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AUI3702/101/3/2016

Tutorial Letter 101/3/2016

THE INTERNAL AUDIT PROCESS: TEST


OF CONTROLS

AUI3702

Semesters 1 & 2

Department of Auditing

IMPORTANT INFORMATION:

Activate your myLife e-mail address and ensure you have regular access to the
myUnisa module site for AUI3702 since this is a fully online module.

Note: This is an online module, and therefore your module is available on


myUnisa. However, in order to support you in your learning process, you will also
receive some study materials in printed format.
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CONTENTS PAGE

1. INTRODUCTION ................................................................................................................. 4
1.1 To get started on myUnisa ................................................................................................ 4

2. PURPOSE ........................................................................................................................... 4
2.1 Purpose .............................................................................................................................. 4

2.2 Outcomes ......................................................................................................................... 4

3. CONTACT DETAILS ........................................................................................................... 5


3.1 Lecturer .............................................................................................................................. 5

3.2 Department ........................................................................................................................ 5

3.3 College ............................................................................................................................... 5

3.4 University ........................................................................................................................... 6

3.5 Library ................................................................................................................................ 6

4. RESOURCES ...................................................................................................................... 8
4.1 Prescribed books .............................................................................................................. 8

4.2 Recommended books ....................................................................................................... 8

4.3 Joining myUnisa ................................................................................................................ 8

4.4 Other resources – printed support materials .................................................................. 9

5. HOW TO STUDY THIS MODULE ONLINE ......................................................................... 9


5.1 What does it means to study fully online? ...................................................................... 9

5.2 The myUnisa options you will use ................................................................................. 10

6. PRACTICAL WORK AND WORK-INTEGRATED LEARNING ......................................... 10


7. ASSESSMENT .................................................................................................................. 10
7.1 Assessment plan ............................................................................................................. 10

7.1.1 Assignments ...................................................................................................................... 10

7.1.2 Commentaries and feedback on assignments ................................................................... 11

7.1.3 Due dates for assignments ................................................................................................ 11

7.1.4 Submission of assignments ............................................................................................... 11

7.2 Year mark ......................................................................................................................... 12

7.2.1 Your year mark .................................................................................................................. 12

7.3 The examination .............................................................................................................. 13

Semester 1: Compulsory Assignment 01 ...................................................................................... 14


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Semester 1: Assignment 02 .......................................................................................................... 20

Semester 2: Compulsory Assignment 01 ...................................................................................... 28

Semester 2: Compulsory Assignment 02 ...................................................................................... 34

8. CONCLUSION .................................................................................................................. 42
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1. INTRODUCTION

Dear Student

Greetings to you and welcome to AUI3702.

We welcome you as an AUI3702 student in the Department of Auditing. As your lecturers,


we are always available and will gladly assist you in your studies. Be assured of our
willingness to support you with advice during your studies.

Because this is a fully online module, you need to use myUnisa to study and complete the
learning activities for this course. You need to visit the websites on myUnisa for AUI3702
frequently. The website for your module is AUI3702-16-S1/S2.

1.1 To get started on myUnisa

Because this is a fully online module, you need to go online to see your study materials
and read what to do for the module. Go to: https://my.unisa.ac.za and login with your
student number and password. You will see AUI3702-16-S1/S2 in the row of modules in
the orange blocks across the top of the webpage. Remember to also check in the More
option if you cannot find it in the orange blocks. Click on the module you want to open.

In addition, you will receive this tutorial letter and a printed copy of the online study
materials from your module. While these printed materials may appear to be different from
the online study materials, they are exactly the same and have been copied from the
online myUnisa website.

We wish you success on your journey!

2. PURPOSE

2.1 Purpose

The purpose of the module is to enable the students to demonstrate detailed knowledge,
specific skills and applied competency in managing the internal audit activity.

2.2 Outcomes

There are specific module outcomes, which are as follows:

 Specific outcome 1: Adhere to the International Professional Practices Framework


(IPPF) of Internal Auditing when conducting tests of controls
 Specific outcome 2: Consider the significant factors impacting on conducting of
tests of controls
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 Specific outcome 3: Ability to develop applicable tests of control


 Specific outcome 4: Ability to develop audit findings and recommendations

3. CONTACT DETAILS

3.1 Lecturer

The primary lecturer for this module is Mrs S Jaffer

Department: Auditing
Telephone: 012 429 8591
E-mail: ejaffes1@unisa.ac.za

The course coordinator for this module is Mrs BM van Wyk.


Department: AuditingTelephone: 012 429 4712
E-mail: vwykbm@unisa.ac.za

NOTE: If you want to see the lecturer, make an appointment well in advance.

Always have your student number and module code ready when you contact the
University!!!

3.2 Department

Department of Auditing:
If you wish to write to us, address letters to:

The module leader: AUI3702


Department of Auditing
PO Box 392
Unisa
0003

Secretary:
Telephone: +2712 429 4707

Departmental web page:


http://www.unisa.ac.za/Default.asp?Cmd=ViewContent&ContentID=194

3.3 College

Direct all College related undergraduate enquiries to: +2712 429 2233/2982 or
Casenquiries-undergraduate@unisa.ac.za
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3.4 University

To contact the University, follow the instructions contained in the brochure, my Studies @
Unisa. Remember to have your student number available when you contact the University.

When you contact the lecturer, do not forget to always include your student number. This
will help the lecturers to confirm your details and help you.

Ensure that you contact the correct section or department for each enquiry as this
will result in a speedy resolution of the enquiry.

The following are e-mail addresses of sections or departments you can send your

enquiries:

 info@unisa.ac.za for general enquiries


 study-info@unisa.ac.za for application and registration-related enquiries
(prospective and registered students)
 international@unisa.ac.za for international students (registration-related enquiries)
 assign@unisa.ac.za for assignment enquiries
 exams@unisa.ac.za for examination enquiries
 despatch@unisa.ac.za for study material enquiries
 finan@unisa.ac.za for student account enquiries
 gaudeamus@unisa.ac.za for graduation enquiries
 myUnisaHelp@unisa.ac.za for assistance with myUnisa
 myLifeHelp@unisa.ac.za for assistance with myLife e-mail accounts
 aegrotats@unisa.ac.za for aegrotat exams
 remark@unisa.ac.za for remarking of papers
 recheck@unisa.ac.za for rechecking of papers
 condiscipuli@unisa.ac.za for fellow student names
 counselling@unisa.ac.za for student counselling and career development
 vospresc@unisa.ac.za for enquiries about prescribed books

3.5 Library

The my Studies @ Unisa brochure, which is part of your registration package, lists all the
services offered by the Unisa library.

General library catalogue enquiries bib-oasis@unisa.ac.za


Library web co-coordinator bib-web@unisa.ac.za
Inter-library loans enquiries libr-ill@unisa.ac.za
Enquiries about subject databases bib-dbase@unisa.ac.za
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Library information desk bib-help@unisa.ac.za


Enquiries about training presented
by the library bib-oplei@unisa.ac.za
Send a question to the library staff bibrefq@unisa.ac.za

SMS numbers:

Send an SMS to 32695 for more information on how to contact Unisa via SMS (only for
students within the borders of South Africa). Students will receive an auto-response SMS
with the various SMS options. Standard SMS rates apply.

