Question Tag: Internal Audit
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- 20 Marks
AAA – May 2017 – L3 – Q3a – Internal Audit and Corporate Governance
Develop a presentation comparing the roles, independence, and responsibilities of external and internal auditors.
Question
Your firm has been external auditors of Specific Processors Plc for some years. Specific Processors Plc. has an Internal Audit Department engaged in both compliance and operational auditing within the company.
The head of the Internal Audit Department, Mr. Lucky Suleiman, FCA, has invited you to give a talk during their annual training week on the roles of external and internal auditors, the type of work they carry out, and their specific responsibilities.
Required:
Develop a suitable presentation focusing on the differences and similarities between external and internal auditors in terms of:
i. General Role
ii. Independence
iii. The work carried out in the following areas:
- Systems of Internal Control
- Operational Auditing
iv. Reporting Responsibilities
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- 15 Marks
AAA – Nov 2022 – L3 – SC – Q6 – Internal Audit and Corporate Governance
Discuss reasons for outsourcing internal audit, advantages/disadvantages, and functions that cannot be outsourced.
Question
The Internal Audit Unit of Oluvia Bank Limited has been accused of collusion with staff in committing monumental fraud. The following types of fraud were found to be common:
- Cheque suppression
- Fraudulent bookkeeping to overstate income
- Inflation of the worth of the company’s assets
- Intercepting replaced customers’ cards
- Fraudsters impersonating Senior Managers or Chief Executive Officer
- Online banking fraud, such as phishing, malware attacks, and clone websites
- Impersonating the owner of an account or using fake documents to open an account under someone else’s name (no proper Know Your Customer conducted)
The bank examiners came and were surprised at the level of fraud in the bank and requested management to address it urgently.
After the supervisory visit, the board of directors discussed the issue with the bank’s external auditors, who suggested that the bank could outsource the internal audit functions. The Board of Directors found this suggestion favorable and mandated the Managing Director to act swiftly and report back with details at the next board meeting.
Required:
a. Discuss the main reasons for outsourcing internal audit functions. (3 Marks)
b. Outline the advantages and disadvantages of outsourcing. (10 Marks)
c. Discuss which part of the internal audit function cannot be outsourced. (2 Marks)
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- 15 Marks
AA – Nov 2022 – L2 – Q5 – Internal Audit Necessity
Explanation on internal audit necessity, maintaining independence, and internal audit limitations.
Question
In the apex bank‟s regulatory supervisory report to Dutse Bank Limited, the management has been directed to ensure institution of an Internal Audit Unit. Prior to this time, the bank believed that internal audit staff might be colluding with other staff to suppress information on fraudulent transactions and as such the desired result might not be achieved. Apart from this, it was considered that savings could be made from transport, hotel and other allowances to be paid to staff when on official assignments. The independent auditor had earlier mentioned the need for this in the audit report but management was of the view that it is acceptable to cross-train employees in different departments to be able to audit departments other than their own. In the opinion of management, this
will provide a more independent and unbiased view through checks and balances. The audit function they perform through multitasking will best add value to the progress of the organisation. It is also the belief of management that the basic processes of both accounting and auditing are similar. The two systems use essentially the same procedures and techniques of bookkeeping, computation and analysis. To them, accounting and auditing strive to ensure that the financial statements and records provide a fair reflection of the actual financial position of an organisation. Both activities are inter-related and go hand in hand, especially in setting up processes in the organisation, hence, there is no need for any Internal Audit Unit or duplication of efforts.
As the independent auditor of the bank, you were shown the regulatory supervisory report and you have been asked to make presentation to the Board of Directors on the necessity for the Internal Audit Unit in the bank.
Required:
a. Explain the need for the internal audit functions in an organisation. (5 Marks)
b. State the various measures that can be taken to protect the independence of internal auditors. (5 Marks)
c. Explain the weaknesses and limitations of internal audit. (5 Marks)
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- 20 Marks
AA – Nov 2014 – L2 – Q4 – Fraud and Error
Describe how internal and external auditors handle fraud and error risks, and evaluate specific fraud risks at Rock Holidays.
Question
Fraud and error present risks to an entity. Both internal and external auditors are required to deal with risks in an entity. However, the responsibilities of internal and external auditors in relation to the risk of fraud and error differ.
