Aue2602Exampack

AUE2602EXAMPACK ASPECTS OF INTERNAL CONTROLS AND CORPORATE GOVERNANCE-AUE2602 Contents STUDY NOTES ........ ............................................................................................................. 3 HOW TO EARN MARKS ..... ................................................................................................. 17 Access Controls ................ ................................................................................................. 19 Examples of tests of controls questions ........................................................................... 2 1. Board of directors ......................................................................................................... 6 Composition of the board ................................................................................................. 6 What is an independent non-executive director? (Principle 2.18 (par 67), King Repor . 6 t) . 2. Board committees ........................................................................................................ 7 3. Governance of risk ....................................................................................................... 9 4. Governance of Information Technology ....................................................................... 9 5. Internal audit ................................... ...... ...................................................................... 10 6. Sustainability, integrated reporting and disclosure ......................... .......................... 10 ... 7. The link between governance principles and law ....... ...... ........................................... 11 Introduction ..................................................................................................................... 13 May/June 2013 ................................................................................................................. 16 OCTOBER / NOVEMBER 2014 ............................................................................................ 26 MAY/JUNE 2014 EXAM PACK .......................................... ....................... ............................ 29 May 2014 References ........................................................................................................ 33 Exam Paper ....................................................................................................................... 36 Nov 2013 Memo References ............................................................................................. 45 Question papers are attached on separate sheets, and some are also accessible on myunisa. STUDY NOTES Introduction Students often ask where internal control and controls in a computerized environment fit into the audit process. In terms of ISA 315 (par 5 and 6), auditors are required to perform risk assessment procedures. These procedures are performed to obtain an understanding of the entity and its environment (including internal control) sufficient to identify and assess risks of material misstatement, whether due to fraud or error. When the auditor identifies and assesses the risks of material misstatement, it should be done at: (i) the financial statement level; AND (ii) the assertion level for classes of transactions, account balances and disclosures. This provides a basis for designing and performing further audit procedures. ISA 315 (par 26) highlights the following for this purpose: • identification of risks (through the process of obtaining an understanding of the entity and its environment and by considering classes of transactions, account balances, and disclosures in the financial statements) and identification of relevant controls that relate to these identified risks (covered specifically in this tutorial letter); • assessing and evaluating these identified risks; • relating the risks to what can go wrong at the assertion level; and • considering the likelihood of material misstatement (refer to Appendix 2 of ISA 315 for conditions and events that may indicate risks of material misstatement). All of these procedures apply to both tutorial letters 103 and 104. It is important to note that the understanding that the auditor has to obtain of the entity and its environment includes an understanding of the entity‟s internal control. What is internal control? ISA 315 (par 4) stipulates that it is • the process designed, implemented and maintained; • by those charged with governance (refer to ISA 260 par 10 for definition), management and other personnel; • to provide reasonable assurance about the achievement of an entity’s objectives with regard to: reliability of financial reporting; effectiveness and efficiency of operations; and compliance with applicable laws and regulations.