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QUESTION 2 30 marks Part A The Minister of Basic Education has
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QUESTION 2 30 marks

 

Part A

 

The Minister of Basic Education has decided to implement an awareness programme focused on

 

introducing different professions to Grade 10 learners. The focus of the initiative is to make learners

 

aware of the different options available to them after completion of their secondary education. All

 

the different divisions in the Department of Education (DoE) have been requested to make

 

presentations on their field of expertise. The internal audit department has chosen you to do their

 

presentation, introducing internal auditing to a local secondary school.

 

In your presentation you cover the following points:

 

? Organisational objectives and how internal auditing can assist in achieving them.

 

? Differences between internal auditing and external auditing.

 

? Certain responsibilities of internal auditing.

 

REQUIRED Marks

 

2.1

 

Identify the type of organisational objective from the following definitions.

 

2.1.1

 

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.

 

2.1.2

 

This type of organisational objective pertains to the reliability of internal and external reporting of

 

financial and operational information.

 

2.1.3

 

This type of organisational objective pertains to the value creation choices management makes on

 

behalf of the organisation.

 

2.1.4

 

This type of organisational objective pertains to adherence to applicable laws and regulations.

 

(6)

 

2.2

 

Complete the following table regarding some of the differences between external and internal

 

auditing. The mark allocation is given in brackets.

 

Factor

 

Internal audit

 

External audit

 

Certification

 


 

2.2.1 (1)

 

Chartered Accountant

 

2.2.2 (1)

 

Institute of Internal Auditors

 

South African Institute of Chartered Accountants

 

Audit timeframe

 

2.2.3 (1½)

 

2.2.4 (1 ½)

 

(11)

 

AUI2601/101

 

38

 

Audit coverage

 

2.2.5 (1½)

 

External audit works primarily with those financial systems that have a bearing on the final accounts.

 

Organisational structure

 

2.2.6 (1½)

 

External audit is an external contractor, never an employee of the company.

 

Legislation

 

2.2.7 (1½)

 

2.2.8 (1½)

 

2.3

 

List those actions that could be conducive to good cooperation and coordination between the

 

external and internal auditors.

 

(9)

 

2.4

 

Describe the responsibilities that the internal audit activity is required to perform to improve the

 

governance processes of an organisation or the DoE by referring to the IIA Standards.

 

(4)

 

Part B

 

QUESTION 3 13 marks

 

At the Q&A session after your presentation, one of the students enquires whether internal auditing

 

departments perform fraud audits.

 


 

REQUIRED Marks

 

3.1

 

There are common fraud schemes. Match column A (fraud scheme) with its corresponding definition

 

in column B.

 

No.

 

Column A ? fraud scheme

 

Column B - definition

 

3.1.1

 

Skimming

 

a. This involves providing false information, usually to those outside the organisation. It usually

 

involves fraudulent financial statements, although falsification of information used as performance

 

measures can also occur.

 

(7)

 

AUI2601/101

 

39

 

3.1.2

 

Asset misappropriation

 

b. This is the offering, giving, receiving, or soliciting of anything of value to influence an outcome.

 

3.1.3

 

Corruption

 

c. This involves diverting a potentially profitable transaction to an employee or outsider that would

 

normally generate profits for the organisation

 

3.1.4

 

Bribery

 

d. This is the misuse of entrusted power for private gain. It is often an off-book fraud, meaning that

 

there is little financial-statement evidence available to prove that the crime occurred.

 

3.1.5

 

Diversion

 

e. This occurs when the fraudster causes the organisation to issue a payment by making false claims

 

for compensation.

 

3.1.6

 

Expense reimbursement fraud

 

f. This involves stealing cash or assets from the organisation.

 


 

3.1.7

 

Information misrepresentation

 

g. This involves stealing cash from an organisation before it is recorded on the organisation?s books

 

and records.

 

h. This involves an employee being paid for fictitious or inflated expenses.

 

i. This involves misrepresenting the financial statements, often by overstating assets or revenue or

 

understating liabilities and expenses.

 

3.2

 

Describe the internal auditor?s responsibilities regarding fraud when conducting audit engagements.

 

QUESTION 4 24 marks

 

All internal auditors are required, in the course of their duties, to adhere to the elements of the

 

International Professional Practices Framework (IPPF) established by the Institute of Internal Auditors

 

(IIA).

 

REQUIRED Marks

 

4.1

 

According to the IIA Standards, the internal audit activity should have an internal audit charter.

 

Define the internal charter and the elements of the charter.

 

(4)

 

4.2

 

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:

 

Permissible/not permissible (1 mark)

 

Reference to IPPF (2 marks)

 

Reasons (1 mark)

 

4.2.1

 

4.2.1

 

An internal auditor discovered some material inefficiencies in a purchasing function. The internal

 

auditor does not report the finding, since the activity was not illegal.

 

(4)

 

4.2.2

 

The chief audit executive decides to delay an audit at a branch so that the branch manager, will have

 

time to ?clean things up?.

 

(4)

 


 

4.2.3

 

During an audit, an internal auditor learns that the Chief Finance Officer (CFO) is going to be

 

dismissed. Out of sympathy, the auditor relays this information to the CFO.

 

(4)

 

4.2.4

 

An internal auditor is included in the internal audit review of the accounts payable section eighteen

 

months after being the supervisor of the accounts payable section.

 

(4)

 

4.2.5

 

For the past three years, the internal audit reports prepared by an internal audit activity (IAA) have

 

always stated that their internal audit activities are concluded in accordance with the Standards for

 

the Professional Practice of Internal Auditing. Regular internal assessments have been performed

 

and recorded and the IAA was subjected to an external assessment of its quality improvement

 

programme three years ago.

 

(4)

 

QUESTION 5 15 marks

 

You are currently involved in an audit of the payroll section of HugeFeeds (Pty) Ltd, a company with a

 

large labour force. The following controls have been implemented at the company.

 

i. For an employee to be successfully entered on the employee masterfile, a valid income tax number

 

and identity number for the new employee must be entered in the designated field.

 

ii. The company has a computerised time-keeping system. Every morning the factory manager

 

reviews an on-screen report which lists the name and section of any employee who is absent from or

 

late for work.

 

iii. Mr Radebe, the human resources manager, frequently reviews the log of amendments to the

 

employee master file.

 

iv. To effect any EFT payment, the transfer must be ?authorised? by a senior employee and ?released?

 

by a second senior employee (the two signatories principle).

 

v. Before the payroll is processed, the factory manager approves the schedule of overtime hours

 

recorded.

 

vi. To gain access to the company?s local area network, an employee must enter his/her user ID and

 

password.

 

REQUIRED Marks

 

5.1

 

During the fieldwork of an audit, the auditor performs audit procedures. Explain the following types

 

of audit procedures.

 

(9)

 


 

5.1.1

 

Inspection

 

5.1.2

 

External confirmation

 

5.1.3

 

Reperformance

 

5.1.4

 

Analytical procedures

 

5.1.5

 

Inquiry

 

5.1.6

 

Tracing

 

5.2

 

In respect of each of the above-mentioned controls (i to vi), identify whether it is a preventive or

 

detective control.

 

(6)

 


 

 







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