AUE2601 May/Jun 2017 exam paper — questions

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  1. Question 1.1 · Internal audit and other assurance functions · 1.5 marks

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. Internal and external audit work should be coordinated so that audit coverage is adequate and unnecessary duplication of effort is eliminated. Which one of the following alternatives involves the coordination of audit effort?Show the full question

  2. Question 1.2 · The internal audit process and fieldwork · 1.5 marks

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. Which one of the following factors is essential when evaluating the competence and appropriateness of audit evidence? The evidence must:Show the full question

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

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. According to the International Standards for the Professional Practice of Internal Auditing (the Standards), due professional care calls for:Show the full question

  4. Question 1.4 · Code of Ethics · 1.5 marks

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. An internal auditor holding a Certified Internal Auditor (CIA) qualification applied for a new position with another company as the director of purchasing. Within a month of his appointment, the director signed a contract to procure a large order from a new supplier who had submitted the best tender in terms of price, quality and delivery. Shortly after the contract was signed, the supplier presented the director with a voucher for a weekend breakaway at a game farm. Which one of the following statements about the acceptance of the gift is incorrect?Show the full question

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

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. Which one of the following activities is not included when developing the internal audit department's long-term audit plan and schedules?Show the full question

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

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. What is the most important benefit that the audit committee provides to the internal auditor? It is to:Show the full question

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

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. Choose the alternative that correctly completes the following sentence: the fact that internal auditors customarily have a dual relationship with executive management and the audit committee means that:Show the full question

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

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. Which of the following statements describes a characteristic of internal audit's working papers?Show the full question

  9. Question 1.9 · Definition, role and responsibilities of internal audit · 1.5 marks

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. When compared with the objectives of external auditors, the objectives of internal auditors focus more on:Show the full question

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

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. During the internal audit of sales representatives' travel expenses, the internal auditor calculates the average travel expenses per day for each of the sales representatives, and then examines the detailed receipts for those sales representatives who have high daily averages. Which of the following types of audit evidence do these audit procedures represent the use of?Show the full question

  11. Question 1.11 · International Professional Practices Framework (IPPF) and standards · 1.5 marks

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. Which of the following is an element of authority attributed to the internal audit activity that should be included in its charter?Show the full question

  12. Question 1.12 · The internal audit process and fieldwork · 1.5 marks

    This is a multiple-choice question worth 18 marks in total. For each of the twelve subsections below, you must select the single alternative you regard as most correct, then write down the subsection number together with the letter preceding your chosen alternative (for example: 1.1 A, 1.2 B). Each subsection is worth one and a half (1½) marks and subsections must be answered in numerical order. Working papers should be disposed of when they are of no further use. Which statement correctly describes retention policies for working papers?Show the full question

  13. Question 2.1 · Reporting lines, independence and the audit committee · 3 marks

    Dreams Discovered Ltd is a company that manufactures and sells children's toys. You have just been appointed as the new Chief Audit Executive (CAE) for the company's newly established internal audit activity. Currently, the board and the Chief Executive Officer (CEO) cannot agree on who the CAE should report to, and they have asked you for your guidance on this matter. As the newly appointed CAE of Dreams Discovered Ltd, discuss the advantages and disadvantages of the CAE reporting to the Audit Committee.Show the full question

  14. Question 2.2 · Reporting lines, independence and the audit committee · 3 marks

    Dreams Discovered Ltd is a company that manufactures and sells children's toys. You have just been appointed as the new Chief Audit Executive (CAE) for the company's newly established internal audit activity. Currently, the board and the Chief Executive Officer (CEO) cannot agree on who the CAE should report to, and they have asked you for your guidance on this matter. As the newly appointed CAE of Dreams Discovered Ltd, discuss the advantages and disadvantages of the CAE reporting to the Chief Executive Officer (CEO) instead.Show the full question

