AUE2601 Oct/Nov 2013 exam paper — questions

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  1. Question 1.1 · Reporting lines, independence and the audit committee · 1.5 marks

    For each part of this multiple-choice question, choose only the one alternative you consider most correct. Write down the sub-question number followed by the letter of the alternative you selected, and answer the parts in numerical order, for example 1.1 A, 1.2 B. Each part counts 1½ marks. (Questions adapted from Vallabhaneni: CIA Exam Review.) During an internal audit review of the organisation's accounts payable function, an internal auditor plans to confirm balances with suppliers. What is the source of authority for such contact with parties outside the organisation?Show the full question

  2. Question 1.2 · Reporting lines, independence and the audit committee · 1.5 marks

    For each part of this multiple-choice question, choose only the one alternative you consider most correct. Write down the sub-question number followed by the letter of the alternative you selected, and answer the parts in numerical order, for example 1.1 A, 1.2 B. Each part counts 1½ marks. (Questions adapted from Vallabhaneni: CIA Exam Review.) Which of the following audit committee activities would be of the greatest benefit to the internal auditing department?Show the full question

  3. Question 1.3 · Definition, role and responsibilities of internal audit · 1.5 marks

    For each part of this multiple-choice question, choose only the one alternative you consider most correct. Write down the sub-question number followed by the letter of the alternative you selected, and answer the parts in numerical order, for example 1.1 A, 1.2 B. Each part counts 1½ marks. (Questions adapted from Vallabhaneni: CIA Exam Review.) Which one of the following statements best describes the purpose of internal auditing?Show the full question

  4. Question 1.4 · The internal audit process and fieldwork · 1.5 marks

    For each part of this multiple-choice question, choose only the one alternative you consider most correct. Write down the sub-question number followed by the letter of the alternative you selected, and answer the parts in numerical order, for example 1.1 A, 1.2 B. Each part counts 1½ marks. (Questions adapted from Vallabhaneni: CIA Exam Review.) Risk management is the responsibility of management. Which one of the following may the role of the internal audit activity in the risk management process include?Show the full question

  5. Question 1.5 · Definition, role and responsibilities of internal audit · 1.5 marks

    For each part of this multiple-choice question, choose only the one alternative you consider most correct. Write down the sub-question number followed by the letter of the alternative you selected, and answer the parts in numerical order, for example 1.1 A, 1.2 B. Each part counts 1½ marks. (Questions adapted from Vallabhaneni: CIA Exam Review.) Which one of the following statements best describes management's objective?Show the full question

  6. Question 1.6 · Internal auditor roles, qualifications and characteristics · 1.5 marks

    For each part of this multiple-choice question, choose only the one alternative you consider most correct. Write down the sub-question number followed by the letter of the alternative you selected, and answer the parts in numerical order, for example 1.1 A, 1.2 B. Each part counts 1½ marks. (Questions adapted from Vallabhaneni: CIA Exam Review.) Which one of the following alternatives forms part of the required personal characteristics of an internal auditor? Consider these options: I - Practical approach; II - Extrovert personality; III - Assertive; IV - Good interpersonal relations.Show the full question

  7. Question 1.7 · Reporting lines, independence and the audit committee · 1.5 marks

    For each part of this multiple-choice question, choose only the one alternative you consider most correct. Write down the sub-question number followed by the letter of the alternative you selected, and answer the parts in numerical order, for example 1.1 A, 1.2 B. Each part counts 1½ marks. (Questions adapted from Vallabhaneni: CIA Exam Review.) Which one of the following provisions should be excluded from the internal audit charter?Show the full question

  8. Question 1.8 · The internal audit process and fieldwork · 1.5 marks

    For each part of this multiple-choice question, choose only the one alternative you consider most correct. Write down the sub-question number followed by the letter of the alternative you selected, and answer the parts in numerical order, for example 1.1 A, 1.2 B. Each part counts 1½ marks. (Questions adapted from Vallabhaneni: CIA Exam Review.) Which technique is most appropriate for determining whether mail room staff is fully used?Show the full question