Required:
a. Explain how the internal audit function helps an entity with the risk of fraud and error. (7 Marks)
b. Explain the responsibilities of external auditors with respect to the risk of fraud and error in an audit of financial statements. (7 Marks)
c. Rock Holidays is an independent travel agency. It does not package holidays itself. It takes commission on holidays sold to customers through its chain of high street shops. Staff are partly paid on a commission basis. Well-established tour operators run the holidays that Rock Holidays sells. The network reservations system through which holidays are booked and the computerized accounting system are both well-established systems used by many independent travel agencies.
Payments by customers, including deposits, are accepted in cash and by debit and credit cards. Rock Holidays is legally required to pay an amount of money (based on its total sales for the year) into a central fund maintained to compensate customers if the agency should cease operations.
Describe the nature of the risks arising from fraud and error to which Rock Holidays is subject. (6 Marks)
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- 20 Marks
CSME – May 2022 – L2 – SB – Q2 – Risk Management and Corporate Strategy
Advise on risk management for a supermarket chain facing security challenges and new regulations.
Question
A supermarket chain recently established more outlets in the city. Due to increased risk exposure occasioned by heightened insecurity in the country, the company saw the need to implement an effective management strategy aimed at minimizing attendant risks. The need is made even more apparent due to the introduction of more stringent regulatory requirements on handling perishable food items by the National Agency for Food and Drugs Administration and Control (NAFDAC). To this end, you have been engaged to provide advice to the company on risk management.
Required:
a.
- i. Using the ALARP principle, advise the management on how to effectively manage the company’s risks. (2 Marks)
- ii. Advise the company on the need to engage a risk manager. (2 Marks)
- iii. Enumerate the roles of a risk manager. (5 Marks)
b.
- i. What is a risk audit? Should the firm engage internal or external auditors (or consultants) to conduct a risk audit? Justify your position. (7 Marks)
- ii. Illustrate to the management of the company the stages involved in conducting a risk audit. (4 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: ALARP Principle, External audit, Internal Audit, Risk Assessment, Risk Audit, Risk Management
- Level: Level 2
- Topic: Risk Management and Corporate Strategy
- Series: MAY 2022
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- 30 Marks
AA – Nov 2016 – L2 – Q1 – Internal Audits
This question addresses internal audit functions, the differences between internal and external auditors, outsourcing internal audit, and risk categories considered by internal auditors.
Question
KEMTA Nigeria Limited is a private electrical and mechanical engineering company. The company is one of the major players in the provision of cutting-edge engineering construction services in the Nigerian electrical, mechanical, and communication engineering industry. The company has sites in all 36 States of the Federation, including Abuja. They also work for major financial institutions, educational institutions, Federal, State, and Local Governments. The company has over 500 professionals, skilled, and unskilled workers on its payroll.
You have been the auditor of the company for the past five years. During your audit, you observed some weaknesses in the internal control system of the company. Your review of the domestic reports showed that your firm has been recommending the establishment of an internal audit department for the past three years. However, you observed that the Managing Director is not favorably disposed to this idea, seeing it as an additional cost to the company. He requested to know more about outsourcing the internal audit department.
Required:
a) State and explain the purpose and functions of internal audit in an organisation. (5 Marks)
b) Enumerate the fundamental differences between the internal and external auditors. (10 Marks)
c) Present:
i) The main reasons for outsourcing internal audit. (3 Marks)
ii) The benefits of outsourcing. (2 Marks)
iii) Possible problems of outsourcing. (4 Marks)
d) Identify and explain the THREE main categories of risks usually considered by internal auditors. (6 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: External audit, Internal Audit, Internal Control, Outsourcing, Risk Categories
- Level: Level 2
- Topic: Internal Audits
- Series: NOV 2016
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- 10 Marks
PSAF – Nov 2020 – L2 – Q2a – Public Sector Audit
Discuss the external auditors' reliance on internal audit functions and reasons for rising public expenditure.
Question
An internal audit is an independent appraisal activity within an organisation for the review of accounting, financial, and other operations with the objective of assisting members of the organisation to discharge their responsibilities effectively. It is a sound policy to establish constructive working relationships with internal audit units to foster the development, promote coordinated coverage, and avoid duplication.
Required:
Explain the five criteria employed by the external auditors to assess the likely effectiveness and relevance of the internal audit functions and five areas where the internal audit functions can be of assistance to the external audit.
Find Related Questions by Tags, levels, etc.
- Tags: Audit Effectiveness, External audit, Internal Audit, Public Sector
- Level: Level 2
- Topic: Public sector audit
- Series: NOV 2020
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- 20 Marks
AA – Nov 2020 – L2 – Q4 – Internal Audits
Differentiate between internal and external audit, list internal auditors' activities, justify the need for internal audits, and explain measures to protect auditor independence.
