Ateneo de Davao University

School of Business and Governance

ACAUD 2348
Formative Assessment 1

Name: Vanessa Kasandra M. Lintongan Score:

Class Schedule: TTh 11:10 -12:40 Date: 31/07/29

I- TRUE OR FALSE:
12

1. True 6. False 11. True 16. True

2. False 7. True 12. True 17. True
3. True 8. True 13. True 18. True
4. True 9. True 14. False 19. True
5. True 10. True 15. False 20. True

1. The Audit Committee shall consist of at least 2 independent directors or 20% of the members
of the Board of Directors whichever is lower, but in no case shall it be less than 2.

2. The chairman of the Audit Committee may not be independent as long as the majority of its
members are independent.

3. Internal auditing is a systematic and disciplined approach to evaluate and improve business
risks and a tool for helping an organization achieve accomplish its objectives.

4. The Internal Auditor should report to the Audit Committee for administrative interface; and
typically to the Executive Management for strategic direction, reinforcement, and accountability.

5. To maintain independence, an Internal Auditor should maintain an unbiased and impartial

mindset in regard to all engagements.

6. Internal Auditors, being employed by the management, is the only allowable exemption to
the objectivity required by the standards of the profession in assessing the conduct of the
management.

7. Objectivity requires that Internal Auditors do not subordinate their judgment on audit
matters to others. Threats to objectivity must be managed at the individual auditor,
engagement, functional, and organizational level.

8. The Chief Audit Executive may quarterly confirm to the Board the organizational
independence of the internal audit activity.

9. The internal audit activity must be free from interference in determining the scope of internal
auditing, performing work, and communicating results.

10. An internal auditor is in a position of trust. Also, the CAE should have a direct and
unrestricted access to the Board.

11. Impairments to independence or objectivity must be disclosed prior to the acceptance of an

audit engagement.

12. An Internal Auditor is a catalyst of change.

13. Since Internal Auditing has been essential nowadays, all companies are mandated to
organize and put in place an Internal Audit Department.
14. Scope Limitation is a block to an Internal Auditor’s objectivity.

15. In an Assurance Activity, one of the involved parties is the User who is the responsible party
for the operation and function of a particular work activity in consideration.

16. The primary focus of the internal auditing in terms of governance is to assist the Audit
Committee in the effective performance of their duties.

17. A prerequisite to a systematic approach involves a plan of activities to achieve the audit
objectives.

18. External Auditing focuses on Historical Events while Internal Auditing focuses on Future
Events.

19. Compliance Audit is one where typically external auditors express an opinion on whether
the financial statements present a true and fair view and comply with applicable accounting
standard.

20. Conclusions obtained by the Internal Auditors should be directly submitted to the Board of
Directors without review with the management so that their independence will not be impeded.

Test II- ESSAY

In not more than 7 sentences per item, write your answers on a separate sheet of
yellow paper clearly and neatly. A mere YES or NO without any supporting explanations shall be
marked zero. Mark your papers properly.

Case A

Amy Farrah Fowler, a Senior Internal Auditor of BBT, Incorporated was assigned to
spearhead the Audit Team for the Company’s Inventory. BBT, Inc. has 65 branches across the
country. Through a systematic sampling procedure, Amy has identified 5 sample branches
wherein the Audit Team will conduct an inventory count and audit. Being informed about this
during the meeting, Howard Wolowitz, the company’s Chief Finance Officer, decreased the
funding by 10%. According to him, it is very costly for the company to spend a lot of money
when in fact they can just select other nearer branches to lessen the transportation cost. Due
to the decrease in funding, the Audit Team will not be able to conduct the said activity in the
originally identified branches and they just chose those nearer branches to become cost
effective with the limited budget.

1. Was the Internal Audit Team independent? (10 points)

No, the internal audit team was not independent. The team already had a plan
on how and where to conduct the inventory count and audit and this would have given
them the assurance that there would not be any influences that could affect their plan.
But the decrease in funding of the CFO influenced and changed their plan and caused
them to conduct what the CFO had in mind.

2. Was there a Scope Limitation? (5 points)

Yes, there was scope limitation. The decreased funding caused the audit teams
choice of branches to visit. Even though there are a lot of branches and they were
scattered nationwide, the budget gave caused them to limit their survey and look into
nearer branches.
 Case B

Raj Koothrappali, was transferred to the Internal Audit Department as Internal Auditor
for Information System of BBT Company. He was working as an IT Specialist of the same
company for 5 years before he was transferred. Right after, he was directed to be a part of the
team that will audit the database for passwords and company accounts of the employees. He
was the Team Leader of the Program Development for Passwords and Company accounts when
he was assigned in the IT Department. Raj agreed with the directive.