  9. Question 1.9 · Code of Ethics · 1.5 marks

    For each part of this multiple-choice question, choose only the one alternative you consider most correct. Write down the sub-question number followed by the letter of the alternative you selected, and answer the parts in numerical order, for example 1.1 A, 1.2 B. Each part counts 1½ marks. (Questions adapted from Vallabhaneni: CIA Exam Review.) During the course of an internal audit, an internal auditor discovers that a clerk is defrauding the company. Although this is the first fraud ever encountered at the organisation and the organisation has a security department, the internal auditor decides to personally interrogate the suspect. Which rule in the IIA Code of Ethics has most likely been violated?Show the full question

  10. Question 1.10 · The internal audit process and fieldwork · 1.5 marks

    For each part of this multiple-choice question, choose only the one alternative you consider most correct. Write down the sub-question number followed by the letter of the alternative you selected, and answer the parts in numerical order, for example 1.1 A, 1.2 B. Each part counts 1½ marks. (Questions adapted from Vallabhaneni: CIA Exam Review.) When reviewing internal audit working papers, what is the primary responsibility of an internal audit supervisor in determining the quality of the work?Show the full question

  11. Question 2.1 · Definition, role and responsibilities of internal audit · 4 marks

    You are the chief audit executive (CAE) of Inferno Limited, a company listed on the Johannesburg Stock Exchange (JSE). Having interacted with senior management recently, you realised that they were not well informed about the roles and responsibilities of internal audit. You therefore compiled a presentation and delivered it to senior management at the next management meeting. During the meeting, several managers asked you to clarify certain issues, which you must address below. As CAE of Inferno Limited, describe the objective of the internal audit activity.Show the full question

  12. Question 2.2 · Definition, role and responsibilities of internal audit · 9 marks

    You are the chief audit executive (CAE) of Inferno Limited, a company listed on the Johannesburg Stock Exchange (JSE). Having interacted with senior management recently, you realised that they were not well informed about the roles and responsibilities of internal audit. You therefore compiled a presentation and delivered it to senior management at the next management meeting. During the meeting, several managers asked you to clarify certain issues, which you must address below. The International Professional Practices Framework (IPPF) is made up of six (6) elements. Name each of these six elements and, for each one, state whether it is mandatory or strongly recommended. (One mark is awarded for correctly naming each element, and half a mark for correctly classifying it as mandatory or strongly recommended.)Show the full question

  13. Question 2.3 · Definition, role and responsibilities of internal audit · 6 marks

    You are the chief audit executive (CAE) of Inferno Limited, a company listed on the Johannesburg Stock Exchange (JSE). Having interacted with senior management recently, you realised that they were not well informed about the roles and responsibilities of internal audit. You therefore compiled a presentation and delivered it to senior management at the next management meeting. During the meeting, several managers asked you to clarify certain issues, which you must address below. With reference to the IPPF, explain what is meant by independence, which consists of organisational independence and individual objectivity. Define the term 'organisational independence' and define the term 'individual objectivity'.Show the full question

  14. Question 2.4 · Definition, role and responsibilities of internal audit · 4 marks

    You are the chief audit executive (CAE) of Inferno Limited, a company listed on the Johannesburg Stock Exchange (JSE). Having interacted with senior management recently, you realised that they were not well informed about the roles and responsibilities of internal audit. You therefore compiled a presentation and delivered it to senior management at the next management meeting. During the meeting, several managers asked you to clarify certain issues, which you must address below. The Chief Executive Officer (CEO) of Inferno Limited asks why Internal Audit cannot report both administratively and functionally to him directly. With reference to the IPPF, list two (2) advantages and two (2) disadvantages explaining why this reporting line is not recommended.Show the full question

  15. Question 2.5 · Definition, role and responsibilities of internal audit · 5 marks

    You are the chief audit executive (CAE) of Inferno Limited, a company listed on the Johannesburg Stock Exchange (JSE). Having interacted with senior management recently, you realised that they were not well informed about the roles and responsibilities of internal audit. You therefore compiled a presentation and delivered it to senior management at the next management meeting. During the meeting, several managers asked you to clarify certain issues, which you must address below. One of the senior managers at Inferno Limited asks what happens if a fraud has been detected and management wants internal audit to assist with the investigation. With reference to the IPPF, describe the internal auditor's responsibilities in investigating fraud.Show the full question

