AUE2601 May/Jun 2016 exam paper — questions

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  1. Question 1.1 · Definition, role and responsibilities of internal audit · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. Select the alternative that best completes the following statement of the Mission of Internal Audit: 'To enhance and ___(a)___ organizational value by providing risk-based and objective assurance, ___(b)___, and insight.'Show the full question

  2. Question 1.2 · Internal auditor roles, qualifications and characteristics · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. Identify which one of the following alternatives forms part of the personal characteristics required of an internal auditor, where the listed traits are: (i) a practical approach, (ii) an extrovert personality, (iii) being assertive, and (iv) good interpersonal relations.Show the full question

  3. Question 1.3 · International Professional Practices Framework (IPPF) and standards · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. Determine which one of the following is NOT an element of the International Professional Practices Framework (IPPF): the definition of internal auditing; the International Standards for the Professional Practice of Internal Auditing; the internal audit charter; or the IIA Code of Ethics.Show the full question

  4. Question 1.4 · Definition, role and responsibilities of internal audit · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. Choose the alternative that correctly completes the sentence: 'The main purpose of an internal audit is to...' The options are: reviewing the means of safeguarding assets and, where appropriate, verifying the existence of such assets; reviewing the reliability and integrity of financial and operating information; appraising the effectiveness and efficiency of operations; or assisting management of the organisation in the effective discharge of their responsibilities.Show the full question

  5. Question 1.5 · The internal audit process and fieldwork · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. Identify which one of the following options is an example of a directive control: review of exception reports, personnel access cards, procedure manuals, or physical stock counts.Show the full question

  6. Question 1.6 · Reporting lines, independence and the audit committee · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. Determine the most important benefit that the audit committee provides to the internal auditor, choosing from: protecting the independence of the internal auditor from undue management influence; reviewing annual audit plans and monitoring audit results; approving audit plans and scheduling meetings with the internal auditor; or reviewing copies of the procedure manuals for selected company operations and discussing such manuals with a company official.Show the full question

  7. Question 1.7 · Internal auditor roles, qualifications and characteristics · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. If you were establishing an internal auditing department for your company, decide which approach you would most likely follow when appointing staff: appointing internal auditors who each individually possess all the necessary skills for handling all auditing assignments; appointing inexperienced personnel and training them according to the company's needs; appointing qualified accountants because most audit work is related to accounting; or appointing internal auditors who collectively have the knowledge and skills needed to complete all internal auditing engagements.Show the full question

  8. Question 1.8 · Fraud and fraud risk · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. Decide what an internal auditor who suspects fraud should do: determine whether a loss has been incurred; recommend an investigation if appropriate; identify the employees who could be involved in the case; or interview those who have been involved in the control of assets.Show the full question

  9. Question 1.9 · The internal audit process and fieldwork · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. Identify which one of the following factors is essential in evaluating the sufficiency of audit evidence, given that the evidence must satisfy one of these criteria: be well documented and cross-referenced in the working papers; be based on the best available evidence that is considered appropriate; bear a direct relationship to the finding and include all the elements of a finding; or be convincing enough for a prudent person to reach the same conclusion as the internal auditor.Show the full question

  10. Question 1.10 · Code of Ethics · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. State what the IIA Code of Ethics requires internal auditors to perform their work with: knowledge, skills and competencies; honesty, diligence and responsibility; punctuality, objectivity and responsibility; or timeliness, sobriety and clarity.Show the full question

  11. Question 1.11 · Code of Ethics · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. Determine what internal auditors who fail to maintain their proficiency through continuing education could be found to be in violation of: the International Standards for the Professional Practice of Internal Auditing; the IIA's Code of Ethics; both the International Standards for the Professional Practice of Internal Auditing and the IIA's Code of Ethics; or none of the above answers is correct.Show the full question

  12. Question 1.12 · Code of Ethics · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. Identify which of the following activities is presumed to impair the objectivity of an internal auditor, where the activities listed are: (i) recommending standards of controls for a new information system application; (ii) drafting procedures for running a new computer application to ensure that proper controls are installed; and (iii) performing reviews of procedures for a new computer application before it is installed.Show the full question