Students can also SMS enquiries directly to:


43578 for applications and registrations*
43584 for assignments*
43584 for examinations*
43579 for study material*
31954 for student accounts*
43582 for myUnisa and myLife*

* The SMS number is only for students residing in South Africa. International students are
urged to make use of the e-mail address: info@unisa.ac.za.

Online address http://my.unisa.ac.za


Unisa website http://www.unisa.ac.za

Other means of contacting the University are:


Physical address
University of South Africa
Preller Street
Muckleneuk
Pretoria
City of Tshwane

Postal address
University of South Africa
PO Box 392
Unisa
0003

NB: Lecturers cannot assist you with registration, payments, module codes,
examinations and so on. These are administrative issues which you should direct to
the relevant sections or departments.
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4. RESOURCES

For library service request procedures, consult my Studies @ Unisa brochure.

4.1 Prescribed books

This year’s prescribed textbooks for this module are:



 Jackson, RDC & Stent, WJ. 2012. Auditing notes for South African students. Latest
edition. Durban: LexisNexis.
 Gowar, H. 2016. Graded questions on auditing 2016. Latest edition. Durban:
LexisNexis
 Auditing: Legislation and standards. 2012. Latest edition. Durban: LexisNexis.
 Reding, KF, Sobel, PJ, Anderson, UL, Head, MJ, Ramamoorti, S, Salamasic, M &
Riddle, C. 2013. Internal auditing: Assurance & advisory services. 3rd edition

Consult the list of official booksellers and their addresses listed in my Studies @ Unisa.

Note:

It is essential that you either acquire or have the prescribed textbooks at your disposal.

We recommend that you purchase the prescribed books as you will have to study it
thoroughly and refer to it frequently. We suggest that you try to obtain the book as
soon as possible.

4.2 Recommended books

It is important to note that as a student it is your responsibility to enrich your studies by


reading as extensively as possible and to use other sources to supplement the prescribed
textbook. Periodical articles can also be used as sources of information when answering
your assignment and examination questions. Please remember to always acknowledge
your information sources.

4.3 Joining myUnisa

If you have access to a computer that is linked to the internet, you can quickly access
resources and information at the University. The myUnisa learning management system is
Unisa’s online campus that will help you to communicate with your lecturers, with other
students and with the administrative departments of Unisa – all through the computer and
the internet.

You can start at the main Unisa website, http://www.unisa.ac.za, and then click on the
myUnisa orange block. This will take you to the myUnisa website. To go to the myUnisa
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website directly, go to https://my.unisa.ac.za. When you are on the myUnisa website click
on the “Claim UNISA Login” at the right-hand side of the screen. You will then be
prompted to give your student number to claim your initial myUnisa as well as myLife login
details.

Consult the my Studies @ Unisa brochure, which you received with your study material for
more information on myUnisa.

4.4 Other resources – printed support materials

Because we want you to be successful in this online module, we also provide you with
some of the study materials in printed format. This will allow you to read the study
materials, even if you are not online.

 These printed study materials will be sent to you at the beginning of the semester,
but you do not have to wait to receive them to start studying – You can go online as
soon as you register and all your study materials will be there.
 Therefore, the printed materials are not something that you need to wait for before
you start with the module. It is only an offline copy of the formal content for the
online module.
 This will give you the chance to do a lot of the studying of this module WITHOUT
having to go to the internet or to an internet cafe. This will save you money, of
course, and you will be able to take as much time as you need to read -- and to re-
read -- the materials and do the activities.

It is therefore very important that you log into myUnisa regularly. We recommend that you
should do this at least every week or every 10 days to check for the following:

 Check for new Announcements. You can also set up your myLife e-mail so that
you receive the Announcement e-mails on your cellphone.
 Do the Discussion forum activities. For every learning unit in this module, we
want you to share with the other people in your group in the activities. You can read
the instructions here, and even prepare your answers but you need to go online to
post your messages.

Remember, the printed support materials are a back-up to everything that is found online,
on myUnisa. There are no extra things there. In other words, you should NOT wait for
the printed support materials to arrive to start studying.

5. HOW TO STUDY THIS MODULE ONLINE

5.1 What does it means to study fully online?

These modules are taught fully online – this means that it is totally different from some of
your other modules at Unisa.
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 This means that all your study materials and learning activities are designed
to be online on myUnisa. Even though we give you a printed copy to support your
studies, the module is designed for online.
 This means that you must submit all of your assignments online. It means that
you do all your activities and submit all your assignment on myUnisa. In other
words, you can NOT send your assignments through the South African Postal
Service.
 This means that all of the communication between yourself and the university
also happens online – by e-mail, discussions, and questions and answers. You
can use all of these ways to ask questions and contact your lecturers. This also
means that your lecturers will communicate with you in the same way – through e-
mails, announcements, discussions, and questions and answers.

5.2 The myUnisa options you will use

All of the information about myUnisa options is located on the myUnisa website for this
module. However, we thought it was important to stress the options that will be used for
your formal Assignments.

 Assignments: The assignments which are not done in Discussions are what we
call written assignments. They require you to type the written assignment in a Word
document and submit it online in the same manner you submit all other
assignments online. The assignments will be routed to your lecturer who will mark
them. You may be given a form to fill in or type a document, but it depends on the
assignment. You should submit these typed assignments using the online
Assignments option on myUnisa, as a pdf document. The instructions for
submitting these assignments are in learning unit 0.

6. PRACTICAL WORK AND WORK-INTEGRATED LEARNING

There is no practical work for this module.

7. ASSESSMENT

7.1 Assessment plan

Here is a break-down of the assignments, as they occur in the semester.

7.1.1 Assignments

Assignments are seen as part of the study material for this module. As you do the
assignments, study the reading texts, consult other resources, discuss the work with fellow
students or tutors or do research, you are actively engaged in learning.
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The marks you obtain for Assignment 01 and Assignment 02 will contribute towards your
year mark.

7.1.2 Commentaries and feedback on assignments

The solution to Assignment 01 will be provided to you in Tutorial Letter 201, which will only
be distributed after the due date of Assignment 01. The solution to Assignment 02 will be
sent to you in Tutorial Letter 202, which will only be distributed after the due date of
Assignment 02.

As soon as you have received the solutions and commentaries, please check your
answers. The assignments and the commentaries on these assignments constitute an
important part of your learning and should help you to be better prepared for the next
assignment and the examination.

Assignments are numbered consecutively per module, starting from 01. Only Arabic
numerals are used, for example: Assignments 01, 02, 03 and so on.

In addition to the general assignment number (e.g. 01), each assignment has its own
unique assignment number (e.g. 102717). You must write this number on the mark-
reading sheet or assignment cover page in the designated area.

