Question Tag: Internal Audit

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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.

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.

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.

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.

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)

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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.

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)

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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.

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.

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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.

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)

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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.

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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  • 15 Marks

AA – Nov 2018 – L2 – Q7 – Internal Audit

Explains internal audit, identifies weaknesses in audit structure, and outlines the differences between internal and external auditors.

Good Weather Nigeria Plc is a company engaged in the business of manufacturing detergents with an annual turnover of N7 billion. It carries out its operations from six locations: Abuja, Enugu, Benin, Port-Harcourt, and Jos, with its head office in Lagos. The company has an internal audit function with three staff. The Chief Internal Auditor was recruited by the Executive Finance Director to facilitate a good working relationship between the finance and audit functions. All the staff in the unit are graduates and members of the Institute of Chartered Accountants of Nigeria (ICAN). The staff of internal audit have been in the unit for over eight years. The Chief Internal Auditor reports to the Executive Finance Director.

Required:
a. Explain the term “internal audit.”
(2 Marks)

b. Identify and explain the weaknesses in the above scenario.
(8 Marks)

c. Enumerate the differences between the roles of an internal auditor and an external auditor.
(5 Marks)

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  • 10 Marks

AA – Nov 2023 – L2 – Q4d – Internal Audit and Its Relationship with External Audit

This question identifies measures to ensure the independence of the internal auditor.

The independence of an internal auditor can be challenging, especially if he or she is a full-time employee, as compared to the external auditor who is not an officer of the company. For that matter, companies try to ensure the independence of the internal auditor through various methods.

Required:
Identify and explain FIVE (5) measures that can be put in place to ensure the independence of the internal auditor.
(10 marks)

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  • 10 Marks

AA – Nov 2019 – L2 – Q4b – Internal Audit and Its Relationship with External Audit

Defines outsourcing and discusses the advantages and disadvantages of outsourcing the internal audit function.

he management of your company is carrying out major restructuring of the operations of the company for more effective and efficient achievement of objectives and targets. One of the major decisions taken was the outsourcing of the Internal Audit Function.

Required:
i) Define outsourcing. (2 marks)
ii) Identify FOUR (4) advantages and FOUR (4) disadvantages of outsourcing the internal audit function. (8 marks)

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  • 10 Marks

AA – Mar 2023 – L2 – Q4b – Internal Audit and Its Relationship with External Audit

Explain the functions of the Internal Audit Agency (IAA) and how it facilitates the work of internal auditors in MDAs and MMDAs.

The Internal Audit Agency (IAA) of Ghana was established by the Internal Audit Agency Act 2003 (Act 658) to act as an apex oversight body for Internal Audit units working with MDAs and MMDAs. Although the Internal Audit Agency plays an important role in the country’s economy, very little is known about their operations.

Required:
As an Internal Auditor who wants to bridge this knowledge gap:
i) Explain the functions of the Internal Audit Agency (IAA). (7 marks)
ii) Explain how the IAA facilitates the work of internal auditors in MDAs and MMDAs. (3 marks)

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  • 10 Marks

AA – Nov 2017 – L2 – Q2a – Internal Audit and Its Relationship with External Audit

Compare and contrast the roles of internal auditors and external auditors.

Internal audit is a function established by management to assist in corporate governance by assessing internal controls and helping in risk management. It can be a department of employees or outsourced to expert service providers.

Internal auditing is different from external auditing, although the techniques used by both are very similar. While the technique used may be similar, the focus and reasons behind the audit are different.

Required:
Compare and contrast the roles of internal auditors and external auditors.

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  • 14 Marks

AA – Nov 2017 – L2 – Q1a – nternal Audit and External Audit Relationship

Discuss the benefits of forming an audit committee for Ebaatsake Ltd based on issues raised in a scenario.

Ebaatsake Ltd designs and manufactures luxury motor vehicles. The company employs 2,500 staff and consistently makes a net profit of between 10% and 15% of sales. Ebaatsake Ltd is not listed; its shares are held by 15 individuals, most of them from the same family. The maximum shareholding is 15% of the share capital.