  15. Question 2.3 · Reporting lines, independence and the audit committee · 4 marks

    Dreams Discovered Ltd is a company that manufactures and sells children's toys. You have just been appointed as the new Chief Audit Executive (CAE) for the company's newly established internal audit activity. Currently, the board and the Chief Executive Officer (CEO) cannot agree on who the CAE should report to, and they have asked you for your guidance on this matter. With reference to the IIA Standards, recommend which type of reporting line (to the Audit Committee or to the CEO) is preferred in order to preserve the independence of the internal audit activity at Dreams Discovered Ltd.Show the full question

  16. Question 3.1 · The internal audit process and fieldwork · 4 marks

    You act as a mentor to the junior internal auditors in your internal audit department, and part of your role is to help them with their studies and other aspects of their training as internal auditors. Answer the following questions that a new junior internal auditor put to you during a mentoring session. (Source: Wiley CIA Review, adapted.) The internal audit process is made up of four phases, the second of which is planning the internal audit (engagement planning). With reference to IIA Standard 2201 – Planning Considerations, explain what the internal auditor must take into account when planning an engagement.Show the full question

  17. Question 3.2 · The internal audit process and fieldwork · 6 marks

    You act as a mentor to the junior internal auditors in your internal audit department, and part of your role is to help them with their studies and other aspects of their training as internal auditors. Answer the following questions that a new junior internal auditor put to you during a mentoring session. (Source: Wiley CIA Review, adapted.) Name four different types of audit evidence. For each of the four types, provide a definition and give an example.Show the full question

  18. Question 3.3 · The internal audit process and fieldwork · 4 marks

    You act as a mentor to the junior internal auditors in your internal audit department, and part of your role is to help them with their studies and other aspects of their training as internal auditors. Answer the following questions that a new junior internal auditor put to you during a mentoring session. (Source: Wiley CIA Review, adapted.) During a recent audit of the Accounts Receivable (Debtors) section, the following data was collected, and one finding related to a material increase in bad debts expense. When writing up the audit finding, each item can be classified as criteria, cause, condition or effect. Review the items below and classify each one as Criteria, Condition, Cause or Effect, giving reasons for your classification: (a) audit tests revealed that only some of the new accounts received were reviewed; (b) the bad debts loss increased by R78 000 during the last financial year; (c) credit department policy requires that credit references be reviewed for all new accounts; (d) according to the new credit manager, strict adherence to the established credit policy is not necessary.Show the full question

  19. Question 3.4 · The internal audit process and fieldwork · 6 marks

    You act as a mentor to the junior internal auditors in your internal audit department, and part of your role is to help them with their studies and other aspects of their training as internal auditors. Answer the following questions that a new junior internal auditor put to you during a mentoring session. (Source: Wiley CIA Review, adapted.) Match each term in Column A with its corresponding meaning in Column B (your answer should be presented in the format '3.4.1 d', for example). Column A lists: 3.4.1 Accurate information is; 3.4.2 Sufficient information is; 3.4.3 Concise information is; 3.4.4 Complete information; 3.4.5 Relevant information; 3.4.6 Objective information is. Column B offers these possible meanings: (a) supports engagement observations and recommendations and is consistent with the objectives for the engagement; (b) is fair, impartial and unbiased, and presents the result of a fair-minded and balanced assessment of all relevant facts and circumstances; (c) is free from errors and distortions and faithful to the underlying facts; (d) is to the point and avoids unnecessary elaboration, superfluous detail, redundancy and wordiness; (e) is the best attainable information obtained through the use of appropriate engagement techniques; (f) helps the organisation meet its goals; (g) is factual, adequate and convincing so that a prudent person would reach the same conclusion as the auditor; (h) lacks nothing essential to the target audience and includes all significant and relevant information and observations to support recommendations and conclusions. Match each of the six terms (3.4.1–3.4.6) to the single most appropriate meaning from options a–h.Show the full question

