AUE2601 May/Jun 2013 exam paper — questions

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  1. Question 1.1 · Code of Ethics · 1.5 marks

    Candidates must answer this multiple-choice question by choosing only one alternative that they consider most correct for each subsection, writing down the subsection number together with the letter of the alternative chosen, and answering the subsections in numerical order (for example, 1.1 A, 1.2 B). Each subsection counts 1½ marks. According to the Institute of Internal Auditors' Code of Ethics, identify which of the following is NOT one of the specific principles that internal auditors are expected to apply and uphold.Show the full question

  2. Question 1.2 · Definition, role and responsibilities of internal audit · 1.5 marks

    Candidates must answer this multiple-choice question by choosing only one alternative that they consider most correct for each subsection, writing down the subsection number together with the letter of the alternative chosen, and answering the subsections in numerical order (for example, 1.1 A, 1.2 B). Each subsection counts 1½ marks. Select the alternative that correctly completes this statement: the position of the chief audit executive is correctly defined as the...Show the full question

  3. Question 1.3 · The internal audit process and fieldwork · 1.5 marks

    Candidates must answer this multiple-choice question by choosing only one alternative that they consider most correct for each subsection, writing down the subsection number together with the letter of the alternative chosen, and answering the subsections in numerical order (for example, 1.1 A, 1.2 B). Each subsection counts 1½ marks. Identify which one of the following alternatives is NOT an internal audit procedure: recalculating the depreciation of fixed assets; verifying that there are two signatures of senior officials on all cheques; recommending improvements for the internal control system; or observing the daily clocking in of employees.Show the full question

  4. Question 1.4 · The internal audit process and fieldwork · 1.5 marks

    Candidates must answer this multiple-choice question by choosing only one alternative that they consider most correct for each subsection, writing down the subsection number together with the letter of the alternative chosen, and answering the subsections in numerical order (for example, 1.1 A, 1.2 B). Each subsection counts 1½ marks. Determine with whom the primary responsibility rests for establishing and maintaining an internal control system.Show the full question

  5. Question 1.5 · Definition, role and responsibilities of internal audit · 1.5 marks

    Candidates must answer this multiple-choice question by choosing only one alternative that they consider most correct for each subsection, writing down the subsection number together with the letter of the alternative chosen, and answering the subsections in numerical order (for example, 1.1 A, 1.2 B). Each subsection counts 1½ marks. Indicate which of the following alternatives is NOT one of the four functions of management: reviewing, organising, directing, or planning.Show the full question

  6. Question 1.6 · The internal audit process and fieldwork · 1.5 marks

    Candidates must answer this multiple-choice question by choosing only one alternative that they consider most correct for each subsection, writing down the subsection number together with the letter of the alternative chosen, and answering the subsections in numerical order (for example, 1.1 A, 1.2 B). Each subsection counts 1½ marks. Select the alternative that correctly completes this statement: in order to be sufficient, audit evidence must...Show the full question

  7. Question 1.7 · The internal audit process and fieldwork · 1.5 marks

    Candidates must answer this multiple-choice question by choosing only one alternative that they consider most correct for each subsection, writing down the subsection number together with the letter of the alternative chosen, and answering the subsections in numerical order (for example, 1.1 A, 1.2 B). Each subsection counts 1½ marks. Determine for whose primary benefit the internal auditor prepares working papers.Show the full question

  8. Question 1.8 · The internal audit process and fieldwork · 1.5 marks

    Candidates must answer this multiple-choice question by choosing only one alternative that they consider most correct for each subsection, writing down the subsection number together with the letter of the alternative chosen, and answering the subsections in numerical order (for example, 1.1 A, 1.2 B). Each subsection counts 1½ marks. During an internal audit of sales representatives' travel expenses, the internal auditor first calculates the average travel expenses per day for each sales representative, and then examines the detailed receipts of those representatives who have high daily averages. Identify which type of audit evidence these audit procedures represent.Show the full question

  9. Question 1.9 · International Professional Practices Framework (IPPF) and standards · 1.5 marks

    Candidates must answer this multiple-choice question by choosing only one alternative that they consider most correct for each subsection, writing down the subsection number together with the letter of the alternative chosen, and answering the subsections in numerical order (for example, 1.1 A, 1.2 B). Each subsection counts 1½ marks. Identify an element of authority attributed to the internal audit activity that should be included in its charter.Show the full question