7.1.3 Due dates for assignments

Assignment FIRST SEMESTER SECOND SEMESTER


Due date if you are registered Due date if you are
for the first semester registered for the second
semester

Assignment 01 14 March 2016 15 August 2016


(Compulsory) Unique number: 797606 Unique number: 830697

Assignment 02 15 April 2016 09 September 2016


(Compulsory) Unique number: 691067 Unique number: 789808

7.1.4 Submission of assignments

Note: Assignment 02 can only be submitted in pdf format on myUnisa.


To submit an assignment via myUnisa:

 Go to myUnisa.
 Log in with your student number and password.
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 Select the module from the orange bar.


 Click on assignments in the left-hand menu.
 Click on the assignment number you want to submit.
 Follow the instructions on the screen.

Ensure that your Assignment 01 reaches the University before the due date – late
submission of Assignment 01 will result in you not being admitted to the
examination.

NOTE: You must submit Assignment 01 in order to be admitted to the examination.


Also, you should submit both Assignments 01 and 02 for purposes of determining
your year mark. No extension of the due dates can be given by the lecturers for
these assignments.

7.2 Year mark

7.2.1 Your year mark

 Weighting in the module: Year mark and examination

The marks that you obtained for Assignment 01 and Assignment 02 will contribute towards
your year mark for the module.

Your year mark contributes 20% towards your final examination mark. A student requires a
final mark of 50% to pass a module. The final mark is calculated as follows:

 10% x mark obtained for compulsory Assignment 01 plus

 10% x mark obtained for compulsory Assignment 02 plus

 80% x mark obtained in the examination (sub-minimum of 40%)

The sub-minimum of 40% implies that if you obtain a mark of less than 40% in the
examination, your year mark will not be taken into account.

Please ensure that your Assignment 01 and Assignment 02 reach the university before
the due date – late submission of these assignments will result in you not receiving
marks that count towards your year mark.

Thus:

 To gain admission to the examination, you must submit both assignments


before or on the due date.
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 Your marks for both Assignments 01 and 02 will be used to determine your
year mark.

7.3 The examination

7.3.1 Examination period

This module is offered in both semesters. This means that if you are registered for the first
semester, you will write the examination in May/June 2016 and the supplementary
examination will be written in October/November 2016. If you are registered for the
second semester you will write the examination in October/November 2016 and the
supplementary examination will be written in May/June 2017.

During the semester, the examination section will provide you with information regarding
the examination in general, examination venues, examination dates and examination
times.

7.3.2 Previous examination papers

Previous examination papers are available to students on myUnisa. Suggested solutions


are not provided. However, you may accept that the type of questions that will be asked in
the examination will be similar to those found in your study material.

Use the my studies @ Unisa brochure for general guidance for the examination and for
your examination preparation.
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Assignments

Semester 1: Compulsory Assignment 01

ASSIGNMENT 01: MULTIPLE-CHOICE QUESTIONS (COMPULSORY)

UNIQUE ASSIGNMENT NUMBER: 797606

DUE DATE: 14 March 2016

Instructions:

(1) Write the correct unique assignment number in the six blocks provided on the mark-
reading sheet.

(2) Write the ordinary assignment number (01) in the two blocks provided on the mark-
reading sheet.

(3) Consult my Studies @ Unisa for an example of how you should fill in a computer
mark-reading sheet.

(4) If you do not follow these instructions, the computer will reject your answer sheet and
it will be returned to you unmarked. Also consult my Studies @ Unisa when you
answer multiple-choice assignments.

Special instructions regarding the answering of this assignment

(1) This assignment consists of 20 multiple-choice questions.

(2) This assignment covers topics 1–4 of the study guide.

Question 1
20 marks

Required:

Select for each question only ONE option that you consider to be the most correct and
then mark on myUnisa or on the mark-reading sheet the digit that corresponds to the digit
of the option which you have selected as your answer. Answer the sub-sections of this
question in numerical sequence, for example, as follows:

1. 1
2. 3
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(1 mark per question)

1.1 Which one of the following is not a component of the International Professional
Practices Framework (IPPF)?

1. The definition of internal auditing


2. Internal audit methodology
3. The International Standards for the Professional Practice of Internal Auditing
4. The Code of Ethics

1.2 Risk management is the responsibility of management. The role of the internal audit
activity in the risk management process may include which of the following?

1. Evaluating the risk management process as part of the engagement plan.


2. Appointing consultants to assist the management with the risk management
process.
3. Managing the risk management process.
4. All of the above.

1.3 Adequate internal controls are most likely to be present in an organisation where…

1. management has planned and organised in a manner which provides


reasonable assurance that the organisation’s objectives and goals will be
achieved efficiently and economically.
2. management has exercised due professional care in the design of operating and
functional systems.
3. operating and functional systems are designed, installed and implemented in
compliance with applicable laws.
4. management has designed, installed and implemented efficient operating and
functional systems.

1.4 Which one of the following options is not an example of a detective control?

1. Review of exception reports


2. Smoke detectors
3. Insurance
4. Physical stock counts

1.5 Which of the following principles does not form part of the Institute of Internal
Auditors (IIA) Code of Ethics?

1. Integrity
2. Confidentiality
3. Compliance
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4. Competency

1.6 What kind of audit evidence is obtained from reviewing a signed purchase order?

1. Documentary evidence
2. Primary evidence
3. Secondary evidence
4. Hearsay evidence

1.7 Which one of the following alternatives would constitute a violation of the Institute of
Internal Auditors (IIA) Code of Ethics?

1. Janice accepted an assignment to audit the electronic manufacturing division.


Janice has recently joined the internal auditing department. She worked as a
senior auditor for an external auditing firm and audited many electronic
companies during the past two years.
2. George has been assigned to do an internal audit of the warehousing function
six months from now. George has no experience in that area but decides to
accept the assignment anyway. He has signed up for continuing education
course in warehousing, which he will complete before his assignment
commences.
3. Jane is content with her career as an internal auditor and has come to look at it
as a regular 8-to-5 job. She has not engaged in continuing professional
education or other activities to improve her effectiveness during the last three
years. However, she feels that she is delivering the same quality work she has
always delivered.
4. John discovered internal financial fraud during the year. The accounting books
were adjusted to properly reflect the loss associated with the fraud. John
discovered the fraud with the external auditor when the external auditor
reviewed the working papers detailing the incident.

1.8 A major reason for establishing an internal audit activity is to …

1. relieve overburdened management of the responsibility for establishing effective


controls.
2. safeguard resources entrusted to the organisation.
3. ensure the reliability and integrity of financial and operational information.
4. evaluate and improve the effectiveness of control processes.

1.9 Which of the following activities is not presumed to impair the objectivity of an
internal auditor?

i. Recommending standards of control for a new information system application.


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ii. Drafting procedures for running a new computer application to ensure that
proper controls are installed.
iii. Performing reviews of procedures for a new computer application before it is
installed.

1. i only.
2. ii only.
3. iii only.
4. i and iii.

1.10 Which of the following is most likely an internal audit role in a less structured
governance process?

1. Designing specific governance processes.


2. Playing a consulting role in optimising governance practices and structure.
3. Providing advice about basic risks to the organisation.
4. Evaluating the effectiveness of specific governance processes.

