AUI2601 Assignment 2 Semester 1 2023 (849463)

AUI2601 Assignment 2 Semester 1 2023 () 100% TRUSTED workings, explanations and solutions. For assistance call or us on . QUESTION 1 39 marks The International Professional Practices Framework (IPPF) is the conceptual framework that organises authoritative guidance promulgated by the Institute of Internal Auditors (IIA). Some elements of the IPPF are mandatory and essential for internal auditors, meaning internal auditors are required to conform to these elements. MARKS 1.1 The International Standards for the Professional Practice of Internal Auditing (Standards) comprises of Attribute and Performance Standards. Classify the following Standards as Attribute or Performance standards. 1.1.1 Standard 1100: Independence and objectivity 1.1.2 Standard 2120: Risk Management 1.1.3 Standard 1230: Continuing Professional Development 1.1.4 Standard 1311: Internal Assessment 1.1.5 Standard 2220: Engagement scope 1.1.6 Standard 2012: Planning 1.1.7 Standard 1210: Proficiency (7) 1.2 Conclude and explain, with reference to the IPPF (Code of Ethics or Standards), whether each of the unrelated scenarios below (1.2.1 to 1.2.8) is permissible or not permissible (column 1). Quote the complete Rule of Conduct or IIA Standard (not just the heading) and a description of the Standard (column 2). Provide a reason to support each of your conclusions (column 3). Your answer should be structured as follows: No. Permissible/ Not permissible (1 mark) Reference to IPPF (2 marks) Reason (1 mark) 1.2.1 Thabo Doe is a newly appointed junior internal auditor. He has no practical experience as he only graduated the previous month. Thabo has been appointed to oversee the year-end stocktake and must prepare the detailed audit report on the procedures followed. The internal audit manager agreed that Thabo could attend the stocktake on his own, as the supervisor is currently busy finalising the audit in another department and does not have time to attend. (4) 1.2.2 Jack Web is a junior internal auditor. He was recently involved in the audit of (4) 4 the company’s debtor’s department. During the audit, fraud was discovered in the department. During lunch, Jack discussed the details of the fraud with his colleagues working in the call centre department. 1.2.3 The chief audit executive (CAE) disagrees with the engagement client about an illegal environmental activity that has taken place and with the recommendations that have been made regarding the activity. Senior management has nevertheless accepted the risk and wants the findings removed from the report. The CAE does not accept this and reports the matter to the board. (4) 1.2.4 In the review of travel and entertainment expenses, the internal auditor questioned whether a manager’s reimbursed travel expenses were for business purposes. The manager promised to pay back the disputed amounts. The manager further requested the internal auditor to not include the finding in the report as the full amount will be paid immediately. However, the internal auditor still included the finding in the final audit report. (4) 1.2.5 Frank Opps was the supervisor of the accounts payable section before he joined the internal auditing team 18 months ago. Frank Opps is included in the internal audit team for the review of the accounts payable section. (4) 1.2.6 The internal audit function has been receiving requests from the external auditors to provide all final internal audit reports and follow-up reviews to assist them in determining and adjusting the scope of their work. The CAE ignored the request from the external auditors. (4) 1.2.7 The internal audit activity has made observations and recommendations that should significantly improve the distribution department’s efficiency. As a token of appreciation, the chief operations officer (COO) presented the internal audit manager with a gift voucher of R5 000 to show his appreciation. The internal audit manager accepted the gift as he believes that the gift is immaterial. (4) 1.2.8 Rosa Gold, a senior internal auditor has recently been appointed in the internal audit division of Carpet Clean Ltd. In her quest to understand the division, she reviewed previous internal audit files and noted that the internal audit reports include the clause “the internal audit activity conforms with the International Professional Practice of Internal Auditing”. Upon enquiry with the CAE on the quality assurance improvement programme, the CAE stated that last external quality assessment was done eight years ago and the internal audit function continuously performs internal quality assessments, (4) AUI2601/2/2023 5 hence he included that clause in the report. QUESTION 2 2 marks REQUIRED State whether each of the following statements is True or False, by writing only True or False next to the question number. MARKS 2.1.1 To enable the internal audit activity to comply with the requirements of the Standards for Professional Practice of Internal Auditing, the chief audit executive (CAE) must prepare a charter for approval by the audit committee. All findings must be reported to the audit committee every three months and should be included in the charter’s statement of objectivity. (1) 2.1.2 In an organisation with a separate fraud division, the internal audit activity is responsible for establishing and maintaining the fraud division’s system of internal control. (1) QUESTION 3 43 marks Part A Gas Tin Ltd is a newly established recycling company which specialises in recycling tin cans. The board of directors recently decided to establish an in-house internal audit. Karabo Lesedi was appointed as the chief audit executive (CAE). The internal audit function is placed within the finance division and the CAE reports to the chief financial officer (CFO) for both functional and administrative matters. Two employees were transferred from the human resources department and one from the procurement division to work in the internal audit function as internal auditors. All three employees have degrees in financial management and no internal auditing experience. REQUIRED MARKS 3.1 Based on the information in the scenario, comment on the reporting structure of the internal audit function in relation to organisational independence. (2) 3.2 Explain the type of reporting preferred for organisational independence purposes according to the International Standards for the Professional Practice of Internal Auditing (Standards). (3) 3.3 Examples of functional reporting to the board are addressed in the IIA Standards. Provide six (6) examples of functional reporting to the board. (6) 6 3.4 3.5 Based on the scenario above: 3.4.1 Discuss and conclude whether the internal audit function is well resourced to execute its role and responsibilities. 