  16. Question 2.6 · Definition, role and responsibilities of internal audit · 2 marks

    You are the chief audit executive (CAE) of Inferno Limited, a company listed on the Johannesburg Stock Exchange (JSE). Having interacted with senior management recently, you realised that they were not well informed about the roles and responsibilities of internal audit. You therefore compiled a presentation and delivered it to senior management at the next management meeting. During the meeting, several managers asked you to clarify certain issues, which you must address below. At Inferno Limited, identify who is responsible for coordinating the work of the internal auditor and the external auditor.Show the full question

  17. Question 3.1 · The internal audit process and fieldwork · 10 marks

    Inferno Limited's internal audit activity is about to perform an audit of the company's human resource process. The engagement team assigned to conduct this audit consists of one internal auditor who is studying towards a degree in internal auditing and one team member who has no internal auditing experience at all. Because of other pressing business commitments, you, as the Chief Audit Executive (CAE), will not be available to assist the team while the audit is being carried out. Before they began, you explained their duties to them, instructed that audit sampling should be used, and stressed that all audit evidence gathered must be sufficient, competent, relevant and useful. All audits must be conducted in accordance with the Standards. The audit team subsequently carried out the following list of audit activities, which are presented in no particular order: (a) gather audit evidence; (b) identify opportunities for making significant improvements to human resource's risk management and control systems; (c) distribute the audit report; (d) perform a preliminary survey for the recruitment process to identify the objectives and significant risks and evaluate the resources; (e) complete the audit working papers; (f) compile a list of the activity's objectives that must be achieved; (g) evaluate the recruitment process based on the risk assessment; (h) determine the audit risk and indicate how it will influence the audit engagement; (i) perform the audit procedures; and (j) write the audit report. The internal audit process is made up of the following phases/steps: determining the audit assignment; planning the internal audit (engagement planning); performing the engagement (fieldwork); and audit reporting and follow up. Using a table with the columns 'No' and 'Audit phase/step', indicate which of these four phases/steps each of the activities (a) to (j) listed in the scenario belongs to.Show the full question

  18. Question 3.2 · The internal audit process and fieldwork · 3 marks

    Inferno Limited's internal audit activity is about to perform an audit of the company's human resource process. The engagement team assigned to conduct this audit consists of one internal auditor who is studying towards a degree in internal auditing and one team member who has no internal auditing experience at all. Because of other pressing business commitments, you, as the Chief Audit Executive (CAE), will not be available to assist the team while the audit is being carried out. Before they began, you explained their duties to them, instructed that audit sampling should be used, and stressed that all audit evidence gathered must be sufficient, competent, relevant and useful. All audits must be conducted in accordance with the Standards. The audit team subsequently carried out the following list of audit activities, which are presented in no particular order: (a) gather audit evidence; (b) identify opportunities for making significant improvements to human resource's risk management and control systems; (c) distribute the audit report; (d) perform a preliminary survey for the recruitment process to identify the objectives and significant risks and evaluate the resources; (e) complete the audit working papers; (f) compile a list of the activity's objectives that must be achieved; (g) evaluate the recruitment process based on the risk assessment; (h) determine the audit risk and indicate how it will influence the audit engagement; (i) perform the audit procedures; and (j) write the audit report. Based only on the information given in the scenario, evaluate and conclude whether the 'Proficiency' requirements of Standard 1210 have been complied with by the CAE of Inferno Limited in assigning this audit team.Show the full question

  19. Question 3.3 · The internal audit process and fieldwork · 5 marks

    Inferno Limited's internal audit activity is about to perform an audit of the company's human resource process. The engagement team assigned to conduct this audit consists of one internal auditor who is studying towards a degree in internal auditing and one team member who has no internal auditing experience at all. Because of other pressing business commitments, you, as the Chief Audit Executive (CAE), will not be available to assist the team while the audit is being carried out. Before they began, you explained their duties to them, instructed that audit sampling should be used, and stressed that all audit evidence gathered must be sufficient, competent, relevant and useful. All audits must be conducted in accordance with the Standards. The audit team subsequently carried out the following list of audit activities, which are presented in no particular order: (a) gather audit evidence; (b) identify opportunities for making significant improvements to human resource's risk management and control systems; (c) distribute the audit report; (d) perform a preliminary survey for the recruitment process to identify the objectives and significant risks and evaluate the resources; (e) complete the audit working papers; (f) compile a list of the activity's objectives that must be achieved; (g) evaluate the recruitment process based on the risk assessment; (h) determine the audit risk and indicate how it will influence the audit engagement; (i) perform the audit procedures; and (j) write the audit report. List the factors that determine the nature and scope of audit sampling used during an internal audit engagement, such as the one being performed on Inferno Limited's human resource process.Show the full question

