in their audit of revenue and trade receivables. (6 marks)

ii) Discuss the extent to which the external auditor could rely on the results of the internal auditor’s use of embedded software. (4 marks)

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  • 10 Marks

AAA – May 2021 – L3 – Q1b – The audit approach | Internal audit and outsourcing

Draft a report on the factors influencing the external auditor’s reliance on the work of internal auditors according to ISA 610.

Your audit client, Asuoyeboa Ltd, has recently hired an Internal Auditor to deal with increased regulatory requirements. Afrakoma, the CEO of Asuoyeboa Ltd, has indicated that she believes the presence of the Internal Auditor will dramatically reduce the work that your audit firm will have to perform. She anticipates that this will have an impact on the audit fee.

Required:

Draft a report indicating factors that will influence the extent to which the external auditors will rely on the Internal Auditors’ work as per the requirements imposed by ISA 610: Using the Work of Internal Auditors. (10 marks)

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  • 10 Marks

AAA – May 2016 – L3 – Q4a – Public sector audit | Internal audit and outsourcing

Communicate the functions of the Internal Audit Agency according to the Internal Audit Agency Act (2003).

Dr. Kofi Mensah has been appointed the Municipal Chief Executive (MCE) of Kyekyewere Municipal Assembly. He has assumed duty early last month and has carried out a familiarisation tour of all the departments of the Assembly.

You are the Internal Auditor of the Assembly and have worked there for the past two years. During your turn of briefing the MCE, you mentioned to him that the Internal Audit Agency (IAA) exists as an apex oversight body of internal audit units working within MDAs and MMDAs. It was established by the Internal Audit Agency Act (2003) with the objective to co-ordinate, facilitate and provide quality assurance for internal audit activities within the MDAs and MMDAs. At the end of your briefing, the MCE requested more information on the IAA, especially its functions. You were pleased with the MCE and formally welcomed him to the Assembly.

Required:
Communicate to the MCE in the appropriate form, detailing out the functions of the Internal Audit Agency according to the Internal Audit Agency Act (2003). (10 marks)

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  • 10 Marks

AAA – May 2016 – L3 – Q2b – Internal audit and outsourcing | Practice management

Draft a report assessing the need for an internal audit department in a growing company.

Adepa Ltd, a fruit processing company, has been in operation for many years. It has managed to grow the business over the years and now has eight branches, four in rural areas and four in urban towns in addition to the head office. The management and those charged with governance are looking forward to the company adopting the latest technology in production – Advanced Technology Manufacturing (ATM) – and marketing and sales through the internet.

During the last audit of the financial statements of the company, the Managing Director suggested to the Senior Partner an assessment of the need for an internal audit department in the company. You were the audit manager who led the engagement team to do the audit. The Senior Partner has therefore asked you to carry out the assignment to assess the need for an internal audit in Adepa Ltd.

Required:
Draft a report to the Senior Partner on the assessment of the need for an internal audit department for Adepa Ltd., highlighting the factors to be considered in such assessment. (10 marks)

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