  20. Question 4.1 · Code of Ethics · 3 marks

    The International Professional Practices Framework (IPPF) has three mandatory elements: the Definition of Internal Auditing, the Code of Ethics, and the International Standards for the Professional Practice of Internal Auditing (the Standards). Using the Institute of Internal Auditors (IIA) Code of Ethics as your reference, you are required to decide, for each of the scenarios below, whether the conduct described is permissible or not, and to give reasons supporting each of your conclusions. In order to cut organisational costs, the chief audit executive has cancelled all staff training for the next two years, giving as the reason that all the internal audit staff are too new to gain any benefit from such training. Discuss, with reasons, whether this decision is permissible under the IIA Code of Ethics.Show the full question

  21. Question 4.2 · Code of Ethics · 3 marks

    The International Professional Practices Framework (IPPF) has three mandatory elements: the Definition of Internal Auditing, the Code of Ethics, and the International Standards for the Professional Practice of Internal Auditing (the Standards). Using the Institute of Internal Auditors (IIA) Code of Ethics as your reference, you are required to decide, for each of the scenarios below, whether the conduct described is permissible or not, and to give reasons supporting each of your conclusions. An internal audit team has made observations and recommendations that are expected to significantly improve the operating efficiency of a department. As a token of appreciation, the department's manager gives James, the internal audit manager, a gift of moderate value. Because the gift shows appreciation for the audit team's work and because it is given during the holiday season, James accepts it. Discuss, with reasons, whether James's acceptance of the gift is permissible under the IIA Code of Ethics.Show the full question

  22. Question 4.3 · Code of Ethics · 3 marks

    The International Professional Practices Framework (IPPF) has three mandatory elements: the Definition of Internal Auditing, the Code of Ethics, and the International Standards for the Professional Practice of Internal Auditing (the Standards). Using the Institute of Internal Auditors (IIA) Code of Ethics as your reference, you are required to decide, for each of the scenarios below, whether the conduct described is permissible or not, and to give reasons supporting each of your conclusions. Simon, an internal auditor, has been assigned to audit the human resources department, which is managed by his wife. Discuss, with reasons, whether it is permissible for Simon to perform this audit under the IIA Code of Ethics.Show the full question

  23. Question 4.4 · Code of Ethics · 3 marks

    The International Professional Practices Framework (IPPF) has three mandatory elements: the Definition of Internal Auditing, the Code of Ethics, and the International Standards for the Professional Practice of Internal Auditing (the Standards). Using the Institute of Internal Auditors (IIA) Code of Ethics as your reference, you are required to decide, for each of the scenarios below, whether the conduct described is permissible or not, and to give reasons supporting each of your conclusions. Matthew, an internal auditor employed by a manufacturer of office products, has recently completed an internal audit engagement evaluating the marketing function of his employer. Drawing on the experience gained from that engagement, Matthew spends several hours one Saturday working as a paid consultant to a local hospital that intends to carry out an engagement to evaluate its own marketing function. Discuss, with reasons, whether Matthew's conduct is permissible under the IIA Code of Ethics.Show the full question

  24. Question 4.5 · Code of Ethics · 3 marks

    The International Professional Practices Framework (IPPF) has three mandatory elements: the Definition of Internal Auditing, the Code of Ethics, and the International Standards for the Professional Practice of Internal Auditing (the Standards). Using the Institute of Internal Auditors (IIA) Code of Ethics as your reference, you are required to decide, for each of the scenarios below, whether the conduct described is permissible or not, and to give reasons supporting each of your conclusions. An internal auditor did not report significant findings about illegal activity to the audit committee, because management had indicated that it would handle the issue itself. Discuss, with reasons, whether the internal auditor's failure to report is permissible under the IIA Code of Ethics.Show the full question