  10. Question 1.10 · Internal auditor roles, qualifications and characteristics · 1.5 marks

    Candidates must answer this multiple-choice question by choosing only one alternative that they consider most correct for each subsection, writing down the subsection number together with the letter of the alternative chosen, and answering the subsections in numerical order (for example, 1.1 A, 1.2 B). Each subsection counts 1½ marks. Select the INCORRECT alternative regarding the required personal qualities of an internal auditor.Show the full question

  11. Question 2.1 · International Professional Practices Framework (IPPF) and standards · 3 marks

    The International Professional Practices Framework (IPPF) is made up of three mandatory elements: (a) the Definition of Internal Auditing, (b) the Code of Ethics, and (c) the International Standards for the Professional Practice of Internal Auditing (the Standards). Using the Institute of Internal Auditors (IIA) Code of Ethics as your reference point, you are required to state and explain, for each of the scenarios that follow, whether the conduct described is permissible or not, giving reasons to support your conclusion in every case. In order to cut organisational costs, the chief audit executive has cancelled all staff training for internal audit for the next two years, justifying this decision on the grounds that all the internal audit staff are too new to benefit from such training. Discuss, with reasons, whether this is permissible in terms of the IIA Code of Ethics.Show the full question

  12. Question 2.2 · International Professional Practices Framework (IPPF) and standards · 3 marks

    The International Professional Practices Framework (IPPF) is made up of three mandatory elements: (a) the Definition of Internal Auditing, (b) the Code of Ethics, and (c) the International Standards for the Professional Practice of Internal Auditing (the Standards). Using the Institute of Internal Auditors (IIA) Code of Ethics as your reference point, you are required to state and explain, for each of the scenarios that follow, whether the conduct described is permissible or not, giving reasons to support your conclusion in every case. An internal audit team has made observations and recommendations that are expected to significantly improve a department's operating efficiency. As a token of appreciation, the department manager gives James, the internal audit manager, a gift of moderate value. James accepts the gift because it shows appreciation for the work done and because it is the holiday season. Discuss, with reasons, whether this is permissible in terms of the IIA Code of Ethics.Show the full question

  13. Question 2.3 · International Professional Practices Framework (IPPF) and standards · 3 marks

    The International Professional Practices Framework (IPPF) is made up of three mandatory elements: (a) the Definition of Internal Auditing, (b) the Code of Ethics, and (c) the International Standards for the Professional Practice of Internal Auditing (the Standards). Using the Institute of Internal Auditors (IIA) Code of Ethics as your reference point, you are required to state and explain, for each of the scenarios that follow, whether the conduct described is permissible or not, giving reasons to support your conclusion in every case. Simon, an internal auditor, has been assigned to audit the human resources department, which is managed by his wife. Discuss, with reasons, whether this is permissible in terms of the IIA Code of Ethics.Show the full question

  14. Question 2.4 · International Professional Practices Framework (IPPF) and standards · 3 marks

    The International Professional Practices Framework (IPPF) is made up of three mandatory elements: (a) the Definition of Internal Auditing, (b) the Code of Ethics, and (c) the International Standards for the Professional Practice of Internal Auditing (the Standards). Using the Institute of Internal Auditors (IIA) Code of Ethics as your reference point, you are required to state and explain, for each of the scenarios that follow, whether the conduct described is permissible or not, giving reasons to support your conclusion in every case. Matthew, an internal auditor employed by a manufacturer of office products, has recently completed an engagement evaluating the marketing function of his employer. Drawing on this experience, Matthew spends several hours one Saturday working as a paid consultant to a local hospital that intends to carry out an engagement to evaluate its own marketing function. Discuss, with reasons, whether this is permissible in terms of the IIA Code of Ethics.Show the full question

  15. Question 2.5 · International Professional Practices Framework (IPPF) and standards · 3 marks

    The International Professional Practices Framework (IPPF) is made up of three mandatory elements: (a) the Definition of Internal Auditing, (b) the Code of Ethics, and (c) the International Standards for the Professional Practice of Internal Auditing (the Standards). Using the Institute of Internal Auditors (IIA) Code of Ethics as your reference point, you are required to state and explain, for each of the scenarios that follow, whether the conduct described is permissible or not, giving reasons to support your conclusion in every case. An internal auditor did not report significant findings about illegal activity to the audit committee, because management had indicated that they would handle the issue themselves. Discuss, with reasons, whether this is permissible in terms of the IIA Code of Ethics.Show the full question

