Professional Documents
Culture Documents
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.
CONTENTS PAGE
1. INTRODUCTION ................................................................................................................. 4
1.1 To get started on myUnisa ................................................................................................ 4
2. PURPOSE ........................................................................................................................... 4
2.1 Purpose .............................................................................................................................. 4
4. RESOURCES ...................................................................................................................... 8
4.1 Prescribed books .............................................................................................................. 8
8. CONCLUSION .................................................................................................................. 42
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1. INTRODUCTION
Dear Student
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.
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.
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
3. CONTACT DETAILS
3.1 Lecturer
Department: Auditing
Telephone: 012 429 8591
E-mail: ejaffes1@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:
Secretary:
Telephone: +2712 429 4707
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:
3.5 Library
The my Studies @ Unisa brochure, which is part of your registration package, lists all the
services offered by the Unisa library.
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.
* 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.
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
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.
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.
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.
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.
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.
7. ASSESSMENT
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.
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.
Go to myUnisa.
Log in with your student number and password.
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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.
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:
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:
Your marks for both Assignments 01 and 02 will be used to determine your
year mark.
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.
Use the my studies @ Unisa brochure for general guidance for the examination and for
your examination preparation.
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Assignments
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.
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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1.1 Which one of the following is not a component of the International Professional
Practices Framework (IPPF)?
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?
1.3 Adequate internal controls are most likely to be present in an organisation where…
1.4 Which one of the following options is not an example of a detective control?
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?
1.9 Which of the following activities is not presumed to impair the objectivity of an
internal auditor?
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?
1.11 When assessing a risk associated with an entity, an internal auditor should do which
one of the following?
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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1.16 In preparing a sampling plan for an inventory pricing test, which of the following
describes an advantage of statistical sampling over non-statistical sampling?
1.17 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?
1.19 Statistical sampling differs from other sampling methods in the sense that …
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
---x---
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Semester 1: Assignment 02
Instructions:
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
1.1 Ordinarily, what source of information should most affect the internal auditor’s
conclusions?
A. Inquiry
B. Oral
C. Informal
D. External
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.
1.4 The cash receipts’ function should be separated from the related record keeping
function in an organisation in order to ...
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 ...
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?
1.9 Which one of the following statements is an appropriate internal audit objective?
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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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.
2016
R’ 000
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 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:
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
5.2 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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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.
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
1.1 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 …
1.3 Which one of the following options violates the objectivity principle of the Code of
Ethics?
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. 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?
1.8 Which one of the following activities may be performed by an internal auditor?
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 …
1.12 Which of the following is not a role of the internal audit activity in best practice
governance activities?
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?
1.15 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?
1.17 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. 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 …
Instructions:
(1) Consult my Studies @ Unisa for instructions on how to submit written assignments.
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
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?
1.5 The function of the chief risk officer (CRO) is most effective when the CRO …
1.6 An adequate system of internal controls is most likely to detect a fraud perpetrated
by a …
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 ...
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:
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.
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
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:
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:
3.2.3 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:
• 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.
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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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.
6.5 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.
Lecturer AUI3702
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UNISA 2016