1.11 When assessing a risk associated with an entity, an internal auditor should do which
one of the following?

1. Determine how the risk should best be managed.


2. Provide assurance on the management of the risk.
3. Update the risk management based on risk exposures.
4. Design controls to mitigate the identified risks.

1.12 Controls should be designed to ensure which one of the following?

1. Operations are performed efficiently.


2. Management’s plans have not been circumvented by worker collusion.
3. The internal audit activity’s guidance and oversight of management’s
performance is accomplished economically and efficiently.
4. Management’s planning, organising and directing processes are properly
evaluated.

1.13 Which risk response reflects a change from acceptance to sharing?

1. An insurance policy on a manufacturing plan was not renewed.


2. Management purchased insurance on previously uninsured property.
3. Management sold a manufacturing plant.
4. After employees stole numerous inventory items, management implemented
mandatory background checks on all employees.

1.14 Cheques from customers are received in the organisation’s mail room each day.
What controls should be in place to safeguard them?
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1. Establishing a separate post office box for customer payments.


2. Forwarding all cheques to the cashier upon receipt.
3. Requiring a specific mail clerk to list and restrictively endorse each cheque.
4. Providing bonding protection for mail clerks.

1.15 One payroll engagement objective is to determine whether segregation of duties is


proper. Which of the following activities is incompatible?

1. Hiring employees and authorising changes in pay rates.


2. Preparing the payroll and filing payroll tax forms.
3. Signing and distributing payroll cheques.
4. Preparing attendance data and preparing the payroll.

1.16 In preparing a sampling plan for an inventory pricing test, which of the following
describes an advantage of statistical sampling over non-statistical sampling?

1. Requires non-quantitative expression of sample results.


2. Provides a quantitative measure of sampling risk.
3. Minimise non-sampling risk.
4. Reduces the level of tolerable error.

1.17 If all other sample size planning factors were exactly the same in attribute sampling,
changing the confidence level from 95% to 90% and changing the desired precision
from 2% to 5% would result in a revised sample size that would be …

1. larger.
2. smaller.
3. unchanged.
4. indeterminate.

1.18 An internal auditor found that the supervisor does not properly approve employee
time records in one department. Which one of the following errors can result from
this?

1. Duplicate pay cheques might be issued.


2. The wrong hourly rate could be used to calculate gross wages.
3. Employees might be paid for hours they did not work.
4. Payroll cheques might not be distributed to the appropriate payees.

1.19 Statistical sampling differs from other sampling methods in the sense that …

1. an auditor does not have to exercise professional judgement when applying


statistical sampling as he or she must when applying other sampling methods.
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2. a statistical sampling produces representative samples, whereas the other


methods do not.
3. a statistical sampling can deliver absolute assurance, which is not possible with
other sampling methods.
4. a statistical sampling is based on the theory of probability, which is not the
case with other sampling methods.

1.20 Which one of the following is the best source for an internal audit team to use in
identifying common external risks faced by a company?

1. Questionnaires
2. Current research reported in professional journals and textbooks
3. Flowcharts
4. Review lists or reminder lists

Some questions were adapted from Gleim: CIA Exam Review

---x---
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Semester 1: Assignment 02

ASSIGNMENT 02: ESSAY-TYPE QUESTIONS

UNIQUE ASSIGNMENT NUMBER: 691067

DUE DATE: 15 April 2016

Instructions:

(1) Consult my Studies @ Unisa for instructions on how to submit written


assignments.

Special instructions regarding the answering of this assignment

(1) This assignment covers the whole syllabus.


(2) You must answer all questions.
(3) Only selected questions will be marked.

 This assignment forms part of your final examination preparation and is a timely
opportunity to identify any topics that may be causing you problems.

 Make sure that you answer all the questions. Only a selection of questions will be
marked by your lecturers and the marks you receive for these questions will
constitute the mark for the assignment. No marks will be given for any questions
that have been left unanswered.

 Assess those questions that have not been marked by your lecturers on your own
by comparing your answers to the key for this assignment, which will be provided in
Tutorial Letter 202/1/2016.

 Your marks for this assignment will indicate your knowledge of the module and you
will be left with enough time to refine your knowledge before the beginning of the
examinations.

Question 1 15 marks

Required:

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

Each question counts 1½ marks.

1.1 Ordinarily, what source of information should most affect the internal auditor’s
conclusions?

A. Inquiry
B. Oral
C. Informal
D. External

1.2 Which one of the following alternatives describes a control weakness?

A. The purchasing agent invests in a publicly traded mutual fund that lists the stock
of one of the company’s suppliers in its portfolio.
B. Pre-numbered blank purchase orders are secured within the purchasing
department.
C. Normal operational purchases fall within the range of R500 to R1 000, with two
cheque signatories required for purchases over R1 000.
D. Purchasing procedures are well designed and followed unless otherwise directed
by the purchasing supervisor.

1.3 Which one of the following alternatives is an audit objective?

A. Observe the deposit of the day’s cash receipts.


B. Recompute each month’s bank reconciliations.
C. Ensure that cash receipts are adequately safeguarded.
D. Analyse the pattern of any cash shortages.

1.4 The cash receipts’ function should be separated from the related record keeping
function in an organisation in order to ...

A. physically safeguard the cash receipts.


B. prevent paying cash disbursements from the cash receipts.
C. minimise undetected misappropriations of cash receipts.
D. establish accountability when cash is first received.

1.5 A 90% confidence interval for the mean of a population based on the information in a
sample always implies that there is a 90% chance that the ...

A. true population mean lies within the specified confidence interval.


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B. estimate is equal to the true population mean.


C. true population mean is no larger than the largest end point of the interval.
D. standard deviation will not be any greater than 10% of the population mean.

1.6 The standard deviation of a sample usually decreases with ...

A. a decrease in sample size.


B. an increase in desired precision.
C. the use of stratification.
D. an increase in confidence level.

1.7 For good internal control in the revenue and receipts cycle, company policy should
clearly indicate that defective merchandise returned by customers is to be delivered
to the …

A. sales clerk.
B. goods receiving clerk.
C. inventory control clerk.
D. accounts receivable clerk.

1.8 Which one of the following analytical trends indicates the possibility of an increase in
obsolete inventory on hand?

A. A decrease in the ratio of inventory to accounts payable


B. A decrease in the ratio of inventory to accounts receivable
C. A decrease in the inventory turnover rate
D. A decrease in the ratio of gross profit to sales

1.9 Which one of the following statements is an appropriate internal audit objective?

A. To observe the physical inventory count.


B. To determine whether inventory on hand is sufficient to meet the projected sales
targets.
C. To include information about stock-out situations in the internal audit report.
D. To search for the existence of obsolete inventory by computing inventory turnover
by product line.

1.10 An internal auditor prepares income tax forms during the tax season. For which of the
following activities will the internal auditor most likely be in violation of the IIA Code of
Ethics?

A. Writing a tax guide intended for publication and sale to the general public.
B. Preparing the personal tax return, for a fee, for one of the organisation’s division
managers.
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C. Teaching an evening tax seminar, for a fee, at a local university.