  13. Question 1.13 · International Professional Practices Framework (IPPF) and standards · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. Determine which one of the following is NOT included in the mandatory guidance of the IPPF: Implementation Guidance, the Definition of Internal Auditing, the Core Principles, or the Code of Ethics.Show the full question

  14. Question 1.14 · Definition, role and responsibilities of internal audit · 1.5 marks

    This multiple-choice question requires you to select, for each numbered subsection, the single alternative you regard as most correct, and to write down the subsection number together with the letter of your chosen answer, answering the subsections in numerical order (for example 1.1 A, 1.2 B). Each of the fourteen subsections counts 1½ marks. The scope of an internal audit engagement encompasses a systematic, disciplined approach to evaluate and improve the adequacy and effectiveness of certain processes. Identify which one of the following processes is the EXCEPTION, i.e. is NOT included in this scope: risk management, control, regulation, or governance.Show the full question

  15. Question 2.1 · International Professional Practices Framework (IPPF) and standards · 6 marks

    All internal auditors are required to comply with the elements of the International Professional Practices Framework (IPPF) issued by the Institute of Internal Auditors (IIA). In July 2015 the IPPF was updated, as illustrated by the accompanying diagram, which shows a wheel with 'Mission' at its centre, surrounded by the Mandatory Guidance ring (comprising Core Principles, Definition, Code of Ethics and Standards) and, in the outer ring, the Recommended Guidance (comprising Implementation Guidance and Supplemental Guidance). With reference to the IPPF diagram described above, list six (6) of the Core Principles for the Professional Practice of Internal Auditing.Show the full question

  16. Question 2.2 · International Professional Practices Framework (IPPF) and standards · 7 marks

    All internal auditors are required to comply with the elements of the International Professional Practices Framework (IPPF) issued by the Institute of Internal Auditors (IIA). In July 2015 the IPPF was updated, as illustrated by the accompanying diagram, which shows a wheel with 'Mission' at its centre, surrounded by the Mandatory Guidance ring (comprising Core Principles, Definition, Code of Ethics and Standards) and, in the outer ring, the Recommended Guidance (comprising Implementation Guidance and Supplemental Guidance). The table below is a glossary of internal auditing terms. Match each numbered term in Column A with the letter of its correct definition in Column B. An example has already been completed: item 2.2.1, Chief Audit Executive, matches definition f. Match the remaining six terms — 2.2.2 Fraud, 2.2.3 Risk, 2.2.4 Assurance services, 2.2.5 Risk appetite, 2.2.6 Objectivity and 2.2.7 Independence — to the appropriate definitions chosen from the following list: (a) advisory and related client service activities, the nature and scope of which are agreed with the client, intended to add value and improve an organisation's governance, risk management and control processes without the internal auditor assuming management responsibility; (b) a person in a senior position responsible for effectively managing the internal audit activity in accordance with the internal audit charter and the Definition of Internal Auditing, the Code of Ethics and the Standards; (c) an unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no quality compromises are made; (d) a process to identify, assess, manage and control potential events or situations to provide reasonable assurance regarding the achievement of the organisation's objectives; (e) an objective examination of evidence for the purpose of providing an independent assessment on governance, risk management and control processes for the organisation; (f) any illegal act characterised by deceit, concealment or violation of trust, and which is not dependent upon the threat of violence or physical force; (g) the level of risk that an organisation is willing to accept; (h) the freedom from conditions that threaten the ability of the internal audit activity to carry out internal audit responsibilities in an unbiased manner; (i) the possibility of an event occurring that will have an impact on the achievement of objectives; and (j) any relationship that is, or appears to be, not in the best interest of the organisation.Show the full question