  20. Question 3.4 · The internal audit process and fieldwork · 8 marks

    Inferno Limited's internal audit activity is about to perform an audit of the company's human resource process. The engagement team assigned to conduct this audit consists of one internal auditor who is studying towards a degree in internal auditing and one team member who has no internal auditing experience at all. Because of other pressing business commitments, you, as the Chief Audit Executive (CAE), will not be available to assist the team while the audit is being carried out. Before they began, you explained their duties to them, instructed that audit sampling should be used, and stressed that all audit evidence gathered must be sufficient, competent, relevant and useful. All audits must be conducted in accordance with the Standards. The audit team subsequently carried out the following list of audit activities, which are presented in no particular order: (a) gather audit evidence; (b) identify opportunities for making significant improvements to human resource's risk management and control systems; (c) distribute the audit report; (d) perform a preliminary survey for the recruitment process to identify the objectives and significant risks and evaluate the resources; (e) complete the audit working papers; (f) compile a list of the activity's objectives that must be achieved; (g) evaluate the recruitment process based on the risk assessment; (h) determine the audit risk and indicate how it will influence the audit engagement; (i) perform the audit procedures; and (j) write the audit report. The audit team performing the human resource process audit at Inferno Limited was instructed to ensure that all audit evidence they gather is sufficient, competent, relevant and useful. Define each of these four terms as set out in the International Standards for the Professional Practice of Internal Auditing (the Standards).Show the full question

  21. Question 3.5 · The internal audit process and fieldwork · 9 marks

    Inferno Limited's internal audit activity is about to perform an audit of the company's human resource process. The engagement team assigned to conduct this audit consists of one internal auditor who is studying towards a degree in internal auditing and one team member who has no internal auditing experience at all. Because of other pressing business commitments, you, as the Chief Audit Executive (CAE), will not be available to assist the team while the audit is being carried out. Before they began, you explained their duties to them, instructed that audit sampling should be used, and stressed that all audit evidence gathered must be sufficient, competent, relevant and useful. All audits must be conducted in accordance with the Standards. The audit team subsequently carried out the following list of audit activities, which are presented in no particular order: (a) gather audit evidence; (b) identify opportunities for making significant improvements to human resource's risk management and control systems; (c) distribute the audit report; (d) perform a preliminary survey for the recruitment process to identify the objectives and significant risks and evaluate the resources; (e) complete the audit working papers; (f) compile a list of the activity's objectives that must be achieved; (g) evaluate the recruitment process based on the risk assessment; (h) determine the audit risk and indicate how it will influence the audit engagement; (i) perform the audit procedures; and (j) write the audit report. For each of the following controls, identify whether it is a detective, preventative or directive control: (a) alarms; (b) personnel access cards; (c) procedure manuals; (d) use of carbon paper; (e) guidelines; (f) physical stock count; (g) reconciliations; (h) company policy; (i) training programmes.Show the full question

  22. Question 4.1 · International Professional Practices Framework (IPPF) and standards · 4 marks

    All internal auditors must, in carrying out their duties, comply with the elements of the International Professional Practices Framework (IPPF) established by the Institute of Internal Auditors (IIA). You encountered the following ethical issues while conducting different audits. For each scenario you are required to conclude and explain, with reference to the IPPF, whether the situation described is permissible or not, giving reasons for your conclusion. Structure your answer using a table with columns for: whether the scenario is permissible or not permissible (1 mark), the reference to the relevant part of the IPPF (2 marks), and the reasons for your conclusion (1 mark). While performing an audit, you overheard that the chief executive officer (CEO) of the company might be resigning because of fraud allegations made against him. You personally know people who hold shares in the company, and you decided to inform them about the possibility that the share price could decrease as a result. Conclude and explain, with reference to the IPPF, whether this action is permissible or not, providing reasons using the required table format (permissible/not permissible - 1 mark; IPPF reference - 2 marks; reasons - 1 mark).Show the full question