D. Preparing tax returns, for elderly citizens, regardless of their associations, as a
public service.

Question 2 25 marks

You are a senior internal auditor at Ponies (Pty) Ltd, a company that manufactures and
sells horse-riding equipment. The company has been in business for many years and has
an established customer base.
The management of Ponies (Pty) Ltd now consider procuring another company, Horses
Galore (Pty) Ltd, to merge operations and expand the current product line. Horses Galore
(Pty) Ltd manufactures and sells horse-riding equipment, horse medication and vaccines.
The company imports most of its medical products and vaccines.
The management of Ponies (Pty) Ltd believes that procuring Horses Galore (Pty) Ltd
would benefit the company because this will broaden the company’s product base and
increase profits.
You have obtained the following information after a request from management to provide
them with a recommendation about whether or not the acquisition would benefit the
company:

 One of the types of racing bridle manufactured and sold by the company has been
declared illegal because it can damage the horse’s jaw.
 The company discontinued its policy of sales for cash. All sales are on credit to account
holders or by credit card to non-account holders.
 In an effort to boost sales, the company relaxed certain of its credit limits sometime
during the past year.
 Horses Galore (Pty) Ltd is currently being sued by a horse breeder. The breeder claims
that vaccine purchased from the company lead to the deaths of three horses. The total
value of the claim is R250 000,00.
 Imported veterinary products are regulated by the Veterinary Council of South Africa.
Strict regulations apply with which companies must comply.

The following financial information was obtained:

2016

R’ 000

Total sales 70 500

Cost of sales 40 600

Sales on credit 60 800

Average stock 22 500

Average outstanding debtors 34 350


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The following ratios were calculated for 2015:

Stock turnover rate 1,12 times

Average outstanding term of debtors 194,1 days

Gross profit ratio 49,65%

Required: Marks

2.1 Calculate the following ratios for Horses Galore (Pty) Ltd for 2016:
2.1.1 Stock turnover rate (3)
2.1.2 Average outstanding term of debtors (3)
2.1.3 Gross profit ratio (4)
2.2 Comment on the current year’s short-term liquidity and performance of Horses
Galore (Pty) Ltd in terms of that for 2015. (5)
2.3 Identify the risks involved for Ponies (Pty) Ltd in acquiring Horses Galore (Pty) (10)
Ltd.
Question 3 15 marks

You are a senior internal auditor at ABC Limited. In response to a special request by the
financial manager, you are required to briefly review the reasonableness of the accounts
receivable (debtors) balance at the end of June 2016. The financial manager is concerned
about the collectability of debtors after the debtors’ age analysis suddenly worsened in
May.

During your review you discover that the debtors’ statements were posted two weeks later
than usual in May as a result of a problem encountered with the information system. The
server that housed all the accounts receivable information was hit by lightning.

Owing to the volume of journals and in an attempt to ensure that the system would be able
to go live as soon as possible, the accounts receivable manager gave a blanket approval
of all the journals processed to update the system. This was contrary to company policy as
the policy requires that journals be approved by the accounts receivable manager on an
individual basis.

You have collected the following information during your audit:

The total number of disputed transactions comes to 5% of the monthly turnover.


The total debtors balance was R360 500 in May and R450 300 in June 2012.
Credit sales for May and June 2012 amounted to R1 700 000 per month.
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You also discovered that some of the payments received from debtors, while the accounts
receivable system was down, were not subsequently updated.

You have discussed the matter with the accounts receivable manager, who said that he
was aware of some of the problems. Owing to the massive backlog created by the
breakdown, his staff have been simply unable to cope with more than their current
workload.

Required: Marks

3.1 Write an internal audit report on your review of the accounts receivable
section. Your report should include recommendations you might have
regarding your audit findings. (Marks will also be given for the appropriate (15)
layout and headings)

Question 4 25 marks

You are the internal auditor responsible for auditing the sales function of Maxwell (Pty)
Limited, a company that specialises in manufacturing and installing of home security
solutions. The sale and installation of new home security solutions forms 60% of the
company’s annual revenue.

You decided to use statistical sampling to audit the company’s sales. You want to make
sure that all sales are recorded accurately and completely, and in addition that only valid
sales are recorded during the financial period. You used a computer assisted audit
technique (CAAT) program to calculate the number of transactions in the population and
also to calculate the sample size. The sales process starts with a customer placing an
order, and then a technician will visit the relevant premises and give the customer a pre-
numbered quote. After acceptance of the quote, the work begins within a week and the
customer is invoiced on completion.

Required: Mark
s
4.1 Explain why it would be to your advantage to use statistical sampling in this (3)
instance.
4.2 Based on the above information, do the following:

a. Define the three audit objectives. (4½)


b. Formulate six audit procedures based on the audit objectives identified (9)
above.
c. Describe which statistical sampling technique would be the best method
to use. Substantiate your answer. (4½)
d. Define the population. (1)
e. Describe which sample selection method should be used. Substantiate
your answer. (3)
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Question 5 20 marks

Fantasy Ltd is a toys wholesaler. The company purchases its inventory from local
companies which either manufacture or import toys. Over the last few years little attention
has been paid to the accounting and related internal control systems at Fantasty Ltd and
evidence of this has started to show. You have been asked by the financial controller to
review the company’s systems commencing with the acquisitions and payments cycle.

Ordering of goods
The ordering department consists of five order clerks and the chief order clerk, Given
Khumalo. The toys which the company sells are broken down into five product categories,
namely boardgames, arts and crafts, dolls, video games and model vehicles. Each order
clerk is allocated to a product category and is responsible for purchasing inventory for his
or her category. Given Khumalo is responsible for monitoring and analysing the toy
market, and working with the sales department in deciding which new toy lines should be
purchased.
All the company’s applications are resident on a local area network. To access the
network employees must enter their own unique user ID and password.
The inventory masterfile is divided into the five product categories. Each morning the
order clerk accesses the category for which he or she is responsible and based on the
quantity on hand according to the masterfile, decides whether to place an order. The
inventory masterfile contains details of the company’s preferred supplier and the order
clerks will normally place the order with that supplier. However, if the preferred supplier is
“out of stock” the order clerks will source the item from another supplier. If this is the case,
the order clerks will add the new supplier’s details to the inventory masterfile. A supplier
code must also be entered so that a computer generated purchase order can be printed.
To create the purchase order, the order clerk accesses the “create purchase order”
module of the acquisitions software. Access to the “create purchase order” module is
restricted to the order clerks. The order clerk then captures all the compulsory fields (the
supplier code, quantity and description of the goods to be ordered, etc.) Once all the
details have been captured, a two-part sequenced order is printed out. The order clerk
mails the top copy to the supplier and files the second copy numerically in a lever arch file.
Each order clerk’s purchase orders have their own numerical sequence. To ensure that
they do not duplicate an order once it has been placed, the order clerk updates the
inventory masterfile by entering a date in the “pending order field”.
Receiving of goods
Goods ordered by Fantasy Ltd are delivered in boxes, which display the quantity and
description of the contents on the outside of the box, for example ten Lego sets. Each
delivery is supported by a supplier delivery note, which lists the quantities and description
of the goods being delivered.
All goods delivered are directed to the “Receiving Department”, a physically secure area
attached to the warehouse. Any one of the three receiving clerks will accept a delivery.
The receiving clerk will determine the validity of the order for the goods being delivered by
entering the purchase order number (taken from the supplier delivery note) into the
computer via a terminal in the receiving department. The receiving clerk has read access
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to the purchase order file on the system. If the purchase order is valid, the words “accept
delivery” appear on the screen.
The receiving clerk then matches the number of boxes delivered and the quantity and
description of the goods as per the details recorded on the boxes, to the supplier delivery
note. If there are any discrepancies, the receiving clerk changes the delivery note
accordingly. He and the person delivering the goods will sign both the copies of the
delivery note to acknowledge the changes.
The receiving clerk then accesses the “create goods received note” module. This module
is restricted to the receiving clerks. The screen comes up formatted as a goods received
note which the receiving clerk then completes taking the information from the supplier
delivery notes. Once the goods received notes have been completed, the quantities on
the inventory masterfile are automatically updated and the date in the “pending order field”
is deleted to show that the order has been received. The receiving clerk prints out one
copy of the goods received note. This is attached to the supplier delivery note and is filed
sequentially and retained in the receiving department. (The goods received notes remain
on the system to be accessed and printed out by the creditors or accounting department
where they are matched to the supplier invoice when it arrives.)
The boxes are placed in a secure area until the warehouse packers have time to move
them into the warehouse, unpack them and place the toys on their respective shelves in
the warehouse.
Required: Marks

