Tag (SQ): Internal Audit

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  • 20 Marks

AA – L2 – Q25 – Internal vs External Auditors

Contrast the roles of internal and external auditors, focusing on objectives, reporting, scope, and relationship with the company. Discuss the benefits of forming an audit committee for Apex Ltd, a private company with financial reporting and control challenges.

(a) Contrast the role of internal and external auditors.

(b) Apex Ltd designs and manufactures luxury motor vehicles. The company employs 2,500 staff and consistently makes a net profit of between 10% and 15% of revenue. Apex Ltd is not listed; its shares are held by 15 individuals, most of them from the same family. The maximum shareholding is 15% of the share capital.

The executive directors are drawn mainly from the shareholders. There are no non-executive directors because the company legislation in Apex Ltd’s jurisdiction does not require any. The executive directors are very successful in running Apex Ltd, partly from their training in production and management techniques, and partly from their ‘hands-on’ approach providing motivation to employees.

The board are considering a significant expansion of the company. However, the company’s bankers are concerned with the standard of financial reporting as the financial director (FD) has recently left Apex Ltd. The board are delaying provision of additional financial information until a new FD is appointed.

Apex Ltd does have an internal audit function, although the chief internal auditor frequently comments that the board of Apex Ltd do not understand his reports or provide sufficient support for his department or the system of internal control within Apex Ltd. The board of Apex Ltd concur with this view. Barnes & Co, the external auditors, have also expressed concern in this area and the fact that the internal audit function focuses work on systems of internal control, not financial reporting. Barnes & Co are appointed by and report to the board of Apex Ltd.

The board of Apex Ltd are considering a proposal from the chief internal auditor to establish an audit committee. The committee would consist of one executive director, the chief internal auditor as well as three new appointees. One appointee would have a non-executive seat on the board of directors.

Required:
Discuss the benefits to Apex Ltd of forming an audit committee.

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  • 15 Marks

AAA – L3 – Q18 – Internal Audit

Comment on the appointment and reporting lines of Ms Ama Asantewaa as Internal Auditor at Asante Akyem District Assembly.

The Asante Akyem District Assembly has appointed Ms Ama Asantewaa as the Internal Auditor. She was appointed by the District Chief Executive (DCE) after he attended a seminar at KIMPA 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 Asantewaa 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 Asante Akyem District. Ms Asantewaa 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 Asantewaa 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 Asante Akyem 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 Asantewaa and her reporting lines as discussed above.                                                                                                                                                                                                                                    (b) State the issues that you should expect Ms Asantewaa to discuss in her briefing to Audit and Finance Sub-Committee of the District Assembly.

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  • 10 Marks

AAA – L3 – Q16 – Public sector audit

Detail the functions of the Internal Audit Agency as per the Internal Audit Agency Act (2003) for the Municipal Chief Executive.

Dr. Kwame Asante has been appointed the Municipal Chief Executive (MCE) of Asantekrom 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 object 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 for 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).

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  • 30 Marks

AA – L2 – Q12 – Internal Audits

Review risks, controls, and tests for HR, procurement, and marketing at a cleaning company; explain types of internal audits.

CleanSweep
Internal auditors often assist management in performing internal review assignments covering, for example, human resources, procurement (purchasing), marketing and treasury activities. Such reviews involve:
the identification of risks;
the identification of systems of internal control and procedures implemented to manage those risks;
tests of controls to ensure that internal controls are operating effectively;
an evaluation of the overall effectiveness of the design and operations of controls in managing the risks identified.
You are the internal auditor for a private company, CleanSweep. CleanSweep provides cleaning services to shops and offices and has a reputation for high quality work. You have been asked to review the human resources, procurement and marketing functions within the company.
CleanSweep employs about 500 cleaning staff, all of whom are on the payroll, and most of whom work part time. CleanSweep does not employ sub-contractors. CleanSweep has a high turnover of staff.
The company buys its computers, office stationery and furniture, cleaning materials, equipment and work clothes for staff, from a variety of different suppliers. It processes its payroll in-house.
The company has recently decided to out-source its marketing to a large, aggressive, third party company that will advertise CleanSweep’s services by means of direct mail, sometimes by offering discounts. This company has been criticised in the past for breaching advertising regulations. There is growing price competition in CleanSweep’s market. CleanSweep is struggling to maintain its profitability and would like to expand its client base.
CleanSweep has three main functions:
human resources;
procurement; and
marketing.

Required
(a) For each of the three main functions at CleanSweep describe the:
(i) risks that you expect the company to face;
(ii) controls you expect to be in place to manage the risks you have identified in (i), above;
(iii) tests of control you should perform to check that the controls you have identified in (ii) above are operating effectively.
Marks will be awarded as follows:
(1) Human resources;
(2) Procurement;
(3) Marketing.
You may present your answer in tabular format, if you wish.
(b) Internal audit also perform other work on behalf of management, such as value for money (VFM) audits, best value audits, financial audits and information technology (IT) audits.
Explain what is meant by each of the above four types of audits

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  • 20 Marks

AA – L2 – Q5 – Fraud and Error

Explain how internal audit helps manage fraud and error risks in an entity.

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

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

(c) SunCity Travel is an independent travel agency. It does not operate 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 SunCity Travel sells. The networked reservations system through which holidays are booked and the computerised 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 card. SunCity Travel is legally required to pay an amount of money (based on its total revenue for the year) into a central fund maintained to compensate customers if the agency should cease operations.
Describe the nature of the risks to which SunCity Travel is subject arising from fraud and error.

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