2. Is Raj objective? (10 points)

Seeing that Raj was previously a member of the team, and a team leader at that,
that they would be auditing, and him accepting the work will suggest that he has
conflict of interest since for sure he would have attachment to his previous work and
team. It would imply that he would not be able to conduct the activity objectively and in
a withdrawn attitude. So no, Raj’s objective may be questionable.

3. Is there conflict of interest? (5 points)

Yes, there is a conflict of interest. As what I said on the preceding question him
being a previous member of the team he would be auditing, at which he played a big
role in, he would be thinking that his own work is being evaluated. He would feel
attachment and to his work and team and would have a hard time being objective and
detached in the audit activity that they would conduct.

III- MULTIPLE CHOICE

11
1. D 6. D 11. C
2. B 7. A 12. C
3. D 8. D 13. A
4. B 9. D 14. D
5. C 10. B 15. C

1. Internal Auditing is an assurance and consulting activity. An example of assurance service is

an:
a. advisory engagement
b. facilitation engagement
c. training engagement
d. compliance engagement

2. Independence permits internal auditors to render impartial and unbiased judgments. The
best way to achieve independence is through
a. individual knowledge and skills
b. organizational status and objectivity
c. supervision within the organization
d. organizational knowledge and skills

3. The internal audit activity’s scope of responsibilities includes

a. evaluating risk
b. controlling risk
c. eliminating risk
d. managing risk

4. Which of the following is an incorrect phrase?

a. auditing is a systematic process
b. auditing subjectively obtains and evaluates evidence
c. auditing evaluates evidence
d. auditing communicates results to interested users

5. It is the process conducted by the Board of Directors to authorize, direct and oversee
management toward the achievement of the organization’s objectives.
a. ERM
b. control
c. Governance
d. Quality Assurance

6. External Auditors meet periodically with internal auditors to discuss the following, except:
a. common interests
b. benefits from their complementary skills, areas of expertise, and perspectives.
c. gain understanding from each other’s scope of work and methods
d. none of the above

7. It is a structured and coordinated entity wide governance approach to identify, quantify,

respond to, and monitor the consequences of potential events.
a. ERM
b. Control
c. Governance
d. Quality Assurance

8. The following are the roles Internal Auditing should not undertake, except:
a. Accountability for risk management
b. implementing risk responses on management’s behalf
c. taking decisions on risk responses
d. coordinating ERM activities

9. Who is ultimately responsible for determining that the objectives for an internal audit
engagement have been met?
a. the individual internal audit member
b. the chief audit executive
c. the audit committee
d. the internal audit engagement supervisor for engagement

10. Which of the following categories of business objectives pertain to the value creation
choices management makes on behalf of the organization’s stakeholders?
a. compliance objective
b. reporting objective
c. operations objective
d. strategic objective

11. An Activity appropriately performed by the internal audit function is:

a. designing systems of control
b. drafting procedures for system of control
c. reviewing systems of control before implementation
d. installing systems of control
12. What are the policies, procedures, and activities that are part of a control framework,
designed to ensure that risks are contained within the established risk tolerance?
a. internal audit activities
b. control process
c. governance process
d. risk management process

13. What is the most accurate term for the procedures used by the board to oversee activities
performed to achieve organizational objectives?
a. governance
b. control
c. risk management
d. monitoring

14. As part of the process to improve internal auditor- engagement client relations, it is very
important to deal with how the internal audit activity is perceived. Certain types of attitudes in
the work performed will help create these perceptions. From a management perspective, which
attitude is likely to be the most conducive to a positive perception?
a. interrogatory
b. objective
c. investigative
d. consultative

15. The BOD Can best execute its governance responsibilities by, except:
a. establishing a governance committee
b. articulating requirements for reporting to the board
c. identifying the processes and activities within the organization that are integral to executing
the governance direction
d. re- evaluating governance expectations on a periodic basis

IV – ENUMERATION
A.
What are the three main objectives of internal auditing? 3
1. To help the organization achieve its objectives

2. To evaluate and improve the effectiveness of risk management, governance and control

3. To conduct assurance and consulting activities designed to add value and improve
operations

B.
Enumerate seven types of audit. 7
4. Financial audit

5. Performance audit

6. Systems-based audit

7. Risk-based audit

8. Compliance audit
 9. Management audit

10. Environmental audit

C.
State at least five elements of the systematic and disciplined approach. 5

11. Audit work plan

12. Risk analysis

13. Defined audit objectives

14. Use of technology

15. Defined audit procedures

If you don’t go after what you want, you’ll never have it. If you don’t
ask, the answer is always no. If you don’t step forward, you’re always in
the same place.
Nora Roberts