THIS PAPER CONSISTS OF EIGHT (8) PAGES.

QUESTION MAIN TOPIC MARKS

1 Multiple-choice questions 18

2 Internal control and audit procedures 10

3 Internal audit administration 20

4 Code of ethics 15

5 External auditing 37
100

NOTE

Although the primary purpose of the examination is to test the candidates knowledge and
ability to apply the subject matter, the examiners will also take into consideration his or her
ability to organise and present this knowledge in acceptable, written English.

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ADDITIONAL EXAM MAY/JUNE 2017

QUESTION 1 18 marks

REQUIRED

For each subsection of this question, select only one alternative that you consider to be the
most correct alternative. Then write down, as your answer, the number of the subsection
and the letter that precedes your selected alternative. Answer the subsections of this
question in numerical sequence, for example:

1.1 A
1.2 B

Each question counts for 1 marks.

1.1 Within the context of internal auditing, assurance services are best defined as?

A Objective examinations of evidence for the purpose of providing independent

assessments.

B Advisory services intended to add value and improve an organisations operations.

C Professional activities that measure and communicate financial and business data.

D Objective evaluations of compliance with policies, plans procedures, law and

regulations.

1.2 AVF Ltds new chief financial officer (CFO) has asked the companys chief audit
executive (CAE) to meet with him to discuss the role of the internal audit activity. Which
one of the following is the overall responsibility of the internal audit activity?

A Serve as an independent assurance and advisory activity designed to add value and
improve the companys operations.

B Assess the companys methods for safeguarding its assets and as appropriate verify
the existence of the assets.

C Review the integrity of financial and operating information and the methods used to
accumulate and report information.

D Determine whether the companys system of internal controls provide reasonable

assurance that information is effectively and efficiently communicated to management.

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ADDITIONAL EXAM MAY/JUNE 2017

1.3 Internal auditors must have competent interpersonal skills. Which one of the following
does not represent an attribute of interpersonal skills?

A Communication.

B Leadership.

C Project management.

D Team capabilities.

1.4 While planning an internal audit, the internal auditor obtains knowledge about the
auditee to, among other things?

A Develop an attitude of professional scepticism about managements assertions.

B Develop an understanding of the auditees objectives and risks.

C Make constructive suggestions to management concerning internal control

improvements.

D Evaluate whether misstatements in the auditees performance reports should be

communicated to senior management and the audit committee.

1.5 An internal auditor provides income tax services during the tax season. For which one
of the following activities would the auditor most likely be considered in violation of the
IIAs Code of Ethics?

A Preparing, for a fee, a division managers personal tax returns.

B Appearing on a local radio show to discuss retirement planning and tax issues.

C Receiving a token of appreciation for teaching an evening tax class at the local high
school.

D Working on weekends for a friend who has a small accounting firm.

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ADDITIONAL EXAM MAY/JUNE 2017

1.6 Which one of the following is required of the internal audit activity as per the IIA
Standards?

A Evaluate annually the effectiveness of the audit committee.

B Issue annually an overall opinion on the adequacy of the organisations system of

internal control.

C Obtain an annual representation from management acknowledging managements

responsibility for the design and implementation of internal controls to prevent illegal
acts.

D Assess whether the information technology governance of the organisation sustains

and supports the organisations strategies and objectives.

1.7 Which one of the following is not an appropriate governance role for an organisations
board of directors?

A Evaluating and approving strategic objectives.

B Influencing the organisations risk-taking philosophy.

C Providing assurance directly to third parties that the organisations governance

processes are effective.

D Establishing broad boundaries of conduct, outside of which the organisation should not
operate.

1.8 Which one of the following alternatives is not an internal audit procedure?

A Recalculating the depreciation of fixed assets.

B Verifying that there are two signatures of senior officials on all cheques.

C Recommending improvements for the internal control system.

D Observing the daily clocking in of employees.

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ADDITIONAL EXAM MAY/JUNE 2017

1.9 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.
He then examines the detailed receipts of sales representatives who have high daily
averages. These audit procedures represent the use of which of the following types of
audit evidence?

A Physical and oral evidence.

B Analytical and documentary evidence.

C Analytical and physical evidence.

D Documentary and physical evidence.

1.10 An element of authority attributed to the internal audit activity that should be included
in its charter is the...

A establishment of the internal audit activitys position within the organisation.

B identification of the organisational units where internal audit engagements must be

performed and the frequency of such engagements.

C identification of the different types of disclosures that must be made to the audit
committee.