Question
Range Nigeria Limited is a large private company, with a financial year end of March 31, 2020, and has been an audit client of your firm for several years. The board of directors has asked your firm if they would be able to provide internal audit services to the company.
Required:
a. Differentiate between internal and external audits. (6 Marks)
b. List the activities of internal auditors. (4 Marks)
c. Justify the need for internal audits. (4 Marks)
d. Explain the measures that can be taken to protect the independence of auditors, given that auditors are expected to be independent, including internal audit. (6 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: External audit, Independence, Internal Audit
- Level: Level 2
- Topic: Internal Audits
- Series: NOV 2020
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- 6 Marks
FR – May 2020 – L2 – Q5a – Ethical Dilemmas in Tendering Process
This question focuses on the ethical course of action in tendering when faced with insider information in the internal audit context.
Question
Mrs. Stella Amoah (Stella), a Chartered Accountant and Head of Internal Audit in Ningo Communications Authority (NCA), is about to tender for a contract in Internal Audit Service. A new member of her team, Mr. Stephen Appiah Coker (Stephen), has been recruited from the Internal Audit Service, where he previously worked in the department responsible for devising the tender contract. Although Stephen was not involved with the tender process, his former colleague and friend is responsible for the tender specification document and the evaluation process.
Stephen had sight of some of the requirements and has offered to share with Stella information that may be of use when preparing the tender. However, this information is confidential and should not be seen by any of the tendering parties.
It will be an open tender process for both external and internal providers. Bids from external providers are being encouraged. The evaluation process has been designed with this in mind. If the contract is awarded externally, Stella will be unsure of her personal position in the organization. She understands that using any insider knowledge of the tendering process would be inappropriate when preparing the tender proposal, but she feels she would have a better chance of success if she used this confidential information.
Required:
Advise Mrs. Stella Amoah on THREE (3) courses of action she should take in order to act ethically in the tendering process given in the above scenario.
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- 20 Marks
AAA – May 2017 – L3 – Q3a – Internal Audit and Corporate Governance
Develop a presentation comparing the roles, independence, and responsibilities of external and internal auditors.
Question
Your firm has been external auditors of Specific Processors Plc for some years. Specific Processors Plc. has an Internal Audit Department engaged in both compliance and operational auditing within the company.
The head of the Internal Audit Department, Mr. Lucky Suleiman, FCA, has invited you to give a talk during their annual training week on the roles of external and internal auditors, the type of work they carry out, and their specific responsibilities.
Required:
Develop a suitable presentation focusing on the differences and similarities between external and internal auditors in terms of:
i. General Role
ii. Independence
iii. The work carried out in the following areas:
- Systems of Internal Control
- Operational Auditing
iv. Reporting Responsibilities
Find Related Questions by Tags, levels, etc.
Report an error
- 15 Marks
AAA – Nov 2022 – L3 – SC – Q6 – Internal Audit and Corporate Governance
Discuss reasons for outsourcing internal audit, advantages/disadvantages, and functions that cannot be outsourced.
Question
The Internal Audit Unit of Oluvia Bank Limited has been accused of collusion with staff in committing monumental fraud. The following types of fraud were found to be common:
- Cheque suppression
- Fraudulent bookkeeping to overstate income
- Inflation of the worth of the company’s assets
- Intercepting replaced customers’ cards
- Fraudsters impersonating Senior Managers or Chief Executive Officer
- Online banking fraud, such as phishing, malware attacks, and clone websites
- Impersonating the owner of an account or using fake documents to open an account under someone else’s name (no proper Know Your Customer conducted)
The bank examiners came and were surprised at the level of fraud in the bank and requested management to address it urgently.
After the supervisory visit, the board of directors discussed the issue with the bank’s external auditors, who suggested that the bank could outsource the internal audit functions. The Board of Directors found this suggestion favorable and mandated the Managing Director to act swiftly and report back with details at the next board meeting.
Required:
a. Discuss the main reasons for outsourcing internal audit functions. (3 Marks)
b. Outline the advantages and disadvantages of outsourcing. (10 Marks)
c. Discuss which part of the internal audit function cannot be outsourced. (2 Marks)
Find Related Questions by Tags, levels, etc.
Report an error
- 15 Marks
AA – Nov 2022 – L2 – Q5 – Internal Audit Necessity
Explanation on internal audit necessity, maintaining independence, and internal audit limitations.
