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QUESTION 2 30 marks Part A The Minister of Basic Education has
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QUESTION 2 30 marks
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.
Identify the type of organisational objective from the following definitions.
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.
This type of organisational objective pertains to the reliability of internal and external reporting of
financial and operational information.
This type of organisational objective pertains to the value creation choices management makes on
behalf of the organisation.
This type of organisational objective pertains to adherence to applicable laws and regulations.
Complete the following table regarding some of the differences between external and internal
auditing. The mark allocation is given in brackets.
Institute of Internal Auditors
South African Institute of Chartered Accountants
2.2.4 (1 ½)
External audit works primarily with those financial systems that have a bearing on the final accounts.
External audit is an external contractor, never an employee of the company.
List those actions that could be conducive to good cooperation and coordination between the
external and internal auditors.
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.
QUESTION 3 13 marks
At the Q&A session after your presentation, one of the students enquires whether internal auditing
departments perform fraud audits.
There are common fraud schemes. Match column A (fraud scheme) with its corresponding definition
in column B.
Column A ? fraud scheme
Column B - definition
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.
b. This is the offering, giving, receiving, or soliciting of anything of value to influence an outcome.
c. This involves diverting a potentially profitable transaction to an employee or outsider that would
normally generate profits for the organisation
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.
e. This occurs when the fraudster causes the organisation to issue a payment by making false claims
Expense reimbursement fraud
f. This involves stealing cash or assets from the organisation.
g. This involves stealing cash from an organisation before it is recorded on the organisation?s books
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.
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
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.
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)
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.
The chief audit executive decides to delay an audit at a branch so that the branch manager, will have
time to ?clean things up?.
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.
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.
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.
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
vi. To gain access to the company?s local area network, an employee must enter his/her user ID and
During the fieldwork of an audit, the auditor performs audit procedures. Explain the following types
of audit procedures.
In respect of each of the above-mentioned controls (i to vi), identify whether it is a preventive or
This question was answered on: Feb 21, 2020
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