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

AAA – Nov 2017 – L3 – Q4b – Internal Audit and Outsourcing, Practice Management

Evaluate the role of internal audit in contributing to the effective running of an organization.

Question:
Internal audit assists management in achieving the entity’s corporate objectives, particularly in establishing good corporate governance. Internal audit can be involved in many different assignments as directed by management. The assignments that internal auditors will carry out depend on the particular circumstances of the company involved and their objectives.

Required:
Evaluate the contribution of the internal audit function to the effective running of an organization. (10 marks)

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  • 20 Marks

PSAF – May 2021 – L2 – Q5a – Public sector fiscal planning and budgeting

Analyze the budget performance of Atuum District Assembly and explain the functions of internal audit under the Public Financial Management Act.

a) Since the creation of Atuum District Assembly (ADA) in 2011, inadequate revenue mobilization has been its major challenge making the Assembly unpopular. The newly appointed District Chief Executive (DCE) is concerned about the effectiveness of the revenue budget system of the Assembly.

Below is the extract of the Revenue Budget of the Assembly for the 2021 financial year:

Revenue Annual Budget (GH¢) Actual to March (GH¢)
Licenses 880,000 244,000
Fees and Miscellaneous charges 3,400,000 890,000
Investment income 600,400 178,000
Property rate 5,400,000 1,310,000
Basic Rate 750,000 120,000
Grants and donations 1,000,000 320,000

The budget allocation over the various items over the quarters is in the ratio of 3:3:2:2. The DCE indicates that the budget reliability measures of Public Expenditure and Financial Accountability (PEFA) are ideal for assessing the budget performance of the Assembly. In the framework, the following interpretation is given to budget outturns:

  • Outturn/variance not greater than 5% is scored as A, indicating very good budget reliability.
  • Outturn higher than 5% but not exceeding 10% is scored B, indicating good budget reliability.
  • Outturn higher than 10% but not exceeding 15% is scored C, indicating average budget reliability.
  • Outturn higher than 15% is scored as D, indicating poor budget reliability.

Note that each revenue item is treated as an indicator under the PEFA framework.

Required:

i) As the Budget Officer, prepare the statement of budget performance for the first quarter of the 2021 financial year, indicating clearly the outturn percentage and the respective scores. (5 marks)
ii) Write a report to the DCE on the budget performance of the Assembly and suggest ways of improving the budget reliability of the Assembly. (6 marks)
iii) Discuss FOUR (4) benefits of effective revenue budgeting in the Assembly. (4 marks)

 

b) In a recent audit committee meeting, there arose a serious disagreement between the Director of Finance and the Chief Internal Auditor concerning the internal audit role in the public sector. The Internal Auditor insists that internal audit’s primary responsibility in the public sector is to carry out intensive pre-audit or to vouch. He concludes that internal audit without pre-audit is useless and unfit for purpose. The Director of Finance opposed this view vehemently, arguing that pre-audit is an old-fashioned practice in the public sector and in the 21st century this should not be encouraged in a forward-looking organization like theirs.

Required:
As a member of the Audit Committee, educate the two key officers of the organization on the functions of the internal audit under the Public Financial Management Act, 2016 (Act 921). (5 marks)

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  • 6 Marks

AAA – March 2023 – L3 – Q5b – Audit-related services, Internal audit and outsourcing

Explain issues in deciding whether to use work performed by internal auditors in Sandy Snacks audit.

You are the audit manager in charge of the audit of Sandy Snacks, a company which runs a chain of snack bars operating in a number of beach holiday resorts. Your firm has been the auditor for a number of years and has always had to substantively test cash sales because of a lack of control over the recording of takings. The auditor’s reports to date have been unmodified.

You have recently been informed that the company has taken on a newly qualified chartered accountant as chief internal auditor and an unqualified assistant internal auditor. Since their appointment halfway through the year ended 31 December 2022 the two have spent most of their time carrying out substantive procedures on cash sales.

The directors are hopeful that your audit fee this year will decrease because you will be able to use the work carried out by the internal auditors.

Required:
Explain the issues that will be relevant to your firm in deciding whether you can use the work performed by the internal auditors. (6 marks)

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  • 10 Marks

PSAF – May 2017 – L2 – Q5a – The context of public financial management

This question identifies symptoms of defective corporate governance in a public sector organization and discusses the responsibilities of the Board of Directors in promoting good governance.

Ghana Approval Authority (GAA) is a public sub-vented organization established in 1995 as a standard approving authority for industrial, medical, and food substances in Ghana. Dr. Kamkam was appointed as the Chief Executive Officer (CEO) four years ago and he reports to a seven-member Board of Directors. GAA derives its powers from an Act of Parliament that was passed over two decades ago. The CEO upon resumption of office found that the enabling enactment of the Authority is out of date and could not regulate the activities of the board effectively. He therefore introduced a lot of innovations and initiatives to run the Authority effectively and efficiently, however, some of his initiatives were inconsistent with the provisions of the enabling enactment. His initiatives, despite their inconsistency with the law, produce great results for the Authority.

Dr. Kamkam has a very good relationship with the Board of Directors over the period resulting from fat allowances and kingly treatment he offers them, especially the board chairman who is a personal friend to him. This empowers him to make unilateral decisions knowing that the board is under his full control and dominance. The board meets fewer times than required by the enabling Act of the GAA. Furthermore, internal audit is not given the required attention by management and the audit committee has not been constituted in the last four years.