The executive directors are drawn mainly from the shareholders. There are no non-executive directors because the company legislation in Ebaatsake Ltd’s jurisdiction does not require any. The executive directors are very successful in running Ebaatsake Ltd, partly from their training in production and management techniques, and partly from their hands-on approach providing motivation to employees.

The board is considering a significant expansion of the company. However, the company’s bankers are concerned with the standard of financial reporting as the Finance Director (FD) has recently left Ebaatsake Ltd. The board is delaying provision of additional financial information until a new FD is appointed.

Although Ebaatsake Ltd does have an internal audit department, the Chief Internal Auditor frequently complains that the board of Ebaatsake Ltd does not understand his reports nor provide sufficient support for his department and the internal control systems within Ebaatsake Ltd. The board of Ebaatsake Ltd concurs with this view. Adoko & Co, the external auditors, have also expressed concern in this area and the fact that the internal audit department focuses work on control systems, not financial reporting. Adoko & Co are appointed by and report to the board of Ebaatsake Ltd.

The board of Ebaatsake Ltd is considering a proposal from the Chief Internal Auditor to establish an audit committee. The committee would consist of one executive director, the chief internal auditor as well as three new appointees. One appointee would have a non-executive seat on the board of directors.

Required:
Discuss how the formation of an audit committee could address the issues raised in the above scenario.

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  • 10 Marks

AA – Nov 2020 – L2 – Q4b – Internal Audit and Its Relationship with External Audit

Discuss the role of internal audit in corporate governance and risk management.

You have responded to an advertisement by a reputable company for the appointment of an internal auditor. You realized the need to prepare well for the interview.

Required:
In anticipation of the questions you may be asked at the interview, discuss the role of internal audit in corporate governance and risk management.
(10 marks)

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  • 4 Marks

AA – May 2016 – L2 – Q3d – Audit and Assurance Evidence

This question discusses the criteria that external auditors should consider when deciding whether to place reliance on the work performed by internal auditors.

(d) ISA 610 using the work of internal auditors provides guidance to external auditors on the use of internal audit work.

Required:
List and explain the various criteria that should be considered by external auditors when assessing whether to take reliance from work performed by internal audit.

(4 marks)

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  • 6 Marks

AA – May 2016 – L2 – Q3c – Professional and Ethical Considerations

This question explores the different responsibilities of internal and external auditors in the prevention, detection, and reporting of fraud and error.

(c) There are similarities and differences between the responsibilities of internal and external auditors. Both internal and external auditors have responsibilities relating to the prevention, detection, and reporting of fraud, for example, but their responsibilities are not the same.

Required:
Explain the difference between the responsibilities of internal auditors and external auditors for the prevention, detection, and reporting of fraud and error. (6 marks)

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  • 4 Marks

AA – May 2016 – L2 – Q3b – Institutional Regulation and Standard-Setting

This question explains how an audit committee benefits both external and internal auditors by enhancing communication, independence, and oversight.

(b) Businesses may establish an audit committee to help improve corporate governance within a company. This can provide benefits to both internal and external auditors.

Required:
Explain how an audit committee can benefit both the external auditors and the internal auditors of an entity. (4 marks)

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  • 8 Marks

AA – May 2016 – L2 – Q2b – Internal Audit and External Audit Relationship

This question discusses the benefits of establishing an internal audit department for a company.

(b) Discuss the benefits of Tark Co establishing an Internal Audit Department. (8 marks)

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  • 10 Marks

AA – Dec 2022 – L2 – Q4b – Professional and Ethical Considerations

Discusses the advantages and disadvantages of outsourcing the internal audit function in an organization.

Your management has decided to outsource the internal audit function in your organization. You have been assigned to make a presentation to management.

Required:
Discuss THREE (3) advantages and TWO (2) disadvantages of outsourcing the Internal Audit function in your presentation

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