5.1 Identify seven weaknesses in the above system. (7)

5.2 Recommend seven (manual and automated) internal controls needed to (7)
eliminate the identified weaknesses.

5.3 From the scenario above, formulate four tests of controls for the (6)
automated controls.

---X---
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Semester 2: Compulsory Assignment 01

ASSIGNMENT 01: MULTIPLE-CHOICE QUESTIONS (COMPULSORY)

UNIQUE ASSIGNMENT NUMBER: 830697

DUE DATE: 15 August 2016

Instructions:

(1) Write the correct unique assignment number in the six blocks provided on the mark-
reading sheet.

(2) Write the ordinary assignment number (01) in the two blocks provided on the mark-
reading sheet.

(3) Consult my Studies @ Unisa for an example of how you should fill in a computer
mark-reading sheet.

(4) If you do not follow these instructions, the computer will reject your answer sheet
and it will be returned to you unmarked. Also consult my Studies @ Unisa when you
answer multiple-choice assignments.

Special instructions regarding the answering of this assignment

(1) This assignment consists of 20 multiple-choice questions.

(2) This assignment covers topics 1–4 of the study guide.

Question 1 20 marks

Required:

Select for each question only ONE option that you consider to be the most correct and
then mark on myUnisa or on the mark-reading sheet the number that corresponds to the
number of the option which you have selected as your answer. Answer the sub-sections
of this question in numerical sequence, for example, as follows:

1.1 1
1.2 3

(1 mark per question)


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1.1 The policies and procedures helping to ensure that management directives are
executed and actions are taken to address risks to the achievement of the
objectives describes …

1. control activities.
2. risk assessments.
3. control environments.
4. monitoring.

1.2 Identifying damaged and obsolete inventory is important when valuing inventory.
The best auditing procedure to discover damaged inventory included in closing
inventory is to …

1. compare the physical quantities of slow-moving items with corresponding


quantities of the previous year.
2. review management’s inventory certificate for accuracy.
3. test the overall fairness of the inventory values by comparing the
company’s inventory turnover ratio with the industry average.
4. inspect inventory during the physical inventory count.

1.3 Which one of the following options violates the objectivity principle of the Code of
Ethics?

1. The internal audit activity publishes an informative article on the organisation’s


intranet, setting out the advantages of introducing a time-management clock-in
system for the administrative staff.
2. Since everyone in the organisation is aware of the IT department’s inability to
arrange suitable back-up facilities for the financial systems of the organisation,
the internal auditor makes no mention of the fact in his report following an audit
of the general IT controls.
3. An internal audit activity appoints a chartered accountant who has recently
completed her articles with an auditing firm and assigns her to lead an audit of
control of the purchasing and implementing new IT systems.
4. While auditing controls over wage pay-outs, an auditor finds that some controls
have been circumvented. She discusses her finding of a possible fraud with the
internal audit manager in his office.

1.4 When planning an attribute sampling application, the difference between the
expected error rate and the maximum tolerable error rate is the planned …

1. skewness.
2. dispersion.
3. reliability.
4. precision.
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1.5 A specified range is based on an estimate of a population characteristic calculated


from a random sample. The probability that the range contains the true population
value is the …

1. error rate.
2. confidence level.
3. standard error of the mean.
4. lower precision limit.

1.6 Due professional care implies reasonable care and competence, not infallibility or
extraordinary performance. Thus, which of the following is unnecessary?

1. The conduct of examinations and verifications to a reasonable extent


2. The conduct of extensive examinations
3. The reasonableness assurance that compliance does exist
4. The consideration of possibility of material irregularities

1.7 In combined assurance, which of the following is not an external assurance


provider?

1. Sustainability assurance providers


2. External auditors
3. The risk management function
4. Regulators

1.8 Which one of the following activities may be performed by an internal auditor?

1. Drafting procedures for systems of control.


2. Designing systems of control.
3. Reviewing systems of control before implementation.
4. Installing systems of control.

1.9 During an audit of the receiving operations of a manufacturing organisation, an


internal auditor will be most concerned with the risk that the function has …

1. received goods that were ordered.


2. insufficient staff complement to perform all the tasks.
3. failed to detect the receipt of goods of poor quality.
4. paid inflated prices for goods from related parties.

1.10 An internal auditor is observing cash sales to determine if customers are given
written receipts. The objective of this test is to ensure that …

1. cash received equals the total of the receipts.


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2. customers are charged authorised prices.


3. cash balances are correct.
4. all cash sales are recorded.

1.11 Independence permits internal auditors to render impartial and unbiased


judgements. The best way to achieve independence is through …

1. individual knowledge and skills.


2. dual reporting relationship.
3. supervision within the organisation.
4. organisational knowledge and skills.

1.12 Which of the following is not a role of the internal audit activity in best practice
governance activities?

1. Support the board in enterprise wide risk assessment.


2. Ensure the timely implementation of audit recommendations.
3. Monitor compliance with the corporate code of conduct.
4. Discuss areas of significant risk.

1.13 Many organisations use electronic funds transfer to pay their suppliers instead of
issuing cheques. Regarding the risks associated with issuing cheques, which of the
following risk management techniques does this represent?

1. Controlling
2. Accepting
3. Transferring
4. Avoiding

1.14 An internal auditor noted that the accounts receivable department is separate from
other accounting activities. Credit is approved by a separate credit department.
Control accounts and subsidiary ledgers are balanced monthly. The accounts
receivable manager writes off delinquent accounts after one year, or sooner if a
bankruptcy or other unusual circumstances are involved. Credit memoranda are
pre-numbered and must correlate with receiving reports. Which of the following
areas could be viewed as an internal control weakness of the above organisation?

