AUI2601 Assignment 6 (COMPLETE ANSWERS) Semester 1 2024 - DUE 24 May 2024

AUI2601 Assignment 6 (COMPLETE ANSWERS) Semester 1 2024 - DUE 24 May 2024 ;100 % TRUSTED workings, explanations and solutions. For assistance call or W.h.a.t.s.a.p.p us on ...(.+.2.5.4.7.7.9.5.4.0.1.3.2)........... QUESTION 1 27 marks Dream-on Ltd manufactures and sells mattresses. You are the newly appointed chief audit executive (CAE) for the recently established internal audit function. The board and the chief executive officer (CEO) are unsure about the roles and responsibilities of the internal audit function. To clear the misconceptions surrounding internal audit, you have decided to conduct introductory briefing sessions to the board and senior management separately. In your presentation you cover the following topics: • Organisational objectives and how internal audit can assist in achieving them. • Differences between internal and external auditing. • Certain responsibilities of internal auditing. REQUIRED Marks 1.1 Identify the type of organisational objective from the following definitions: (4) a) This type of organisational objective pertains to the effectiveness and efficiency of the organisation’s operations, including performance and profitability goals and safeguarding resources against losses. b) This type of organisational objective pertains to adherence to applicable laws and regulations. c) This type of organisational objective pertains to the value creation choices management makes on behalf of the organisation. d) This type of organisational objective pertains to the reliability of internal and external reporting of financial and operational information. 1.2 Most of the board members were debating the reporting lines for the internal audit function. According to the IIA Standards, recommend what type of reporting is preferred for independence purposes. (4) 1.3 One of the board members stated that since external and internal auditors are needed for the organisation, there should be proper coordination to ensure optimal audit coverage. Discuss seven (7) actions that contribute to productive cooperation and coordination between external and internal auditors. (7) 1.4 The CEO asked for clarification on how the internal auditor can be an advisor in the organisation. Give seven (7) examples of how internal audit can assist management. (7) 1.5 Explain the aspects that should be included in the internal audit charter that grant internal audit the necessary authority. (5) QUESTION 2 20 marks The International Professional Practices Framework (IPP) contains four mandatory elements, namely the definition of internal auditing, the code of ethics, the core principles for the professional practice of internal auditing and the International Standards for the Professional Practice of Internal Auditing. The International Standards consists of Attribute, Performance and Implementation Standards. REQUIRED Marks 2.1 Conclude and explain with reference to the IPPF, whether each of the unrelated scenarios below is permissible or not. Please provide reasons for each of your conclusions. Your answer should be structured as follows: |No. | Permissible or not permissible (1 mark) |Reference to IPPF (2 marks) |Reason (1 mark) | 2.1.1 In response to a court subpoena, an internal auditor testifies in court regarding confidential, audit related information that could possibly adversely affect the auditor’s organisation. 2.1.2 In an effort to save costs, the chief audit executive (CAE) cancelled all internal audit staff training for the next two years with the justification that all staff were too new to benefit from training. 2.1.3 An internal auditor, who is a CIA, attended the annual national Institute of Internal Auditors (IIA) conference. After a round of drinks at the gala dinner, he shared confidential information regarding his audit client’s pricing strategies with a senior manager of the major competitor of his audit client. 2.1.4 The CAE received a request from the external auditors of the organisation to make available all finalised internal audit reports and follow up reviews to assist them in determining their audit scope of their work. The CAE ignored this request. 2.1.5 The internal audit function in the organisation was established six years ago. The CAE received a phone call from a representative from the IIA regarding an external quality assessment to be conducted on the internal audit function of the organisation. The CAE commented that the external quality assessment was unnecessary since everything in the internal audit function is under control. QUESTION 3 15 marks You act as a mentor to the junior internal auditors in your department. Part of your responsibility is to assist them with their studies and other aspects regarding their training as internal auditors. REQUIRED Marks 3.1 The internal audit process consists of four (4) phases. The second phase is planning the internal audit (engagement planning). According to the IIA Standard 2201-Planning Considerations, what does the internal auditor need to consider when planning the engagement? (4) 3.2 List the four (4) different types of evidence with an example of each type of evidence. (6) PART B An internal audit engagement is planned for the distribution department of Dream-on Limited. One of the junior auditors approached you as the senior internal auditor, regarding the audit activities that should be included in the internal audit engagement. She is unsure during which phase the audit activities should be conducted. The junior internal auditor requests your assistance in allocating the audit activities below to the correct phase in the internal audit process. Audit activities: 1. Perform a walkthrough of the distribution department to determine the preliminary assessment of the risks relevant to the distribution department and ensure engagement objectives are in line with the results of the risk assessment. 