  17. Question 2.3.1 · International Professional Practices Framework (IPPF) and standards · 4 marks

    All internal auditors are required to comply with the elements of the International Professional Practices Framework (IPPF) issued by the Institute of Internal Auditors (IIA). In July 2015 the IPPF was updated, as illustrated by the accompanying diagram, which shows a wheel with 'Mission' at its centre, surrounded by the Mandatory Guidance ring (comprising Core Principles, Definition, Code of Ethics and Standards) and, in the outer ring, the Recommended Guidance (comprising Implementation Guidance and Supplemental Guidance). Simon is a newly appointed junior internal auditor with no practical experience, having graduated only last month. He has been appointed to oversee the year-end stocktake and must prepare a detailed audit report on the procedures followed. The supervisor of the internal auditing department agreed that Simon could attend the stocktake on his own, because the supervisor is currently busy finalising an audit in another department and does not have time to attend. For this scenario, conclude and explain, with reference to the IPPF, whether Simon attending the stocktake alone is permissible or not. Structure your answer in a table with three parts: state whether the situation is permissible or not permissible (1 mark), cite the relevant reference to the IIA Code of Ethics (2 marks), and give your reasons (1 mark).Show the full question

  18. Question 2.3.2 · International Professional Practices Framework (IPPF) and standards · 4 marks

    All internal auditors are required to comply with the elements of the International Professional Practices Framework (IPPF) issued by the Institute of Internal Auditors (IIA). In July 2015 the IPPF was updated, as illustrated by the accompanying diagram, which shows a wheel with 'Mission' at its centre, surrounded by the Mandatory Guidance ring (comprising Core Principles, Definition, Code of Ethics and Standards) and, in the outer ring, the Recommended Guidance (comprising Implementation Guidance and Supplemental Guidance). Francois Burger, a junior internal audit staff member, discussed with his friends the incidence of fraud that he had discovered during his audit of the company's debtors. For this scenario, conclude and explain, with reference to the IPPF, whether Francois Burger's conduct is permissible or not. Structure your answer in a table with three parts: state whether the situation is permissible or not permissible (1 mark), cite the relevant reference to the IIA Code of Ethics (2 marks), and give your reasons (1 mark).Show the full question

  19. Question 2.3.3 · International Professional Practices Framework (IPPF) and standards · 4 marks

    All internal auditors are required to comply with the elements of the International Professional Practices Framework (IPPF) issued by the Institute of Internal Auditors (IIA). In July 2015 the IPPF was updated, as illustrated by the accompanying diagram, which shows a wheel with 'Mission' at its centre, surrounded by the Mandatory Guidance ring (comprising Core Principles, Definition, Code of Ethics and Standards) and, in the outer ring, the Recommended Guidance (comprising Implementation Guidance and Supplemental Guidance). For the past three years, the internal audit reports prepared by an internal audit activity (IAA) have 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, and the IAA was last subjected to an independent assessment of its quality improvement programme three years ago. For this scenario, conclude and explain, with reference to the IPPF, whether this situation is permissible or not. Structure your answer in a table with three parts: state whether the situation is permissible or not permissible (1 mark), cite the relevant reference to the IIA Code of Ethics (2 marks), and give your reasons (1 mark).Show the full question

  20. Question 2.3.4 · International Professional Practices Framework (IPPF) and standards · 4 marks

    All internal auditors are required to comply with the elements of the International Professional Practices Framework (IPPF) issued by the Institute of Internal Auditors (IIA). In July 2015 the IPPF was updated, as illustrated by the accompanying diagram, which shows a wheel with 'Mission' at its centre, surrounded by the Mandatory Guidance ring (comprising Core Principles, Definition, Code of Ethics and Standards) and, in the outer ring, the Recommended Guidance (comprising Implementation Guidance and Supplemental Guidance). The chief audit executive (CAE) disagrees with the engagement client about the observations that arose, and the recommendations made, regarding a sensitive area. Senior management has nevertheless accepted the risk and wants the findings removed from the report; the CAE does not accept this and reports the matter to the board. For this scenario, conclude and explain, with reference to the IPPF, whether the CAE's action of reporting the disagreement to the board is permissible or not. Structure your answer in a table with three parts: state whether the situation is permissible or not permissible (1 mark), cite the relevant reference to the IIA Code of Ethics (2 marks), and give your reasons (1 mark).Show the full question