1. Writing off of delinquent accounts.


2. Approving of credit.
3. Monthly aging of receivables.
4. Handling of credit memos.

1.15 Which of the following activities performed by a payroll clerk is a control weakness
rather than a control strength?
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1. The payroll clerk has custody of the cheque signature stamp machine.
2. The payroll clerk prepares the payroll register.
3. The payroll clerk forwards the payroll register to the chief accountant for
approval.
4. The payroll clerk draws the pay cheques on a separate payroll cheque account.

1.16 Which of the following controls could be used to detect bank deposits that are
recorded but never made?

1. Establishing accountability for receipts at the earliest possible time.


2. Linking receipts to other internal accountabilities, for example collections to
either accounts receivable or sales.
3. Consolidating cash receiving points.
4. Having bank reconciliations performed by a third party.

1.17 The chief audit executive was reviewing recent reports that had recommended
additional engagements because of risk exposures to the organisation. Which of
the following represents the greatest risk and should be the next assignment?

1. Three pre-numbered receiving reports were missing.


2. There were several purchase orders issued without purchase requisitions.
3. Payment had been made for routine inventory items without a purchase order or
receiving report.
4. Several times cash receipts had been held over an extra day before depositing.

1.18 While planning an engagement, an internal auditor establishes engagement


objectives to describe what is to be accomplished. Which of the following is a key
issue to consider in developing engagement objectives?

1. The qualifications of the internal auditing staff selected for the engagement
2. Risks associated with the activities to be reviewed
3. Recommendations of the engagement client’s employees
4. The recipients of the final engagement communication

1.19 When faced with an imposed scope limitation, the chief audit executive needs to …

1. refuse to perform the engagement until the scope limitation is removed.


2. communicate the potential effects of the scope limitation to the board.
3. increase the frequency of engagements concerning the activity in question.
4. assign more experienced personnel to the engagement.

1.20 An internal auditor discovered some material inefficiencies in a purchasing function.


The purchasing manager is the internal auditor’s next-door neighbour and best
friend. In accordance with the IIA, Code of Ethics, the internal auditor should …
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1. objectively include the facts of the case in the engagement communications.


2. not report the incident because of loyalty to the friend.
3. include the facts of the case in a special communication submitted only to the
friend.
4. not report the friend unless the activity is illegal.

Some questions were adapted from Gleim: CIA Exam Review


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Semester 2: Compulsory Assignment 02

ASSIGNMENT 02: ESSAY-TYPE QUESTIONS

UNIQUE ASSIGNMENT NUMBER: 789808

DUE DATE: 09 September 2016

Instructions:
(1) Consult my Studies @ Unisa for instructions on how to submit written assignments.

Special instructions regarding the answering of this assignment

(1) This assignment covers the whole syllabus.

(2) You must answer all questions.

(3) Only selected questions will be marked.

 This assignment forms part of your final examination preparation and is a timely
opportunity to identify any topics that may be causing you problems.

 Make sure that you answer all the questions. Only a selection of questions will be
marked by your lecturers and the marks you receive for these questions will
constitute the mark for the assignment. No marks will be given for any questions
that have been left unanswered.

 Assess those questions that have not been marked by your lecturers on your own
by comparing your answers to the key for this assignment, provided in Tutorial
Letter 202/2/2016.

 Your marks for this assignment will indicate your knowledge of the module and you
will be left with enough time to refine your knowledge before the beginning of the
examinations.

Question 1 15 marks

Required:

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

1.1 A
1.2 B

Each question counts 1½ marks.

1.1 During an engagement to evaluate the organisation’s accounts payable function, an


internal auditor plans to confirm balances with suppliers. What is the source of
authority for such contacts with units outside the organisation?

A. The internal audit activity policies and procedures


B. The Standards
C. The Code of Ethics
D. The internal audit activity’s charter

1.2 Objectivity is most likely impaired by an internal auditor’s …

A. continuation on an engagement at a division for which he or she will soon be


responsible as the result of a promotion.
B. reduction of the scope of an engagement due to budget restrictions.
C. participation on a task force that recommends standards for control of a new
distribution system.
D. review of a purchasing agent’s contract drafts prior to their execution.

1.3 A chief audit executive may use risk analysis to prepare work schedules. Which of
the following is not considered in performing a risk analysis?

A. Issues relating to organisational governance


B. Skills available on the internal audit staff
C. Results of prior engagement
D. Major operating changes

1.4 Which of the following is not implied by the definition of control?

A. Measurement of progress towards goals


B. Uncovering of deviations from plans
C. Assignment of responsibility for deviations
D. Indication of the need for corrective action

1.5 The function of the chief risk officer (CRO) is most effective when the CRO …

A. manages risk as a member of senior management.


B. shares the management of risk with line management.
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C. shares the management of risk with the chief audit executive.


D. monitors risk as part of the enterprise risk management team.

1.6 An adequate system of internal controls is most likely to detect a fraud perpetrated
by a …

A. group of employees in collusion.


B. single employee.
C. group of managers in collusion.
D. single manager.

1.7 The use of incorrect audit procedures in a sample for a given internal audit objective
is an example of ...

A. alpha risk.
B. sampling risk.
C. non-sampling risk.
D. beta risk.

1.8 An internal auditor is observing cash sales to determine if customers are given
written receipts. The objective of this test is to ensure that ...

A. cash received equals the total of the receipts.


B. customers are charged authorised prices.
C. cash balances are correct.
D. all cash sales are recorded.

1.9 In a sampling application, the group of items about which the auditor wants to
estimate some characteristic is called the ...

A. attribute of interest.
B. population.
C. sample.
D. sampling unit.

1.10 An internal auditor has set an engagement objective of identifying the existence of
personality conflicts that are detrimental to productivity. Which of the following
engagement techniques will best meet this objective?

A. Inspection of documents
B. Observation
C. Inquiry
D. Analytical review
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Question 2 15 marks

You are a manager at Electra (Pty) Ltd. You have been asked to present at an internal
audit training session to the internal auditors in your organisation. The topic for the training
session is “Identifying risks and formulation of tests of controls”.
The following table contains internal controls for different cycles:

Cycle Internal control

1 Revenue and The credit controller signs the internal sales order (ISO) after
receipts checking that the customer’s credit status is satisfactory.

2 Revenue and The security guard agrees that all the goods to be delivered,
receipts appear on the delivery list and are supported by delivery notes.
The delivery note is then date stamped by the security guard.

3 Payroll Employees should present identification and acknowledge receipt


of wages by signing the wages register.

4 Payroll Changes to wages rates are recorded on payroll amendment


forms and authorised by the human resources manager.

5 Acquisitions and Quotes are obtained from a number of suppliers before


purchases purchasing.

6 Finance and At the board meeting the directors obtain power of attorney to sign
investment a loan contract on behalf of the company. This power of attorney
is recorded in the minutes.