3.4.2 Indicate and quote the two (2) relevant International Standards for the Professional Practice of Internal Auditing (Standards) regarding resourcing the internal audit function. Based on the information provided in the scenario: 3.5.1 Name the document that defines the purpose, authority and responsibility of the internal audit activity? 3.5.2 Indicate who should approve this document? 3.5.3 Explain the aspects that should be included in this document that grants the internal audit activity the necessary authority. (2) (4) (1) (1) (6) Part B Karabo Lesedi, the chief audit executive (CAE) of Gas Tin Ltd needs to appoint additional staff in the internal audit department. Karabo is currently reviewing some of the applicants. She received the following summary of the applicants from the Human Resource Department. 1. Thomas Grey BCom (Accounting), six (6) years of internal auditing experience with at SARS. Very thorough, independent thinker, very aggressive in his approach to people. 2. Kholi Khan No formal qualification. Twenty (20) years internal auditing experience. Very confident to the extent that he does not value the opinion of others. He displays an attitude of “I’ve seen this all before”. 3. Thuli Zonda Eight (8) years’ experience as a senior internal auditor at Cuisine Sea Ltd. Regarded as a very hard worker and responsible individual. Generally, very nervous when dealing with senior personnel. She has served on the Risk Committee at Cuisine Sea Ltd for two (2) years, making a quiet but meaningful contribution. 4. Nelisiwe Ndlovu AUI2601/2/2023 7 An accountant, with a BCom degree. He is a member of the Institute of Internal Auditors (IIA) and part-time wildlife conservationist. Resigned from his previous job as an internal audit manager due to an alleged leak of information to the media about environmental damage caused by one of the divisions of the company where he conducted an environmental audit. 5. Jan Goosen A chartered accountant and member of the Institute of Internal Auditors. Currently an internal audit manager at Eskom. Prior to that he had spent a number of year as an arbitrator in the labour marker where he gained a reputation for his fair mindedness and hard work. 6. Pam Zone She is a well-qualified computer systems analyst who has been responsible for most of the financial systems at Gas Tin Ltd. She has worked on computer systems throughout the company at some point in time. She is very well known by the staff. She is very friendly and popular with all the staff. She is currently in the final year of her internal auditing studies and looking for a career change. REQUIRED MARKS 3.6 Based on the information given above (1 to 6), indicate (with reasons) for each of the applicants above, whether Karabo Lesedi is likely to consider the applicant suitable for appointment. Your answer should convey your understanding of the characteristics needed by an internal auditor in this position. Your answer should be structured as follows: Indicate whether the candidate will be considered or not (1 mark) and reasons for your decision (2 marks). A total of 3 marks per applicant (18) QUESTION 4 16 marks When Emma Stone began working for Olives Properties, she had no intention of defrauding the company. Olives Properties owned several business properties in the Gauteng area and subsequent to her appointment, Emma was assigned to run one of the big shopping centres as the on-site manager. She showed available shop spaces to prospective tenants, collected rent, oversaw a maintenance crew, and generally ran the day-to-day operations of the shopping centre. After her husband was injured in a motorcycle accident, Emma started having financial difficulties. Simultaneously, one of the employees in the shopping centre maintenance crew resigned. Under normal circumstances, Emma would have been honest and completed paperwork showing that this employee had left the company, and then forwarded it to head office. Only then could she have started looking for a replacement. However, this time Emma did not tell anybody at head office that the employee had resigned but kept on submitting time sheets on his behalf. 8 According to the company’s system, pay cheques are mailed to Emma and she distributes them to the employees. When the pay cheques arrived, she took the cheque for this employee and cashed it at a bottle store. Emma continued doing this for six months, until she was reported through the company’s anonymous fraud hotline. An internal auditor was immediately sent to investigate the matter and Emma, who immediately confessed to everything, was asked to resign. A criminal case was filed against her. The details of the crime committed, and the actions taken against Emma were reported in Olives Properties’ quarterly newsletter. REQUIRED MARKS 4.1 With reference to the information given in the scenario, list the three common characteristics of fraud and provide an example from the scenario for each characteristic. (6) 4.2 Identify and discuss the type of fraud that was committed by Emma Stone. (2) 4.3 Explain the internal auditor’s role with regards to fraud. (2) 4.4 Describe the internal auditor’s responsibilities regarding fraud when conducting audit engagements.