2. Scheduling follow-up activities with the head of the distribution department for three months after the completion of the audit. 3. Inform the management of Dream-on Limited that an internal audit engagement has been schedule for the distributions department for the period 1 February 2023 to 31 July 2023. 4. Discuss with management of Dream-on Limited the preliminary results from the audit. 5. Inspect the policies and procedures that relate to the distribution department to ensure that it is approved by management. REQUIRED Marks 3.3 Based on the information provided above, indicate which phase/step of the internal audit process each audit step (1-5) falls in. (5) QUESTION 4 15 marks Part A An audit of the human resources department of Dream-on Limited has just been completed and the following information is on file: Tshepo Zuma, an internal auditor, was assigned to evaluate the leave process of Dream-on Ltd. The purpose of the audit tests was to review the adequacy and effectiveness of internal controls over the leave application process. On 20 July 2023, a sample of 50 leave applications was reviewed by Tshepo Zuma. The sample was randomly selected from a population of 250 leave applications for the period 1 April 2023 to 30 June 2023. Tshepo inspected the leave applications for date and signature of approval. Out of the sample of 50 leave applications, a total of 17 were not approved by the relevant line manager and 5 leave applications were approved only after the leave was taken. This resulted in Dream-on Ltd having production backlogs. Tumi Thandeka, a senior internal auditor, gave Tshepo review notes on the working paper DRM001 on 28 July 2023. REQUIRED Marks Compile a working paper that contains all the relevant information that should be included in a working paper. (15) QUESTION 5 23 marks You are responsible for reviewing the effectiveness and efficiency of internal controls over sales. For a better understanding of the sale process, you reviewed the organisational chart, the flow chart of the Sales Department and read through all the relevant policies and procedures. REQUIRED 23 Marks 5.1 Briefly describe preventive, detective and directive controls. 5.2 Classify each of the following controls as preventive, detective, or directive controls. 5.2.1 The implementation of training opportunities based on an employee’s performance evaluation. 5.2.2 Programme changes to the sales software must be authorised by the internal audit function. 5.2.3 All new employees must write a computer literacy test. 5.2.4 Frequent reviews of the log of amendments to the supplier masterfile. 5.2.5 The issue of internal audit reports on the sales department audit. 5.2.6 The preparation of a debtor’s reconciliation. 5.2.7 The performance of personnel performance reviews every six months. 5.2.8 Security guards are assigned to all entrances and exits of the company building. 5.2.9 The use of pre-numbered sales invoices. 5.2.10 Implementation of segregation of duties. Part B Dream-on Ltd previously outsourced the internal audit services. The cost of outsourced internal audit services compelled the board of Dream-on Ltd to establish its own. The previous internal auditors compiled a summary of the following significant internal audit findings and presented them to the CAE to start the planning of the audit engagements: 1. Password and logon controls for employees in the finance department does not enforce password minimum length requirements which comprises confidential information of the company. 2. Dream-on Ltd started an internship programme, hosting twenty (20) graduates across the company for the past five years. However, the programme has not been evaluated to ascertain whether it achieves its objectives. 3. Dream-on Ltd management is not prepared to spend time and resources on the development of a code of conduct. 4. The lack of debtor management policy caused the company to write off bad debts amounting to R1 million in 2022/2023 financial year. 5. In the past eight months there have been four (4) key resignations in the quality department and management does not demonstrate interest in replacing those vacancies. 6. Information from top management does not reach lower-level employees which affects the ability to achieve operational objectives. 7. Potential impact of the waste produced from manufacturing processes on the surrounding environment was not identified and assessed for the past ten years. REQUIRED Marks 5.3 Based on the information provided above, classify the findings (1-7) according to the five components of the COSO internal control framework. (7) 5.4 Identify the type of audits the CAE will consider in the planning for findings number 1, 2 and 4. (3)