CONFIDENTIAL 1 AC/FEB 2022/AUD679

UNIVERSITI TEKNOLOGI MARA

FINAL ASSESSMENT

COURSE : INTERNAL AUDITING

COURSE CODE : AUD679
ASSESSMENT : FEBRUARY 2022
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions.

2. Answer ALL questions.

3. Start each answer on a new page.

4. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 5 printed pages
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 CONFIDENTIAL 2 AC/FEB 2022/AUD679

QUESTION 1

A. Information technology has significantly changed the profession and the practice of
internal auditing. Audit services are needed to evaluate the reliability of network
services, computer operating systems and other systems, which require a high level of
specialized knowledge. Hence, application controls are installed to provide assurance
as to the accuracy, timeliness, authorization and completeness of input, processing and
output.

Required:

a. Discuss two (2) threats that internal auditor faces in a computer environment audit.
(4 marks)

b. Explain briefly four (4) responsibilities of the internal auditors towards the
application control.
(6 marks)

B. Serina, an assistant manager of internal audit department has just returned to work after
taking care of her elderly mother whom had stroke and was bed ridden since early this
year. She has been having difficulties with her mother’s home care nursing
arrangements, causing her to miss several team meetings and to leave work early. On
the day when she needed to leave early, she did not update the working papers and the
files were left scattered on the table. Recently, Serina prepares her report and used
information from the company’s budget discussion for her write up although it has not
been approved yet by the Board of Director. Serina’s resorted of leaving early are putting
pressure on her and her overworked colleagues. Santesh, one of her colleagues is
beginning to make comments such as “It is ok for you not to be here in the office” and is
putting her under even greater stress.

However, Serina feels relief, when Cik Farah, the accountant there has shown
understanding with her problem. This has brought cheers to her life. Farah has
organized a team to determinedly donating cash and home care consumables to lessen
Serina’s burden. She has been very understanding and always support Serina whenever
she needs a shoulder to cry on. All her personal problems have changed Serina
drastically. She used to be very competent in her work and she was awarded as one of
the best employees for the company in 2019.

Required:

Discuss four (4) ethical issues from the scenario above.

(10 marks)
(Total: 20 marks)

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QUESTION 2

A. Encik Azman, the Chief Audit Executive (CAE) is responsible to ensure that the internal
audit department is efficiently and effectively managed. Any conflicts relating to internal
audit staff should be dealt professionally. Conflict can be defined as different of ideas
and opinions between two parties or more with different background, skill and
experiences. This conflict may also arise in the internal audit environment.

Required:

i. Explain briefly two (2) situations that conflict can arise within internal audit
department.
(4 marks)

ii. Discuss three (3) elements of resource management.

(6 marks)

B. Mr Seth is the Chief Audit Executive (CAE) of Amazing Creative Sdn Bhd that managed
the longest-running sport magazine company in Malaysia. Recently, Amazing Creative
produce an e-media magazine through their website that includes blog, streaming video
and audio which appeal to the IT-savvy society.

Unfortunately, the internal audit department of Amazing Creative has limited number of
auditors to audit a wide range of existing department. To accommodate this new
segment of business, Mr Seth has suggested to the Board of Director to outsource the
information technology (IT) audit to an internal audit service provider which specialist in
the IT area.

Required:

Advise four (4) limitations should the Board of Director proceed with the outsourcing
arrangement as suggested by the CAE.
(10 marks)
(Total: 20 marks)

QUESTION 3

Planning internal audit engagements involves considering the objectives of the area or
process under review, also paying attention to the management’s assessment of risks. This
enables the internal auditors to determine the engagement objectives and scope, and
eventually to develop work program.

Required:

a. Discuss three (3) factors that the internal auditors need to consider when they are
planning to rely on the management’s assessment of risks.
(6 marks)

b. Discuss three (3) factors in setting up the engagement objectives.