Required: Marks

2.1 State the risk that is addressed by each of the internal controls above. (6)

2.2 Describe one test of control for each of the internal controls above. (9)

Question 3 22 marks

Prior to preparing the year-end financial statements, you obtained the following information
regarding certain aspects of the organisation:
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2014
R ‘000
Total sales 70 500
Cost of sales 40 600
Credit sales 62 500
Average inventory 22 600
Average accounts 35 650
receivables

The following ratios are for 2013:

 Inventory turnover ratio was 1.12 times


 Average collection period for accounts receivables was 194.1 days.
 Gross profit ratio was 49.68%.

Required: Marks

3.1 Calculate the following ratios for 2014 and interpret each of the results:
3.1.1 Inventory turnover rate (4)
3.1.2 Average collection period for debtors (4)
3.1.3 Gross profit ratio (4)

At the organisation where you are employed as a senior internal auditor, it is the policy of
the internal audit activity to use monetary unit sampling (MUS) as far as possible. You are
busy with an investigation of the sales records for the past six months and you have
already established the following information for the purposes of applying this technique:

Total value of population R 5 040 000


Internal control Reasonable
Confidence level 90%
Monetary precision R48 300 (P)

The details of the first seven sales invoices are as follows:

Invoice number Invoice amount ( R )


560 11 100
561 9 500
562 15 400
563 14 600
564 8 700
565 13 800
566 11 400

TABLE A
Reliability 1,0 1,1 1,2 1,3 1,4 1,6 2,0 2,3 3,0 4,6
factors (R)
Confidence 63% 66% 69% 72% 75% 80% 86% 90% 95% 99%
levels
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Required: Marks

3.2 Using the above information, with the aid of table A, calculate the
following:

3.2.1 Sample interval (4)


3.2.2 Sample size (3)

3.2.3 Select the first three invoices for the sample. Accept a random starting (3)
point of R14 536. Show how you arrived at your answers.

Question 4 23 marks

You are a senior internal auditor of the construction company, Force (Pty) Ltd.

Your chief audit executive informed you that you are scheduled to start a payroll audit in
two weeks. He provided you with a description of the contract employee payroll process
that was captured by the external auditors when they performed their audit previously. The
process description is as follows:

Payroll division of Force Construction (Pty) Ltd consists of four employees:


• Two payroll clerks (Eve Kruger and Petrus Khumalo)
• One payroll supervisor (Johan Smit)
• One payroll manager (Pauline Duma)

The company employs two types of employees:

• Permanent employees are responsible for office work and administration and they are
paid via electronic funds transfer (EFT).
• Contract employees are responsible for construction work and they are paid by cheque.

Contract employees are added to and automatically terminated from the payroll sheet as
and when their contract expires. New permanent employees are added on appointment
and terminated upon resignation. Additions to and terminations from the payroll can only
be done by Pauline Duma and Johan Smit after receiving an instruction from the human
resources department. Additions and terminations are not reviewed by Pauline in her
capacity as the payroll manager. Only Pauline and Johan have access to the payroll
system.
The payroll system is accessed by use of a unique password which is changed
automatically every 30 days. The new password is sent to Pauline via e-mail. Pauline has
an agreement with Johan that since they are the only two people with access to the payroll
system, every time she receives an email with a new password, she will print the email
and put it behind the door in her office. This is to ensure that Johan can easily access the
payroll system when Pauline is not around.

Contractors are required to complete timesheets in duplicate. One copy goes to the
contractors’ supervisor who reviews for the accuracy of the timesheet and files it. Petrus
Khumalo receives the other copy from the contractors and reviews the rates to ensure that
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the contractors used the correct rates. Once Petrus is satisfied that the correct rates were
used, he signs the timesheet and sends it to Johan to capture the timesheet on the payroll
system. Johan is also responsible for collecting all the cheques from the finance
department to hand them over to the contractors’ supervisor. Prior to handing over the
cheques he reconciles the cheques issued against the employees on the payroll sheet.
The contractors’ supervisor counts the cheques received, confirms that all cheques have
been received and signs an acknowledgement form, stating that all cheques have been
received.

Usually contract employees are handed their cheques on a Friday afternoon (17:00).
Employees sign for their cheques as acknowledgement of receipt. The contractors’
supervisor takes home any cheques that are not claimed and brings them back on Monday
as the offices are already closed by that time on a Friday afternoon. Cheques that remain
unclaimed for a week are returned to Johan Smit for safekeeping.

On a monthly basis either Johan or Pauline sign the payroll sheet as proof that the sheet
was reviewed for accuracy and completeness.

Eve performs monthly payroll reconciliations (e.g. timesheets and payroll sheet) to payroll
system reports.
Required: Marks
4.1 Identify eight control strengths and eight weaknesses in the above payroll (16)
process.

4.2 Make recommendations to management indicating how they can improve (7)
the effectiveness of the controls in the current process.

Question 5 15 marks
The audit committee of Electra (Pty) Ltd has made a request to the chief audit executive
(CAE) to perform an internal audit of the tender committee, as it has been identified by the
risk department as being a high risk for the organisation.
One of the junior internal audit staff members has compiled the following internal audit
working paper.

Electra (Pty) Ltd DS 31 October 2016

Internal audit working paper

Internal audit of the tender committee

Audit objective Audit procedure Results

To ensure that the tender Enquire from the secretary The secretary and
committee has an approved and chairperson of the chairperson informed me
written charter or agreed tender committee as to the that no such document
upon procedures. existence of such a exists. The tender
document. committee operates in a
manner deemed appropriate
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Request the charter from the by the chairperson.


secretary and review.
Upon review of the board
Review the minutes of board meeting minutes it was
meetings as proof of the fact noted that that the board felt
that the charter has been no charter was necessary as
approved. the chairperson of the
tender committee is also the
Review the composition, chief financial officer and
purpose and powers of the would know what to do.
tender committee and
ensure that it complies with No charter or agreed upon
the charter requirements. procedures exists.

Conclusion:
No formal approved document governs the operations and existence of the tender
committee.

Required: Marks

5.1 List the steps the internal auditor should follow when reporting on an audit (5)
engagement.
5.2 Analyse the internal audit working paper and compile an internal audit (10)
finding based upon the requirements of the International Professional
Practice Framework (IPPF) pertaining to audit findings.
Question 6 10 Marks

You are required to indicate whether each of the following statements is true or false. Give
brief reasons for your answer, if false.
6.1 All listed companies in South Africa must comply with the King III Code of
governance principles and the Sarbanes-Oxley Act 2002.

6.2 Triple-bottom line reporting requires that companies report on historical profits,
future profits and dividend distributions.

6.3 Compliance with King III requires that, in all circumstances the chairperson and
chief executive officer of a listed company must be different people.

6.4 An internal audit department’s primary role is independent evaluation as opposed to


operational involvement.

6.5 Internal audit and external audit should co-operate in evaluating the company’s
financial systems.

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8. CONCLUSION

Do not hesitate to contact your lecturer by email if you are experiencing problems with the
content of this tutorial letter or any aspect of the module.

I wish you a fascinating and satisfying journey through the study material and trust that you
will complete the module successfully.

Enjoy the journey!

Lecturer AUI3702

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UNISA 2016

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