lOMoARcPSD|5227512

AUI4861 2020 TL 204 - Assignment answers

Advanced Internal Audit practice (University of South Africa)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by Dennis Masipa (dee.masipa@gmail.com)
 lOMoARcPSD|5227512

AUI4861/204/0/2020

Tutorial Letter 204/0/2020

INTERNAL AUDIT PRACTICE

AUI4861

Year course

Department of Auditing

IMPORTANT INFORMATION
This tutorial letter contains important information about
your module.

Downloaded by Dennis Masipa (dee.masipa@gmail.com)

 lOMoARcPSD|5227512

AUI4861/203/2020

KEY TO ASSIGNMENT 04/2020

QUESTION 1 33 marks

1.1 Factors to be considered when determining the requisite number of members

According to King IV, Principle 7.1 the following factors should be considered:

 The appropriate mix of knowledge, skills and experience, including the business,
commercial and industry experience, needed to govern the organisation.
 The appropriate mix of executive, non-executive and independent non-executive
members.
 The need for a sufficient number of members that qualify to serve on the committees
of the governing body.
 The need to secure a quorum at meetings.
 Regulatory requirements
 Diversity targets relating to the composition of the governing body.

(1 mark for each factor, maximum of 6 marks)

1.2 Composition of board according to King IV

# King IV requirement Current composition of Clear

Communication Ltd.’s board
King IV Principle 7.8, the governing The current composition adheres to King
body should comprise a majority of IV as the majority of the board are non-
non-executive members, most of executive (5 out 8) (1).
whom should be independent (1½). Scenario states that only Mrs Hussain is
not independent, therefore majority are
independent (1).

King IV Principle 7.9, as a minimum, The current composition adheres to King

the chief executive officer and at
least one other executive should be
appointed to the governing body to
ensure there is more than one point
of direct interaction with
management. The executive may be
the chief finance officer (CFO) (1½).
King IV Principle 7.10 – the
governing body should promote
diversity…., including field of
knowledge, skills and experience,
age, culture, race and gender (1½).
IV there are three executive members,
which is more than the minimum required
as per King IV (1). Also of the three, one
is the CEO and the other is the CFO
which is recommended by King IV (1).
One cannot determine the skills,
knowledge and age from the scenario.
However, from the titles and surnames,
there is equal distribution of gender (4
men and 4 women) and fair distribution of
race (2).

Downloaded by Dennis Masipa (dee.masipa@gmail.com)

 lOMoARcPSD|5227512

AUI4861/203/2020

King IV Principle 7.31 – the This is non-adherence as the current

governing body should elect an chairperson is an executive director and
independent non-executive member non-independent (2).
as chair to lead the governing body
(1½).

(Marks as indicated, maximum 14 marks)

1.3 Current chairperson as per King IV

King IV Principle 7.31 – the governing body should elect an independent non-executive
member as chair to lead the governing body (1½). This is non-adherence as the current
chairperson, Mr Makwena is an executive director and non-independent (2).

A new chairperson should be appointed. Of the current board, the following cannot be
considered for the chairperson position:

 Mrs Chauke (½) since she is the current CEO (1). According to King IV Principle 7.34
states “the CEO should not also chair the governing body” (1½).

 Mr du Plessis (½) since he is an executive and non-independent director of the board (1).

 Mrs Hussain (½) since she was the previous CEO and only retired last year. According to
King IV Principle 7.34 states “… the retired CEO should not become the chair until three
complete years have passed after the end of the CEO’s tenure” (1½).

Therefore, Mrs Rabada (½), Mr de Kock(½), Mr Amla (½) and Mrs Moloi (½) can be considered
for the chairperson’s position as they are independent (1) and non-executive (1).

(Marks as indicated, maximum 13 marks)

QUESTION 2 32 marks

2.1 The use of the staff of the human resources department to assess the internal audit
activity

In terms of IIA Standards 1310, the quality assurance and improvement program must include
both internal and external assessments (1). Since the Standards are mandatory for the
professional practice of internal audit, both internal and external assessments are required. (1)

 Ongoing monitoring of the performance of the internal audit activity (1); and
IIA Standards 1311 states that internal assessments are performed by

Downloaded by Dennis Masipa (dee.masipa@gmail.com)

 lOMoARcPSD|5227512

AUI4861/203/2020

 Periodic reviews performed through self-assessment or by other persons within the

organization with sufficient knowledge of internal audit practices. (1)

IIA Standards 1312 states that external assessments must be conducted at least once every
five years by a qualified, independent reviewer or review team from outside the organization
(2).

From the perspective of the human resources (HR) department assessing the internal audit
activity, since they operate within the organisation their possible scope should be limited to
internal assessments only. (2)

However, the HR department cannot perform the internal assessment as they would not meet
the requirements of knowledge of internal auditing practice in terms of having sufficient
knowledge of internal audit practices (2) and the Standards as prescribed in Standard 1311.

(Maximum 10 marks)

2.2 Benefits of a quality assurance program

 A quality assurance review evaluates the degree to which the IAA conforms to the
Standards and its own charter, plans, policies, procedures and systems, and the extent to
which it meets the needs of its customers (1).