Question
In the apex bank‟s regulatory supervisory report to Dutse Bank Limited, the management has been directed to ensure institution of an Internal Audit Unit. Prior to this time, the bank believed that internal audit staff might be colluding with other staff to suppress information on fraudulent transactions and as such the desired result might not be achieved. Apart from this, it was considered that savings could be made from transport, hotel and other allowances to be paid to staff when on official assignments. The independent auditor had earlier mentioned the need for this in the audit report but management was of the view that it is acceptable to cross-train employees in different departments to be able to audit departments other than their own. In the opinion of management, this
will provide a more independent and unbiased view through checks and balances. The audit function they perform through multitasking will best add value to the progress of the organisation. It is also the belief of management that the basic processes of both accounting and auditing are similar. The two systems use essentially the same procedures and techniques of bookkeeping, computation and analysis. To them, accounting and auditing strive to ensure that the financial statements and records provide a fair reflection of the actual financial position of an organisation. Both activities are inter-related and go hand in hand, especially in setting up processes in the organisation, hence, there is no need for any Internal Audit Unit or duplication of efforts.
As the independent auditor of the bank, you were shown the regulatory supervisory report and you have been asked to make presentation to the Board of Directors on the necessity for the Internal Audit Unit in the bank.
Required:
a. Explain the need for the internal audit functions in an organisation. (5 Marks)
b. State the various measures that can be taken to protect the independence of internal auditors. (5 Marks)
c. Explain the weaknesses and limitations of internal audit. (5 Marks)
Find Related Questions by Tags, levels, etc.
Report an error
- 20 Marks
AA – Nov 2014 – L2 – Q4 – Fraud and Error
Describe how internal and external auditors handle fraud and error risks, and evaluate specific fraud risks at Rock Holidays.
Question
Fraud and error present risks to an entity. Both internal and external auditors are required to deal with risks in an entity. However, the responsibilities of internal and external auditors in relation to the risk of fraud and error differ.
Required:
a. Explain how the internal audit function helps an entity with the risk of fraud and error. (7 Marks)
b. Explain the responsibilities of external auditors with respect to the risk of fraud and error in an audit of financial statements. (7 Marks)
c. Rock Holidays is an independent travel agency. It does not package holidays itself. It takes commission on holidays sold to customers through its chain of high street shops. Staff are partly paid on a commission basis. Well-established tour operators run the holidays that Rock Holidays sells. The network reservations system through which holidays are booked and the computerized accounting system are both well-established systems used by many independent travel agencies.
Payments by customers, including deposits, are accepted in cash and by debit and credit cards. Rock Holidays is legally required to pay an amount of money (based on its total sales for the year) into a central fund maintained to compensate customers if the agency should cease operations.
Describe the nature of the risks arising from fraud and error to which Rock Holidays is subject. (6 Marks)
Find Related Questions by Tags, levels, etc.
Report an error
- 20 Marks
CSME – May 2022 – L2 – SB – Q2 – Risk Management and Corporate Strategy
Advise on risk management for a supermarket chain facing security challenges and new regulations.
Question
A supermarket chain recently established more outlets in the city. Due to increased risk exposure occasioned by heightened insecurity in the country, the company saw the need to implement an effective management strategy aimed at minimizing attendant risks. The need is made even more apparent due to the introduction of more stringent regulatory requirements on handling perishable food items by the National Agency for Food and Drugs Administration and Control (NAFDAC). To this end, you have been engaged to provide advice to the company on risk management.
Required:
a.
- i. Using the ALARP principle, advise the management on how to effectively manage the company’s risks. (2 Marks)
- ii. Advise the company on the need to engage a risk manager. (2 Marks)
- iii. Enumerate the roles of a risk manager. (5 Marks)
b.
- i. What is a risk audit? Should the firm engage internal or external auditors (or consultants) to conduct a risk audit? Justify your position. (7 Marks)
- ii. Illustrate to the management of the company the stages involved in conducting a risk audit. (4 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: ALARP Principle, External audit, Internal Audit, Risk Assessment, Risk Audit, Risk Management
- Level: Level 2
- Topic: Risk Management and Corporate Strategy
- Series: MAY 2022
Report an error
- 30 Marks
AA – Nov 2016 – L2 – Q1 – Internal Audits
This question addresses internal audit functions, the differences between internal and external auditors, outsourcing internal audit, and risk categories considered by internal auditors.