The Authority outsourced most of its supporting services to the private sector. The CEO has ensured that all of these services are outsourced to companies owned by his close friends and relatives. In some cases, the services are outsourced to companies in which the board chairman has significant interest. Past records support the action of the CEO that outsourcing to close associates produces better services than an “arm’s length” sourcing. The Authority is also not able to meet information disclosure requirements due to the policy of the CEO to operate on the blind side of the public in order to reduce visibility and nose-poking behaviors of the media.

Required:

i) Explain FOUR symptoms of defective corporate governance that can be identified in GAA. (6 marks)

ii) Identify FOUR responsibilities expected of the Board of Directors of GAA to promote good corporate governance. (4 marks)

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  • 10 Marks

AAA – May 2019 – L3 – Q4a – Internal audit and outsourcing, Public sector audi

Discuss the effects of outsourcing government payroll and analyze the auditor's duties when such outsourcing is implemented.

The Minister of Finance in his mid-year review of the national budget hinted that government payroll may be outsourced. The main reason being the guarantee of cost. In April 2017, a bio-metric exercise conducted by SSNIT ensured that 27,000 ghost names were identified and removed from government payroll. In the same year, 23,000 ghost names were removed as a result of a headcount of government employees. Resulting from these exercises, GH¢250 million was saved in 2017.

Required:

i) Discuss the effects of payroll outsourcing in this stance. (5 marks)

ii) Analyze what the service user auditor must do in the course of his duties when the outsourcing programme is implemented. (5 marks)

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  • 10 Marks

AAA – May 2018 – L3 – Q4b -Internal audit and outsourcing

Discuss the nature of consultancy projects in internal auditing and how to minimize associated risks.

Recent developments in corporate governance focus on the importance of an organisation’s ability to identify and manage risk. It is the responsibility of management to identify and respond to risk, but as part of the organisation’s internal control, internal audit can help provide assurance that risks have been managed properly. Internal auditors may also be involved in providing consultancy services. However, a balance needs to be struck between a wish to increase the level of responsibility given to internal auditors, in order to benefit from their skills, and the danger that involvement which amounts to management involvement would compromise the independence of the internal auditors.

Required:

i) Discuss the nature of consultancy projects in internal auditing and the dangers in internal auditing becoming too involved in consultancy projects. (6 marks)
ii) Recommend FOUR actions to be taken to minimize the danger posed by internal audit becoming too involved in consultancy projects. (4 marks)

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  • 20 Marks

AAA – Nov 2015 – L3 – Q2 – Internal audit and outsourcing

Considerations for appointing an internal auditor, expected briefing issues, and comparing assurance and consulting activities.

The Afigya Sekyere District Assembly has appointed Ms. Afi Kakrabah as the Internal Auditor. She was appointed by the District Chief Executive (DCE) after he attended a seminar at GIMPA for newly appointed DCEs, where the importance of pre-auditing of all payments by Internal Auditors for expenditures incurred by all Government Ministries, Departments, Municipal, and District Assemblies (MMDAs) was stressed.

Ms. Kakrabah has just completed National Service at the Internal Audit Agency, holds an HND in Accounting, and is a native of the same village as the DCE of Afigya Sekyere District.

Ms. Kakrabah will report to the District Finance Officer.

At the first meeting after the appointment of the DCE, the District Assembly had set up its standing committees, and one of them was the Audit and Finance Sub-Committee. The first meeting of the sub-committee requested Ms. Kakrabah to prepare briefing notes to show her vision and approach to the Internal Audit function at the District Assembly and to discuss how she will maintain her independence as well as her knowledge and understanding of Internal Audit Practices recommended by the Institute of Internal Auditors (IIA) as in the IIA’s International Professional Practices Framework (IPPF).

You are an Auditor in Public Practice, and the Auditor General of Ghana has appointed you to perform the statutory audit of the Afigya Sekyere District Assembly. The Audit and Finance Sub-Committee of the District Assembly has requested that you attend the meeting at which the Internal Auditor will brief them and help them in assessing the Internal Auditor’s briefing.

Required:

a) Comment on the matters that you will consider on the appointment of Ms. Kakrabah and her reporting lines as discussed above. (5 marks)

b) State the issues that you should expect Ms. Kakrabah to discuss in her briefing to the Audit and Finance Sub-Committee of the District Assembly. (10 marks)

c) The IIA’s definition of Internal Auditing states, among others, that:
“Internal Auditing is an independent, objective assurance and consulting activity….”
Compare and contrast an Assurance and a Consulting Audit activity.

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  • 10 Marks

PSAF – Mar 2023 – L2 – Q1b – Public expenditure and financial accountability framework

Discusses the statutory roles of the Internal Audit Agency and Ghana Audit Service in public financial management.

In its quest of deepening public financial management in Ghana, the Government of the Republic, supported by the Development Partners, launched a reform project in the year 2003, called Public Financial Management Reform Programme (PUFMARP). This programme produced, among others, two important legislations to regulate internal and external audit practice in the public sector. These are Internal Audit Agency Act, 2003 (Act 658) and Audit Service Act, 2000 (Act 584) respectively.

Required:
Enumerate THREE (3) statutory roles each of Internal Audit Agency and Ghana Audit Service.
(10 marks)

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  • 4 Marks

PSAF – May 2020 – L1 – Q1b – Public expenditure and financial accountability framework

Explain the functions of the Internal Audit Agency Board as required by the Internal Audit Agency Act, 2003 (Act 658).

Explain TWO (2) functions of the Internal Audit Agency Board as required by the Internal Audit Agency Act, 2003, (Act 658).

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