  23. Question 4.2 · International Professional Practices Framework (IPPF) and standards · 4 marks

    All internal auditors must, in carrying out their duties, comply with the elements of the International Professional Practices Framework (IPPF) established by the Institute of Internal Auditors (IIA). You encountered the following ethical issues while conducting different audits. For each scenario you are required to conclude and explain, with reference to the IPPF, whether the situation described is permissible or not, giving reasons for your conclusion. Structure your answer using a table with columns for: whether the scenario is permissible or not permissible (1 mark), the reference to the relevant part of the IPPF (2 marks), and the reasons for your conclusion (1 mark). Sandra, a senior internal auditor, has not attended any training for the past two years due to work and personal constraints. Conclude and explain, with reference to the IPPF, whether this situation is permissible or not, providing reasons using the required table format (permissible/not permissible - 1 mark; IPPF reference - 2 marks; reasons - 1 mark).Show the full question

  24. Question 4.3 · International Professional Practices Framework (IPPF) and standards · 4 marks

    All internal auditors must, in carrying out their duties, comply with the elements of the International Professional Practices Framework (IPPF) established by the Institute of Internal Auditors (IIA). You encountered the following ethical issues while conducting different audits. For each scenario you are required to conclude and explain, with reference to the IPPF, whether the situation described is permissible or not, giving reasons for your conclusion. Structure your answer using a table with columns for: whether the scenario is permissible or not permissible (1 mark), the reference to the relevant part of the IPPF (2 marks), and the reasons for your conclusion (1 mark). Simon, the Chief Audit Executive (CAE), disagrees with the engagement client regarding the observations and recommendations made in a sensitive area. Senior management accepts the risk involved and wants the findings removed from the audit report; however, Simon reports the matter to the board instead. Conclude and explain, with reference to the IPPF, whether Simon's action is permissible or not, providing reasons using the required table format (permissible/not permissible - 1 mark; IPPF reference - 2 marks; reasons - 1 mark).Show the full question

  25. Question 4.4 · International Professional Practices Framework (IPPF) and standards · 4 marks

    All internal auditors must, in carrying out their duties, comply with the elements of the International Professional Practices Framework (IPPF) established by the Institute of Internal Auditors (IIA). You encountered the following ethical issues while conducting different audits. For each scenario you are required to conclude and explain, with reference to the IPPF, whether the situation described is permissible or not, giving reasons for your conclusion. Structure your answer using a table with columns for: whether the scenario is permissible or not permissible (1 mark), the reference to the relevant part of the IPPF (2 marks), and the reasons for your conclusion (1 mark). The human resource manager's children attend a school to which you would also like to send your own children. The school has a very long waiting list because it is so popular, and the human resource manager has offered to use her influence as a board member of the school to help gain admission for your children at this school. Conclude and explain, with reference to the IPPF, whether accepting this offer is permissible or not, providing reasons using the required table format (permissible/not permissible - 1 mark; IPPF reference - 2 marks; reasons - 1 mark).Show the full question

  26. Question 4.5 · International Professional Practices Framework (IPPF) and standards · 4 marks

    All internal auditors must, in carrying out their duties, comply with the elements of the International Professional Practices Framework (IPPF) established by the Institute of Internal Auditors (IIA). You encountered the following ethical issues while conducting different audits. For each scenario you are required to conclude and explain, with reference to the IPPF, whether the situation described is permissible or not, giving reasons for your conclusion. Structure your answer using a table with columns for: whether the scenario is permissible or not permissible (1 mark), the reference to the relevant part of the IPPF (2 marks), and the reasons for your conclusion (1 mark). For the past seven years, the internal audit reports prepared by an internal audit activity have always stated that its internal audit activities are conducted in accordance with the Standards for the Professional Practice of Internal Auditing. Regular internal assessments have been performed and recorded, but the internal audit activity has never been subjected to an independent assessment of its quality improvement programme. Conclude and explain, with reference to the IPPF, whether this situation is permissible or not, providing reasons using the required table format (permissible/not permissible - 1 mark; IPPF reference - 2 marks; reasons - 1 mark).Show the full question

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