  21. Question 2.3.5 · International Professional Practices Framework (IPPF) and standards · 4 marks

    All internal auditors are required to comply with the elements of the International Professional Practices Framework (IPPF) issued by the Institute of Internal Auditors (IIA). In July 2015 the IPPF was updated, as illustrated by the accompanying diagram, which shows a wheel with 'Mission' at its centre, surrounded by the Mandatory Guidance ring (comprising Core Principles, Definition, Code of Ethics and Standards) and, in the outer ring, the Recommended Guidance (comprising Implementation Guidance and Supplemental Guidance). An internal auditor is included in the internal audit review of the accounts payable section eighteen months after having been the supervisor of that same accounts payable section. For this scenario, conclude and explain, with reference to the IPPF, whether this situation is permissible or not. Structure your answer in a table with three parts: state whether the situation is permissible or not permissible (1 mark), cite the relevant reference to the IIA Code of Ethics (2 marks), and give your reasons (1 mark).Show the full question

  22. Question 3.1 · Internal audit and other assurance functions · 5 marks

    You are working as an internal auditor at Timeless Moments Ltd. In this role you interact regularly with related functions within the organisation, namely management, external audit and the audit committee. Discuss the responsibilities that both management and the internal audit function have with regard to risk management.Show the full question

  23. Question 3.2 · Internal audit and other assurance functions · 11 marks

    You are working as an internal auditor at Timeless Moments Ltd. In this role you interact regularly with related functions within the organisation, namely management, external audit and the audit committee. Complete a table comparing internal auditing and external auditing by filling in the missing information indicated by the numbered blanks 3.2.1 to 3.2.8; the mark allocated to each blank is shown in brackets. Under the factor 'Certification', the internal audit column has a blank labelled 3.2.1 (1 mark), while the external audit column shows 'Chartered Accountant'. There is a blank labelled 3.2.2 (1 mark) for the factor name itself, where the internal audit column reads 'Institute of Internal Auditors' and the external audit column reads 'South African Institute of Chartered Accountants'. Under 'Audit timeframe', the internal audit column has blank 3.2.3 (1½ marks) and the external audit column has blank 3.2.4 (1½ marks). Under 'Audit coverage', the internal audit column has blank 3.2.5 (1½ marks), while the external audit column states that external audit works primarily with those financial systems that have a bearing on the final accounts. Under 'Organisational structure', the internal audit column has blank 3.2.6 (1½ marks), while the external audit column states that external audit is an external contractor and never an employee of the company. Under 'Legislation', the internal audit column has blank 3.2.7 (1½ marks) and the external audit column has blank 3.2.8 (1½ marks). Fill in all the numbered blanks accordingly.Show the full question

  24. Question 3.3 · Internal audit and other assurance functions · 7 marks

    You are working as an internal auditor at Timeless Moments Ltd. In this role you interact regularly with related functions within the organisation, namely management, external audit and the audit committee. List seven (7) practices that would help to enhance good relationships between the audit committee and the internal audit activity.Show the full question

  25. Question 3.4 · Internal audit and other assurance functions · 3 marks

    You are working as an internal auditor at Timeless Moments Ltd. In this role you interact regularly with related functions within the organisation, namely management, external audit and the audit committee. Describe the three (3) elements that make up an internal audit charter.Show the full question

  26. Question 4.1 · The internal audit process and fieldwork · 6 marks

    The internal audit process is made up of four phases, and the third of these phases is audit fieldwork. Identify the four (4) most common types of audit evidence and give a brief description of each one.Show the full question

  27. Question 4.2 · The internal audit process and fieldwork · 8 marks

    The internal audit process is made up of four phases, and the third of these phases is audit fieldwork. During the fieldwork stage of an audit, the auditor prepares working papers. Explain the objectives that these audit working papers serve, as well as the benefits they provide.Show the full question

  28. Question 4.3 · The internal audit process and fieldwork · 6 marks

    The internal audit process is made up of four phases, and the third of these phases is audit fieldwork. Set out the internal auditor's responsibilities in relation to fraud when the auditor is carrying out audit engagements.Show the full question

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