Topic: Internal audit and outsourcing

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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.

Question

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)

Answer

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Tags: Audit Fees, Audit Reliance, External audit, Internal Audit, ISA 610
Level: Level 3

Topic: Internal audit and outsourcing, The audit approach
Series: MAY 2021

AAA – May 2017 – L3 – Q4c – Internal audit and outsourcing | Public sector audit

Discuss the need for an Internal Audit Charter in public sector organizations and analyze the conflict of interest issues related to the composition of an Audit Report Implementation Committee (ARIC).

Question

A public sector organization has an Internal Audit function and an Audit Report Implementation Committee (ARIC) of the Board of Directors. The Internal Audit function does not have an Internal Audit Charter. Before the PFM Act, 2016 (Act 921) was enacted, the ARIC had three members: the Managing Director of the organization and two other directors, a legal practitioner, and a retired career diplomat.

Required:

i) Identify the need for and state TWO of the major issues the Internal Audit Charter must cover in a public sector organization. (4 marks)

ii) Discuss the conflict of interest and other issues raised by the composition of the organization’s ARIC in relation to the recommendations of the IIA. (2 marks)

Answer

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Tags: ARIC, Conflict of Interest, IIA Recommendations, Internal Audit Charter, Public Sector
Level: Level 3

Topic: Internal audit and outsourcing, Public sector audit
Series: MAY 2017

AAA – May 2017 – L3 – Q4b – Internal audit and outsourcing | Professional responsibility and liability

Assess the importance of recommendations by the IIA to ensure the independence of internal auditors within an organization.

Question

The Institute of Internal Auditors (IIA) defines Internal Auditing as:

“An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.”

Required:

Assess the importance of THREE recommendations the IIA has made to ensure that internal auditors remain independent even though they are employees of the company. (4 marks)

Answer

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Level: Level 3

Topic: Internal audit and outsourcing, Professional responsibility and liability
Series: MAY 2017

AAA – May 2016 – L3 – Q5a – Internal audit and outsourcing | Audit evidence

Prepare a report to management on the deficiencies in the payroll internal control system and provide recommendations.

Question

a) Broni & Co. have audited the annual financial statements of Bibini Co. Ltd., a public limited liability company, for the year ended 31st December 2014. The accounting system of the company is partially computerized.

During the audit, it was detected that just two members of staff out of one hundred and fifty workers were entirely and equally responsible for the maintenance of personnel records and preparation of the payroll. The chief accountant only confirms that the amount of the wages and salaries cheque agrees with the total of the net wages column in the payroll, then he signs without any reasonableness check of the amount of the total wages cheque. This situation is a serious deficiency in the control system which can have serious implications. As audit senior, you are considering communicating this situation to management, showing the deficiency, implications, and recommendations.

Required:
Prepare an appropriate report to management on the deficiency noted in the internal control system for payroll. (10 marks)

Answer

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Tags: Deficiency, Internal Control, Management Report, Payroll System, Recommendations
Level: Level 3

Topic: Audit evidence, Internal audit and outsourcing
Series: MAY 2016

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).

Question

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)

Answer

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Tags: Audit Agency, Functions, Government Accountability, Internal Audit, Public Sector
Level: Level 3

Topic: Internal audit and outsourcing, Public sector audit
Series: MAY 2016

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.

Question

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)

Answer

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Tags: Audit report, Internal Audit, Management, Needs Assessment
Level: Level 3

Topic: Internal audit and outsourcing, Practice management
Series: MAY 2016

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.

Question

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)

Answer

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Tags: Audit evidence, Governance Reporting, ICAG, Internal Audit
Level: Level 3

Topic: Audit-related services, Internal audit and outsourcing
Series: MAR 2023

AAA – March 2023 – L3 – Q4 – Internal audit and outsourcing, public sector audit

Discuss the impact of the Internal Audit Agency on government institutions and analyze the effects of payroll outsourcing.

Question

a) Internal Auditing has assumed great importance as a tool of accountability in organizations both public and private. Internal auditors being employees of the organization they audit; do not enjoy the protection they need to operate independently. There arose the need for an independent regulatory and supervisory authority to give professional direction and protection to internal auditors to do their work without undue interference. It was for those reasons that the Internal Audit Agency was established as a supervisory authority to regulate the practice of Internal Auditing in the Public Sector.

Required:
Discuss the impact of Internal Audit Agency on MDAs, MMDAs and Government Agencies since its establishment in Ghana. (10 marks)

b) In his mid-year assessment of the national budget, the Minister of Finance made a suggestion that outsourcing of government payroll might be considered. The assurance of cost was the primary factor. A biometric exercise carried out by SSNIT in April 2017 made sure that 27,000 “ghost” names were found and taken off the government payroll.

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)

(Total: 20 marks)

Answer

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Topic: Internal audit and outsourcing, Public sector audit
Series: MAR 2023

AAA – Nov 2018 – L3 – Q4a – Internal audit and outsourcing

Evaluation of governance processes and risk management by internal auditors.

Question

“Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.”

Required:
Evaluate the objectives of FOUR (4) governance processes and FOUR (4) risk management processes that an internal auditor must consider and identify the audit work that must be done. (10 marks)

Answer

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Tags: Evaluation of governance processes and risk management by internal auditors.
Level: Level 3

Topic: Internal audit and outsourcing
Series: NOV 2018

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.

Question

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)

Answer

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Tags: Cost reduction, Internal Audit, Payroll outsourcing, Public Sector Audit
Level: Level 3

Topic: Internal audit and outsourcing, Public sector audit
Series: MAY 2019

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

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

Question

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)

Answer

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Tags: Consultancy Projects, Ethics, Independence, Internal Audit, Risk Management
Level: Level 3

Topic: Internal audit and outsourcing
Series: MAY 2018

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

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

Question

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.

Answer

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Tags: Audit Committee, Auditor Independence, Internal Audit, Internal Audit Practices, Professional Ethics
Level: Level 3

Topic: Internal audit and outsourcing
Series: NOV 2015

Topic: Internal audit and outsourcing

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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.

AAA – May 2017 – L3 – Q4c – Internal audit and outsourcing | Public sector audit

Discuss the need for an Internal Audit Charter in public sector organizations and analyze the conflict of interest issues related to the composition of an Audit Report Implementation Committee (ARIC).

AAA – May 2017 – L3 – Q4b – Internal audit and outsourcing | Professional responsibility and liability

Assess the importance of recommendations by the IIA to ensure the independence of internal auditors within an organization.

AAA – May 2016 – L3 – Q5a – Internal audit and outsourcing | Audit evidence

Prepare a report to management on the deficiencies in the payroll internal control system and provide recommendations.

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).

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.

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.

AAA – March 2023 – L3 – Q4 – Internal audit and outsourcing, public sector audit

Discuss the impact of the Internal Audit Agency on government institutions and analyze the effects of payroll outsourcing.

AAA – Nov 2018 – L3 – Q4a – Internal audit and outsourcing

Evaluation of governance processes and risk management by internal auditors.

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.

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

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

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

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

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