AUI2601 Assignment 2 Semester 1 2024

AUI2601 Assignment 2 Semester 1 DUE 9 April 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)........... ASSESSMENT 02: ESSAY-TYPE QUESTIONS DATE OF SUBMISSION First semester: 9 April 2024 10h00 This declaration holds you accountable for completing your assignment on your own. PLAGIARISM DECLARATION: By submitting AUI2601 assignment 02, I declare that: • I have read the Unisa Students’ Disciplinary Code. • I know what plagiarism is, that plagiarism is wrong and that disciplinary steps can be taken against me if I am found guilty of plagiarism. • This assignment, submitted by myself, is my own work and I have referenced all the sources that I have used. • I have not allowed any other student to copy my work. • I know that if I am found to be in violation of this declaration, I will receive 0% for the assignment involved. Please note: You do not have to submit the declaration. By submitting any AUI2601 assignment, you automatically declare that you adhere to all the above regarding the specific assignment. Main topic Marks 1 2 3 4 True or False – All Topics International Professional Practices Framework (IPPF) Internal audit charter and reporting structures Qualifications, and skills of an internal auditor 15 28 12 15 5 Fraud 30 100 AUI2601/1/2024 3 QUESTION 1 15 marks Bright Ltd is a company that is responsible for manufacturing energy saving globes. Bright Ltd has operations in various parts of the country. The company conducts its business with a variety of customers from individual households, small retailers to big manufacturing companies. Bright Ltd recently established an internal audit activity. As the senior internal auditor, you tasked one of the junior internal auditors to do a presentation to the senior management outlining the role, purpose and authority of the internal audit activity in the company. The junior internal auditor presented you the following statements, which he would like to include in his presentation: 1. Independence permits internal auditors to render impartial and unbiased judgements. The best way to achieve organisational independence is through a dual-reporting relationship. 2. Internal auditors must possess the knowledge, skills, and other competencies essential to the performance of their individual responsibilities. Consequently, all internal auditors should be proficient in applying management principles. 3. Performance standards are the standards that address the characteristics of organisations and parties performing internal audit activities. 4. The chief audit executive (CAE) must control access to engagement records. The CAE must obtain the approval of senior management and/or legal counsel prior to releasing such records to external parties, as appropriate. 5. An example of functional reporting to the board involves the board approving the internal audit budget and resource plan. 6. The senior internal auditor must communicate the results of the quality assurance and improvement program to senior management and the board and should include corrective action plans. 7. “Internal auditors” refers to members of the Institute of Internal Auditors (IIA), recipients or candidates for IIA professional certifications, and those who perform internal audit services within the Definition of Internal Auditing. 8. Standard 2120: Risk Management is classified as an Attribute Standard. 4 9. In planning a system of internal operating controls, the role of the internal auditor is to establish the policies for controls. 10.Continuing with an audit assignment at a division for which the internal auditor will soon be responsible as a result of a promotion represents a violation of the auditor’s independence. REQUIRED Marks 1.1 Indicate for each of the statements listed above (1-10) whether it is true or false. Where you have indicated false, rewrite the statement to make it a true statement. (15) QUESTION 2 28 marks 2. Conclude and explain, with reference to the IPPF (Code of Ethics or Standards), whether each of the unrelated scenarios below (2.1 to 2.7) 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) relevant to the scenario. 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) 2.1 The senior internal auditor of ABC limited is assisting management with an investigation into bribery and corruption in the procurement department. During the investigation, the senior internal auditor overheard that the chief executive officer (CEO) of ABC limited might be resigning due to corruption and bribery allegations against him. If the CEO resigns it will influence the share price of the company. The senior internal auditor knows people who have shares in the company. He decided to inform them about the possibility that the share price may decrease. (4) 2.2 The human resource manager’s children are going to a school to which you, as the senior internal auditor, would like to send your children as well. The school has a very long waiting list because it is so popular. The human (4) AUI2601/1/2024 5 resource manager has offered to use her influence as a board member of the school to help gain admission for your children to this school. The human resource department is included in the audit plan for the current year. You as the senior internal auditor will be responsible for managing the human resource audit. 2.3 The senior internal auditor of Quick Ltd conducted an audit on the procurement processes of the organisation. He confirmed that suppliers that had failed to deliver any goods to the organisation, were still paid. The procurement manager threatened to have him fired if he reported on this. Because the senior internal auditor could not afford to lose his job, he omitted this finding from the internal audit report. (4) 2.4 The audit plan requires an extensive evaluation of the integrity of the information systems used by the organisation. Due to budget restraints, the internal audit activity cannot appoint someone with the necessary experience to perform this evaluation and nobody in the activity has the relevant experience for this engagement. The chief audit executive (CAE) allocated one of the junior internal auditors to complete the evaluation to the best of his abilities. (4) 2.5 At the annual award function of DC Ltd, the internal audit manager was presented with the “Best employee of the year” award. The internal audit manager received a trophy and a cash price of R2 000. (4) 2.6 During an audit of the financial department, the internal auditor, discovers that a clerk is embezzling funds from the organisation. Although this is the first embezzlement the internal auditor has encountered, she decides to interrogate the suspect. (4) 2..7 The chief audit executive (CAE) received a request from the external auditors to make available all internal audit reports of the Finance and Information Technology departments to evaluate whether it is necessary to adjust their scope of work. The CAE stated that he is not in a position to share reports with external assurance, they should request copies from the chief financial officer (CFO) and the chief information officer (CIO) directly. (4) QUESTION 3 12 marks Bright Ltd recently established an Internal audit activity and an Audit and Risk Committee (ARC). Thabo Sabena was recently appointed as the chief audit executive (CAE) of Bright Ltd. Currently, Thabo Sabena reports to the chief financial officer (CFO) for both administrative and functional duties. The internal audit activity is placed within the finance division. 