(6 marks)

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c. Recommend any four (4) audit procedures that can be included in a work program for
audit of payroll.
(8 marks)
(Total: 20 marks)

QUESTION 4

The final stage in an internal audit engagement is to communicate results and disclosing
important matters to the management. An internal audit report is an important tool for the
internal auditor to communicate the findings of the audit. The report was perceived to be as
useful as an audit committee report, management discussion and analysis and management
report on internal controls. Internal auditors should communicate the results from the evidence
gathered, make analytical judgments and determine whether the management has taken any
appropriate corrective action. However, the management always perceived the audit report
negatively.

Required:

a. Explain three (3) reasons why the management perceives internal auditors report
negatively.
(6 marks)

b. Discuss any three (3) best approaches that the internal auditors can adopt in
communicating the audit findings to the management.
(6 marks)

c. Discuss any four (4) characteristics of good report writing to help the internal auditors in
writing a more effective and convincing report.
(8 marks)
(Total: 20 marks)

QUESTION 5

SWHB Holding Bhd (SWHB) is a conglomerate listed company in Bursa Malaysia had been
in business for more than 30 years. The company started as a small housing developer in a
small town in Bandar Putra Senja. With their excellent reputation, SWHB is able to obtain fast
approval for their proposed projects and has a high success rate on government tenders they
bid. Their founders, Datuk Ir. Khoo Sung and Tan Sri Bahar Musa, are hardworking and
compatible business partners. They also have a good working relationship with the
government agencies as they were also former senior government servants.

Due to these favourable environments, SWHB had expanded its business not only from in
constructions but also managed venture successfully into property development, hospitality
sector and ICT service provider. Being massive in size and listed company, Internal Audit
Department is among the busiest unit within the company. However, the turnover of the
Internal Audit staffs is also high, including their Chief Audit Executive (CAE), who was
appointed a year ago resigned six months later.

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Mr. Khalil, the newly appointed Chief Audit Executive (CAE) had assigned Mr. Siva, the Audit
Manager, to head a team to perform a surprise audit for purchasing materials department.
This is due to report from the Finance Department of the unusual high orders that have been
made in the past ten months for production department. Upon completion of his field audit,
Mr. Siva submitted his preliminary Audit report to Mr. Khalil, for further discussion.

The Procurement Department is headed by Mr. Kim Joo whom is the son of Datuk Ir. Khoo.
The Production Department is headed by En. Rayyan, the son of Tan Sri Bahar. Since these
two are the sons of the founders and directors of the company, as usual, less monitoring has
been focused on them. Normally whatever they requested will be executed immediately
without many questions asked. These two department heads are well-known for having very
lavish lifestyles and spending far beyond their means from their employment remuneration.
They normally host their staffs to their elegant private home parties alternately every month
end as their appreciation for their hard work enables their departments to execute smoothly
according to the ways they expected.

Based on audit work performed by the internal audit team on the procurement procedures, all
requests were made by Store Keeper, En. Hamzah. The requests were based on the
instructions of Mr. Khoo without going through a proper procedures and approval from
Production Department. Mr. Khoo would instruct En. Hamzah to initiate the request for the
materials, and he would bring the requests personally to the Store Executive to sign as an
approval for the requests. Upon receiving the orders, all items are sent directly to the store,
where Mr. Khoo himself will be present at the location to make sure that all documents are
signed by all parties involved without waiting for the completion of the deliveries. To ensure all
deliveries are signed directly, Mr. Khoo would warn any staff who reluctant to sign or asking
many questions on the delivery.

Audit review conducted in the Production Department found out that many requests for the
materials for production are 20% more than the normal production requirement which were
approved by Production Department Head, En. Rayyan. According to the personnel who
usually acquired material from the store, deliveries of materials are made in two (2) batches
of the 80% of the requested quantity while the balance of the 20% is to be delivered with the
following requests. However, in many instances, the materials requested were to be signed
as fully delivered upon receiving the 80% batch. The balances of the 20% of the request were
never delivered but En. Rayyan approved as fully delivered.

Required:

a. Discuss any four (4) red flags that could signal for occurrence of fraud in SWHB.
(8 marks)

b. Elaborate any three (3) elements of Fraud Triangle theory that relates to the fraud that
these employees had committed.
(6 marks)

c. Proposed any three (3) approaches that could deter fraud in SWHB in future.
(6 marks)
(Total: 20 marks)

END OF QUESTION PAPER

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