D access to the external auditors working papers and engagement letter.

1.11 An adequate system of internal controls is most likely to detect a fraud perpetrated by
which one of the following?

A Group of employees in collusion.

B Single employee.

C Group of managers in collusion.

D Single manager.

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ADDITIONAL EXAM MAY/JUNE 2017

1.12 Which one of the following most completely describes the appropriate content of
internal audit assurance engagement working paper?

A Objectives, procedures and conclusions.

B Purpose, criteria, techniques and conclusions.

C Objectives, procedures, facts, conclusions and recommendations.

D Subject, purpose, sampling technique, and analysis.

[Source: Internal Auditing: Assurance & Consulting Services, Reding et al]

QUESTION 2 10 marks

You have just been promoted to senior internal auditor, and your new responsibilities
include providing training to internal audit trainees. As you go through the training file that
was used by your predecessor you come across a comprehensive list of possible control
activities that can be performed in an organisation. The list includes the following control
activities, which are used to illustrate the different types of controls, namely preventive,
detective and directive controls:

0 High-value stock items are locked in a safe.

1 The line manager reviews and signs all leave forms before employees go on leave.
2 The accounting clerk performs bank reconciliations monthly.
3 Employees use passwords to log onto their computers.
4 The finance departments activities are guided by a comprehensive procedures manual.

REQUIRED

For each of the control activities listed in the scenario above, indicate which type of control
it represents and also for each control activity, describe an audit procedure (test of control)
that may be used to determine whether the control is working as intended.

Your answer should be structured as follows: Note: Number 0 above is used as an example
of how you should answer this question and does not carry any marks. (10)

Control Type of control Audit procedure

activity (1 mark) (1 marks)

0 Preventive Observe that high value stock

items are stored in
a safe and the safe is locked at all times.

1 xxx xxx

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ADDITIONAL EXAM MAY/JUNE 2017

QUESTION 3 20 marks

You have recently been appointed as the chief audit executive (CAE) of a newly formed
internal audit division at Data Magic (Pty) Limited. The company specialises in software
training and has grown substantially over the last five years. During your review of the internal
auditing documents, you see that the internal audit charter states that the CAE reports to the
audit committee.

REQUIRED

3.1 Discuss the advantages and disadvantages of reporting to the audit committee.
(4)

3.2 According to the Institute of Internal Auditors (IIA) Standards, recommend the type of
reporting preferred for independence purposes. (2)

3.3 List seven (7) that would enhance good relationships between the audit
committee and the internal audit activity. (7)

3.4 Discuss the responsibilities of the internal audit activity as per its charter. (7)

QUESTION 4 15 marks

You are the chief audit executive (CAE) of the internal auditing department at Mountaineer
Limited. During an internal audit staff evaluation, you received the following information:

1. Dice Moloi, a manager in the internal auditing department received a BMW 318i from
one of Mountaineer Ltds main debtors as a gift. (3)

2. Peter Nkabinde, a new staff member in the internal auditing department, has been
assigned by Dice Moloi to audit the production department. The production
department is one of the largest departments in the company. Peter has only recently
graduated from UNISA after full time studies. (4)

3. John Bergire, a junior internal auditing staff member, discussed with his friends the
incidence of fraud he discovered during his audit of the companys debtors. (4)

4. Susan Cleal, an internal auditing staff member, refused to assist the external auditors
in the performance of their duties. (4)

REQUIRED

Explain with, reference to the IIA Code of Ethics whether or not each of the scenarios
above, is permissible within the internal auditing professions Code of Ethics.

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ADDITIONAL EXAM MAY/JUNE 2017

QUESTION 5 37 marks

Thabo Khumalo has been an external auditor with an accounting firm for over ten (10)
years. Thabo is contemplating changing his career to internal auditing, since there are
so many similarities between external and internal auditing. However, Thabo approaches
you for advice before making a final decision.

REQUIRED

In order to assist Thabo with his decision:

5.1 List e i g h t (8) differences between internal and external auditing. Your answer
should be in the following format. (16)

Factor Internal audit External audit

5.2 List ten (10) personal characteristics that can assist an internal auditor to effectively
discharge his or her internal auditing duties. (5)

5.3 Briefly describe the following concepts to Thabo:

a) risk
b) control
c) governance (6)

5.4 An internal auditor is also an adviser in the organisation. Give seven (7) examples
of how internal audit can assist management. (7)

5.5 List three (3) actions which can contribute to good co-ordination and co-operation
between the internal and external audits. (3)
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UNISA 2017