  16. Question 3.1 · Definition, role and responsibilities of internal audit · 6 marks

    You have just been appointed as the chief audit executive (CAE) of a newly established internal audit division at Data Magic (Pty) Limited, a company that specialises in software training and has expanded considerably over the past five years. The managing director who appointed you believes that creating this internal audit department, together with your appointment, will help her strengthen control within this rapidly growing business. A few weeks into the job, the internal audit department is gradually taking shape, and you are preparing to run a workshop for every department in the organisation to introduce the internal audit function and explain how it operates. Your presentation must cover the topics below. As part of your workshop presentation, describe six (6) benefits that come from having an internal audit function within Data Magic (Pty) Limited's organisation.Show the full question

  17. Question 3.2 · Definition, role and responsibilities of internal audit · 7 marks

    You have just been appointed as the chief audit executive (CAE) of a newly established internal audit division at Data Magic (Pty) Limited, a company that specialises in software training and has expanded considerably over the past five years. The managing director who appointed you believes that creating this internal audit department, together with your appointment, will help her strengthen control within this rapidly growing business. A few weeks into the job, the internal audit department is gradually taking shape, and you are preparing to run a workshop for every department in the organisation to introduce the internal audit function and explain how it operates. Your presentation must cover the topics below. Given that an internal auditor also acts as an adviser within the organisation, provide seven (7) examples illustrating how the internal audit function can assist management at Data Magic (Pty) Limited.Show the full question

  18. Question 3.3 · Definition, role and responsibilities of internal audit · 5 marks

    You have just been appointed as the chief audit executive (CAE) of a newly established internal audit division at Data Magic (Pty) Limited, a company that specialises in software training and has expanded considerably over the past five years. The managing director who appointed you believes that creating this internal audit department, together with your appointment, will help her strengthen control within this rapidly growing business. A few weeks into the job, the internal audit department is gradually taking shape, and you are preparing to run a workshop for every department in the organisation to introduce the internal audit function and explain how it operates. Your presentation must cover the topics below. Explain the aspects that need to be incorporated into the internal audit charter in order to grant the internal audit function the necessary authority.Show the full question

  19. Question 3.4 · Definition, role and responsibilities of internal audit · 7 marks

    You have just been appointed as the chief audit executive (CAE) of a newly established internal audit division at Data Magic (Pty) Limited, a company that specialises in software training and has expanded considerably over the past five years. The managing director who appointed you believes that creating this internal audit department, together with your appointment, will help her strengthen control within this rapidly growing business. A few weeks into the job, the internal audit department is gradually taking shape, and you are preparing to run a workshop for every department in the organisation to introduce the internal audit function and explain how it operates. Your presentation must cover the topics below. List seven (7) responsibilities of the internal audit activity as set out in the internal audit charter.Show the full question

  20. Question 3.5 · Definition, role and responsibilities of internal audit · 7 marks

    You have just been appointed as the chief audit executive (CAE) of a newly established internal audit division at Data Magic (Pty) Limited, a company that specialises in software training and has expanded considerably over the past five years. The managing director who appointed you believes that creating this internal audit department, together with your appointment, will help her strengthen control within this rapidly growing business. A few weeks into the job, the internal audit department is gradually taking shape, and you are preparing to run a workshop for every department in the organisation to introduce the internal audit function and explain how it operates. Your presentation must cover the topics below. List seven (7) practices that would help to foster a good working relationship between the audit committee and the internal audit activity.Show the full question

  21. Question 3.6 · Definition, role and responsibilities of internal audit · 9 marks

    You have just been appointed as the chief audit executive (CAE) of a newly established internal audit division at Data Magic (Pty) Limited, a company that specialises in software training and has expanded considerably over the past five years. The managing director who appointed you believes that creating this internal audit department, together with your appointment, will help her strengthen control within this rapidly growing business. A few weeks into the job, the internal audit department is gradually taking shape, and you are preparing to run a workshop for every department in the organisation to introduce the internal audit function and explain how it operates. Your presentation must cover the topics below. Mention nine (9) actions that can contribute towards good co-operation and co-ordination between the internal auditors and the external auditors.Show the full question