Question
KEMTA Nigeria Limited is a private electrical and mechanical engineering company. The company is one of the major players in the provision of cutting-edge engineering construction services in the Nigerian electrical, mechanical, and communication engineering industry. The company has sites in all 36 States of the Federation, including Abuja. They also work for major financial institutions, educational institutions, Federal, State, and Local Governments. The company has over 500 professionals, skilled, and unskilled workers on its payroll.
You have been the auditor of the company for the past five years. During your audit, you observed some weaknesses in the internal control system of the company. Your review of the domestic reports showed that your firm has been recommending the establishment of an internal audit department for the past three years. However, you observed that the Managing Director is not favorably disposed to this idea, seeing it as an additional cost to the company. He requested to know more about outsourcing the internal audit department.
Required:
a) State and explain the purpose and functions of internal audit in an organisation. (5 Marks)
b) Enumerate the fundamental differences between the internal and external auditors. (10 Marks)
c) Present:
i) The main reasons for outsourcing internal audit. (3 Marks)
ii) The benefits of outsourcing. (2 Marks)
iii) Possible problems of outsourcing. (4 Marks)
d) Identify and explain the THREE main categories of risks usually considered by internal auditors. (6 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: External audit, Internal Audit, Internal Control, Outsourcing, Risk Categories
- Level: Level 2
- Topic: Internal Audits
- Series: NOV 2016
Report an error
- 10 Marks
PSAF – Nov 2020 – L2 – Q2a – Public Sector Audit
Discuss the external auditors' reliance on internal audit functions and reasons for rising public expenditure.
Question
An internal audit is an independent appraisal activity within an organisation for the review of accounting, financial, and other operations with the objective of assisting members of the organisation to discharge their responsibilities effectively. It is a sound policy to establish constructive working relationships with internal audit units to foster the development, promote coordinated coverage, and avoid duplication.
Required:
Explain the five criteria employed by the external auditors to assess the likely effectiveness and relevance of the internal audit functions and five areas where the internal audit functions can be of assistance to the external audit.
Find Related Questions by Tags, levels, etc.
- Tags: Audit Effectiveness, External audit, Internal Audit, Public Sector
- Level: Level 2
- Topic: Public sector audit
- Series: NOV 2020
Report an error
- 20 Marks
AA – Nov 2020 – L2 – Q4 – Internal Audits
Differentiate between internal and external audit, list internal auditors' activities, justify the need for internal audits, and explain measures to protect auditor independence.
Question
Range Nigeria Limited is a large private company, with a financial year end of March 31, 2020, and has been an audit client of your firm for several years. The board of directors has asked your firm if they would be able to provide internal audit services to the company.
Required:
a. Differentiate between internal and external audits. (6 Marks)
b. List the activities of internal auditors. (4 Marks)
c. Justify the need for internal audits. (4 Marks)
d. Explain the measures that can be taken to protect the independence of auditors, given that auditors are expected to be independent, including internal audit. (6 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: External audit, Independence, Internal Audit
- Level: Level 2
- Topic: Internal Audits
- Series: NOV 2020
Report an error
- 6 Marks
FR – May 2020 – L2 – Q5a – Ethical Dilemmas in Tendering Process
This question focuses on the ethical course of action in tendering when faced with insider information in the internal audit context.
Question
Mrs. Stella Amoah (Stella), a Chartered Accountant and Head of Internal Audit in Ningo Communications Authority (NCA), is about to tender for a contract in Internal Audit Service. A new member of her team, Mr. Stephen Appiah Coker (Stephen), has been recruited from the Internal Audit Service, where he previously worked in the department responsible for devising the tender contract. Although Stephen was not involved with the tender process, his former colleague and friend is responsible for the tender specification document and the evaluation process.
Stephen had sight of some of the requirements and has offered to share with Stella information that may be of use when preparing the tender. However, this information is confidential and should not be seen by any of the tendering parties.
It will be an open tender process for both external and internal providers. Bids from external providers are being encouraged. The evaluation process has been designed with this in mind. If the contract is awarded externally, Stella will be unsure of her personal position in the organization. She understands that using any insider knowledge of the tendering process would be inappropriate when preparing the tender proposal, but she feels she would have a better chance of success if she used this confidential information.
Required:
Advise Mrs. Stella Amoah on THREE (3) courses of action she should take in order to act ethically in the tendering process given in the above scenario.
Find Related Questions by Tags, levels, etc.
Report an error