6 As stated in the Standards the CAE must report periodically to senior management and the board on the internal audit activity’s purpose, authority, responsibility, and performance. REQUIRED MARKS 3.1 3.2 3.3 Define the term “internal audit charter” and describe the three (3) elements of an internal audit charter. Comment on the reporting structure of the internal audit activity within Bright Ltd in relation to organisational independence. List five (5) examples of functional reporting to the board. (4) (3) (5) QUESTION 4 15 marks Thabo Sabena, the chief audit executive (CAE) of Bright Ltd needs to appoint additional staff in the internal audit activity. Thabo is currently reviewing some of the applicants. He received the following summary of the applicants from the Human Resources Department. 1. Sara Govender Sara has a B Comm Accounting degree. She has six years of experience as an internal auditor at Build-it Ltd. Sara is very thorough and she is an independent thinker. Background checks revealed that Sara can be very aggressive in her approach to people. 2. Nelisiwe Ndlovu Nelisiwe has no formal qualifications. She has more than 20 years of internal audit experience. Nelisiwe is very confident in herself to the extent that she does not value the opinion of others. She displays an attitude of “I’ve seen this all before”. She is only willing to take up a management role and will not settle for a lower position. 3. Sam Khumalo A qualified computer system analyst who had been responsible for most of the financial systems at Bright Ltd. As he has worked on computer systems throughout the company at some time or other, he is very well known by the staff. He is very friendly and popular with all. Sam is currently in the final year of his internal auditing examination studies and is looking for a career change. 4. Dingane Khan Dingane has been working for the past eight years as a senior internal auditor at Look Ltd. He is regarded as a very hard worker and responsible individual. Dingane has served on AUI2601/1/2024 7 the risk committee at Look Ltd for three years and made a quiet but meaningful contribution. 5. John Doe John is currently not employed as he is not sure what he wants to do with his life. His father is the chief operating officer (COO) of Bright Ltd and submitted the CV on John’s behalf. The COO is requesting Thabo to appoint his son in a junior position. John finished matric last year and on his social media profile he is portrayed as a party animal and very popular around his friends. REQUIRED MARKS Based on the information given above (1 to 5), indicate (with reasons) for each of the applicants above, whether Thabo Sabena 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 should be considered or not (1 mark) and the reasons for your decision (2 marks). A total of 3 marks per applicant. (15) QUESTION 5 30 marks PART A You as the senior internal auditor of Bright Ltd requested one of the junior internal auditors in your team to attend the monthly stock take of electricity saving globes this weekend. The junior internal auditor provided you with the following information: • All globes are stored in the warehouse according to size. There is no access control. Anyone can enter the warehouse during working hours. The warehouse manager indicated that he trusts his employees and no access controls are required. • Major differences were noted between the globes on hand and the globes amount on the system. The manager explained that the differences were normal and below industry standard and that the internal auditor should not worry about the differences. • There are no policies and procedures for the warehouse department. • There are numerous vacant positions, and the warehouse manager is responsible for receiving the globes, signing them out and approving all orders. • The staff morale in general is low due to the dominating management style of the warehouse manager. 8 • One of the employees mentioned that she is concerned about management’s relaxed attitude towards controls in the warehouse department. REQUIRED MARKS 5.1 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) 5.2 Identify six (6) warning signals that can be observed from the information in the question which could indicate the possible existence of fraud. (6) 5.3 Explain the internal auditor’s role regarding fraud. (3) 5.4 Describe the internal auditor’s responsibilities regarding fraud when conducting audit engagements. (6) PART B A person commits fraud knowing that it could result in some unauthorised benefit to him/ her, to the organisation, or to another person. Fraud can be perpetrated by persons either outside or inside the organisation. REQUIRED MARKS 5.5 There are common fraud schemes. Match column A (fraud scheme) with its corresponding definition in column B. Your answers should be given in the following format: e.g. 5.5.1 Skimming – j No Column A – Fraud Scheme Column B - Definition 5.5.1 Skimming a. This involves stealing cash or assets from the organisation. 5.5.2 Asset misappropriation b. This is the offering, giving, receiving or soliciting of anything of value to influence an outcome. 5.5.3 Corruption c. This involves diverting a potentially transaction to an employee or outsider that would normally generate profits for the organisation. 5.5.4 Bribery d. This involves an employee being paid for fictitious or inflated (5) AUI2601/1/2024 9 expenses. 5.5.5 Diversion e. This involves stealing cash from an organisation before it is recorded in the organisation’s books. f. This is the misuse of entrusted power for private gain. It is often an off-book fraud, meaning that little financial evidence is available. g. This involves misrepresenting the financial statements, often by overstating assets or revenue or understating liabilities or expenses. 5.6 Describe the internal auditor’s responsibilities regarding fraud during fraud investigations. (4) ---©--- UNISA 202