  22. Question 4.1 · Internal auditor roles, qualifications and characteristics · 5 marks

    You recently attended a conference jointly hosted by the Association of Certified Fraud Examiners and the Institute of Internal Auditors, themed 'The diverse roles of internal auditors in today's world'. The Chief Audit Executive has asked you to prepare a short presentation for your colleagues summarising what you learned at the conference, and has requested that your presentation include, at minimum, a discussion of fraud and risk management. Explain the respective roles played by management and by the internal auditor in relation to risk management.Show the full question

  23. Question 4.2 · Internal auditor roles, qualifications and characteristics · 5 marks

    You recently attended a conference jointly hosted by the Association of Certified Fraud Examiners and the Institute of Internal Auditors, themed 'The diverse roles of internal auditors in today's world'. The Chief Audit Executive has asked you to prepare a short presentation for your colleagues summarising what you learned at the conference, and has requested that your presentation include, at minimum, a discussion of fraud and risk management. Explain what role the internal auditor plays specifically in the detection of fraud.Show the full question

  24. Question 5.1 · The internal audit process and fieldwork · 4 marks

    You have just been promoted to senior internal auditor at your organisation, and part of your new role is to train internal audit trainees. While going through the training file left by your predecessor, you find a comprehensive list of possible internal controls that could be implemented in an organisation, numbered as follows: (1) payments received in the post are opened by two people, with the payments recorded in a remittance register by those who opened the post; (2) the accounting clerk performs monthly bank reconciliations, which are then reviewed and signed by the supervisor; (3) at the wages payout, employees must provide proof of identification and acknowledge receipt of their wages by signing the payroll register; (4) the financial director reviews and signs exception reports every month before releasing payment to suppliers; and (5) cheque signatories cancel all supporting documentation (by stamp or crossing) so that it cannot be presented again for payment. Explain to the trainees the steps that an auditor would follow when planning an audit.Show the full question

  25. Question 5.2(a) · The internal audit process and fieldwork · 10 marks

    You have just been promoted to senior internal auditor at your organisation, and part of your new role is to train internal audit trainees. While going through the training file left by your predecessor, you find a comprehensive list of possible internal controls that could be implemented in an organisation, numbered as follows: (1) payments received in the post are opened by two people, with the payments recorded in a remittance register by those who opened the post; (2) the accounting clerk performs monthly bank reconciliations, which are then reviewed and signed by the supervisor; (3) at the wages payout, employees must provide proof of identification and acknowledge receipt of their wages by signing the payroll register; (4) the financial director reviews and signs exception reports every month before releasing payment to suppliers; and (5) cheque signatories cancel all supporting documentation (by stamp or crossing) so that it cannot be presented again for payment. For each of the five internal controls listed in the training file scenario (payments opened by two people and recorded in a remittance register; monthly bank reconciliations reviewed and signed by the supervisor; employees providing identification and signing the payroll register at wages payout; the financial director reviewing and signing exception reports before releasing supplier payments; and cheque signatories cancelling supporting documentation), describe one (1) audit procedure, i.e. a test of control, that could be used to determine whether that control is working as intended. Structure your answer in a table with columns for the control number and the corresponding audit procedure.Show the full question

  26. Question 5.2(b) · The internal audit process and fieldwork · 5 marks

    You have just been promoted to senior internal auditor at your organisation, and part of your new role is to train internal audit trainees. While going through the training file left by your predecessor, you find a comprehensive list of possible internal controls that could be implemented in an organisation, numbered as follows: (1) payments received in the post are opened by two people, with the payments recorded in a remittance register by those who opened the post; (2) the accounting clerk performs monthly bank reconciliations, which are then reviewed and signed by the supervisor; (3) at the wages payout, employees must provide proof of identification and acknowledge receipt of their wages by signing the payroll register; (4) the financial director reviews and signs exception reports every month before releasing payment to suppliers; and (5) cheque signatories cancel all supporting documentation (by stamp or crossing) so that it cannot be presented again for payment. For each of the same five internal controls listed in the training file scenario, indicate the kind of audit evidence that would be obtained from performing the audit procedure you described. Present this in the same table as your answer to 5.2(a), with an additional column for the audit evidence.Show the full question

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