 It provides information on the following:

o deviations in performance from acknowledged best practices (1) for internal auditing, from
the Standards (1) and from the internally prescribed internal audit procedures;
o the effectiveness of the operation of the IAA as perceived by the IAA's members and
customers, as measured against their expectations;
o the extent of integration of the concepts of business controls into internal audit practice;
o the extent to which the IAA is integrated into the organisation's fabric;
o the extent to which the IAA adds value to the organisation by providing insights into
efficiency and effectiveness;
o the optimisation of internal staff performance;
o the effectiveness of communication with staff and company personnel;
o the development of internal audit staff, both personally and professionally ;
o the use of technology to increase efficiency and effectiveness;
o the effectiveness of ongoing quality assurance programmes;
o the tools and techniques deployed;
o the extent of compliance with the charter, plans, policies, procedures and legal
requirements;
o the extent to which internal audit adds value to the organisation;
o recommended improvements to audit processes and practices; and

Downloaded by Dennis Masipa (dee.masipa@gmail.com)

 lOMoARcPSD|5227512

AUI4861/203/2020

o opening up the channels of communication between the board, the audit committee,
management and the internal auditors.
(1 mark for each valid benefit - maximum 12 marks)

2.3 Mechanisms recommended for ongoing monitoring

Reference: Implementation Guide 1311

Ongoing monitoring is achieved primarily through continuous activities such as engagement

planning (½) and supervision (½), standardised work practices (½), workpaper procedures and
signoffs (½), report reviews (½), as well as identification of any weaknesses or areas in need
of improvement and action plans to address them (½).

 Checklists or automation tools to provide assurance on internal auditors’ compliance

Additional mechanisms commonly used for ongoing monitoring include:

with established practices and procedures and to ensure consistency in the application
of performance standards (2).
 Feedback from internal audit clients and other stakeholders regarding the efficiency and
effectiveness of the internal audit team. Feedback may be solicited immediately
following the engagement or on a periodic basis (e.g., semi-annually or annually) via
survey tools or conversations between the CAE and management (2).
 Staff and engagement key performance indicators (KPIs), such as the number of
certified internal auditors on staff, their years of experience in internal auditing, the
number of continuing professional development hours they earned during the year,
timeliness of engagements, and stakeholder satisfaction (2).
 Other measurements that may be valuable in determining the efficiency and
effectiveness of the internal audit activity. Measures of project budgets, timekeeping
systems, and audit plan completion may help to determine whether the appropriate
amount of time is spent on all aspects of the audit engagement. Budget-to-actual
variance can also be valuable measurement to determine the efficiency and
effectiveness of the internal audit activity (2).

(Maximum 10 marks)

Downloaded by Dennis Masipa (dee.masipa@gmail.com)

 lOMoARcPSD|5227512

AUI4861/203/2020

QUESTION 3 15 marks

Scenarios permissible/not permissible to IIA Standards

IIA Standards requirements Explanation of violation

1 Standard 1000: Purpose, The IAA is operating without a charter to

authority and responsibility: The guide its activities (1).
purpose, authority and responsibility
of the IAA must be formally defined
in an internal audit charter, and must
be consistent with the Definition of
Internal Auditing, the Code of Ethics,
and the Standards. The CAE must
periodically review the internal audit
charter and present it to senior
management and the board for
approval (1½).

2 Standard 1100: Independence The CAE is the former financial director in

and objectivity - The IAA must be the previous year and not even a year has
independent, and internal auditors lapsed since he occupied that position (1).
The IAA has recently issued the internal
must be objective in performing their
work (1½). audit report relating to the Finance
Department (in past few months). This
1120 – Individual Objectivity - means that the CAE and the audit team
Internal auditors must have an that was involved in the audit may have
impartial, unbiased attitude and compromised (1).
avoid any conflict of interest(1½).

1130 – Impairment to
Independence or Objectivity - If The CAE is the nephew of the CEO so
independence or objectivity is objectivity would have been impaired (1).
impaired in fact or appearance, the
details of the impairment must be
disclosed to appropriate parties
(1½).

1130.A1 – Internal auditors must

refrain from assessing specific
operations for which they were
previously responsible. Objectivity is

Downloaded by Dennis Masipa (dee.masipa@gmail.com)

 lOMoARcPSD|5227512

AUI4861/203/2020

presumed to be impaired if an
internal auditor provides assurance
services for an activity for which the
internal auditor had responsibility
within the previous year (1½).

3 Standard 1200: Proficiency and Due The IAA is staffed by people who have
Professional Care never been exposed to internal auditing
before (1). As such they do not have the
Internal auditors must possess the proficiency required to effectively
knowledge, skills, and other
discharge the audit responsibility (1).
competencies needed to perform
their individual responsibilities. The
internal audit activity collectively
must possess or obtain the
knowledge, skills, and other
competencies needed to perform its
responsibilities (1½).

(Marks as indicated, maximum 15 marks)

---©---

UNISA 2020

Downloaded by Dennis Masipa (dee.masipa@gmail.com)