  25. Question 5.1 · Definition, role and responsibilities of internal audit · 10 marks

    You have recently been appointed as the chief audit executive (CAE) of a newly formed internal audit division at Data Magic (Pty) Limited, a company specialising in software training that has grown substantially over the last five years. The managing director, who appointed you, believes that your appointment and the establishment of an internal audit department will assist her to better improve control in this fast growing company. After your first few weeks, the internal audit department is slowly shaping up, and you are planning to present a workshop for all the departments of the organisation to introduce the internal audit department and explain its workings. In your presentation you must discuss the following topics. As part of your workshop presentation for Data Magic (Pty) Limited, describe ten (10) advantages of having an internal audit function within the organisation.Show the full question

  26. Question 5.2 · Definition, role and responsibilities of internal audit · 7 marks

    You have recently been appointed as the chief audit executive (CAE) of a newly formed internal audit division at Data Magic (Pty) Limited, a company specialising in software training that has grown substantially over the last five years. The managing director, who appointed you, believes that your appointment and the establishment of an internal audit department will assist her to better improve control in this fast growing company. After your first few weeks, the internal audit department is slowly shaping up, and you are planning to present a workshop for all the departments of the organisation to introduce the internal audit department and explain its workings. In your presentation you must discuss the following topics. Bearing in mind that an internal auditor also acts as an adviser within the organisation, give seven (7) examples of how the internal audit function at Data Magic (Pty) Limited can assist management.Show the full question

  27. Question 5.3 · Definition, role and responsibilities of internal audit · 5 marks

    You have recently been appointed as the chief audit executive (CAE) of a newly formed internal audit division at Data Magic (Pty) Limited, a company specialising in software training that has grown substantially over the last five years. The managing director, who appointed you, believes that your appointment and the establishment of an internal audit department will assist her to better improve control in this fast growing company. After your first few weeks, the internal audit department is slowly shaping up, and you are planning to present a workshop for all the departments of the organisation to introduce the internal audit department and explain its workings. In your presentation you must discuss the following topics. Explain the aspects that should be included in the internal audit charter of Data Magic (Pty) Limited in order to grant the internal audit function the necessary authority.Show the full question

  28. Question 5.4 · Definition, role and responsibilities of internal audit · 5 marks

    You have recently been appointed as the chief audit executive (CAE) of a newly formed internal audit division at Data Magic (Pty) Limited, a company specialising in software training that has grown substantially over the last five years. The managing director, who appointed you, believes that your appointment and the establishment of an internal audit department will assist her to better improve control in this fast growing company. After your first few weeks, the internal audit department is slowly shaping up, and you are planning to present a workshop for all the departments of the organisation to introduce the internal audit department and explain its workings. In your presentation you must discuss the following topics. List five (5) responsibilities of the internal audit activity at Data Magic (Pty) Limited, as set out in the internal audit charter.Show the full question

  29. Question 5.5 · Definition, role and responsibilities of internal audit · 5 marks

    You have recently been appointed as the chief audit executive (CAE) of a newly formed internal audit division at Data Magic (Pty) Limited, a company specialising in software training that has grown substantially over the last five years. The managing director, who appointed you, believes that your appointment and the establishment of an internal audit department will assist her to better improve control in this fast growing company. After your first few weeks, the internal audit department is slowly shaping up, and you are planning to present a workshop for all the departments of the organisation to introduce the internal audit department and explain its workings. In your presentation you must discuss the following topics. List five (5) practices that would enhance a good working relationship between the audit committee and the internal audit activity at Data Magic (Pty) Limited.Show the full question

  30. Question 5.6 · Definition, role and responsibilities of internal audit · 5 marks

    You have recently been appointed as the chief audit executive (CAE) of a newly formed internal audit division at Data Magic (Pty) Limited, a company specialising in software training that has grown substantially over the last five years. The managing director, who appointed you, believes that your appointment and the establishment of an internal audit department will assist her to better improve control in this fast growing company. After your first few weeks, the internal audit department is slowly shaping up, and you are planning to present a workshop for all the departments of the organisation to introduce the internal audit department and explain its workings. In your presentation you must discuss the following topics. Mention five (5) actions which can contribute to good co-operation and co-ordination between the internal auditors and the external auditors at Data Magic (Pty) Limited.Show the full question

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