AUI4861/202/0/2023

Tutorial Letter 202/0/2023

Internal Auditing: Advanced Internal

Audit Practice

AUI4861

Year Module

Department of Auditing
This tutorial letter contains important
information about your module.

Bar code
 AUI4861/202/0

CONTENTS

1 BRIEFING ....................................................................................................................................... 3

2 KEY TO ASSIGNMENT 02/2023.................................................................................................... 4

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1 BRIEFING

This tutorial letter contains the solution to Assignment 02 for this year. The lecturer has
marked a selection of the questions in this assignment. The marks you received for your
answers to these questions will constitute your mark for this assignment and will contribute
towards your year mark.

You need to assess your answers to the unmarked questions yourself by comparing your
answers to those provided in this tutorial letter.

Use the marking plan as a guide to award yourself marks for your answers. Take care not to
mark the same concept more than once just because it appears more than once, perhaps in
different words or in a different format.

After you have marked your own answers, please reflect carefully on your results to determine
why you could not allocate full marks to your answers. Please ensure that you allocate marks
only to valid answers. It is imperative that you identify your problem areas now, while you can
still do something about them. If you do not solve all your problems as soon as you have
identified them, you may repeat the same mistakes in the examination, and that could prove
very costly.

Marking your answers should enable you to identify any problems you may be experiencing.
Your marks for this assignment will be an indication of your level of knowledge of the module
content at this stage. You should still have enough time left to revise the work and solve the
identified problem areas before the examination.

We trust that you have found the assignment both interesting and informative and that it has
served as an aid for your examination preparation. Should you encounter any difficulties
regarding this module in internal auditing, please do not hesitate to contact us.

Lecturer: AUI4861

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2 KEY TO ASSIGNMENT 02/2023

1.1 Adherence/Non-adherence of board composition as per King IV requirements

King IV requirement Adherence/nonadherence Explanation of adherence/nonadherence

(1 mark) (½ mark) in Create Ltd

(1 mark)

In terms of Principle Adherence (½) The roles of Chairman and chief executive
7.34 of King IV, the officer (CEO) are held by different people,
CEO of the which is in accordance with King IV
organisation should Principle 7 (1).
not also chair the
governing body (1).

In terms of Principle Non-adherence (½) The chairman, Rajesh Patel, does not
7.31of King IV, “the appear to be an independent,
governing body nonexecutive director (this is acceptable if
should elect an there is a justifiable reason but must be
independent, explained in the integrated report) (1).
nonexecutive
member as the chair
to lead the governing
body” (1).

In terms of Principle Adherence (½) There is an appropriate mix of executive

7.8 and non-executive directors on the Board,
particularly in view of the fact that
of King IV, “the board nonexecutive directors are in the majority
should be a mix of are independent non-executive directors
(1).
executive and
nonexecutive

directors and the

majority of
nonexecutive

directors should be

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independent.” (1)

In terms of Principle Adherence (½) The CEO is a member of the board so

7.9 of King IV, “as a therefore adheres to King IV (1).

minimum, the CEO King IV also requires that “at least one other
and at least one other executive director be appointed to the
board”. This requirement has been satisfied
executive should be by having Nolo Manaka (CFO) as a board
appointed to the member (1).

governing body.” (1)

In terms of Principle Adherence (½) Judging by the experience, occupations and

7.10 of King IV, “the qualifications, gender and race of the
governing body directors there is enough collective skill,
should promote knowledge and experience for the board to
diversity …, including meet its responsibilities and satisfy diversity
field of knowledge, targets (1).
skills and experience,
as well as age,
culture, race and
gender” (1)

(Maximum of 12 marks)

1.2 Audit committee requirements as per King IV

King IV requirements Name Eligible Reason

(1 mark) (yes/no) (1 mark)

(½ mark)

King IV 8.57 “The Rajesh Patel No (½) Rajesh Patel is not

eligible since he is the
governing body should chairman of the
appoint an independent,

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non-executive member board and therefore not

to chair the audit
committee” (1). independent (1).

OR

King IV 7.36:

The chair of the

governing body should
not be a member of the
audit committee.

King IV 8.56 “All Frans Pretorius No (½) Frans is an executive

members of the audit director (1).
committee should be
independent, non-
executive members of
the governing body” (1).

Nolo Manaka No (½) Nolo is an executive

director (1).

Marshall Boucher No (½) Marshall is an

executive director (1).

Moses Ndou No (½) Moses is an executive

director (1).

Eric Peterson No (½) Eric is not independent

(former production
manager of the
company) non-
executive director (1).

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Vivian Botha No (½) Vivian is not even a

director (company
secretary) (1).

Ntombi Khumalo No (½) Ntombi is not even a

director (chief audit
executive) (1).

Russel Hobson Yes (½) Russel is independent

and non-executive
director (1).

Venus Vertigo Yes (½) Venus is independent

and nonexecutive
director (1).

Bongi Xhosa Yes (½) Bongi is independent

and nonexecutive
director (1).

Martin Masoek Yes (½) Martin is independent

and nonexecutive
director (1).

(Maximum of 20 marks)

1.3 Audit committee responsibilities as per King IV

Reference: Prescribed Textbook: Assurance: An Audit Perspective

King IV Principle 8, Recommended Practice 51 - 59

 The audit committee should provide independent oversight of, amongst others:
- the effectiveness of the organisation’s assurance functions and services, with particular focus
on combined assurance arrangements, including external assurance providers, internal audit

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and finance function; and (1)

- the integrity of the annual financial statements and, to extent delegated by the governing
body, other external reports issued by the organisation. (1)

 As delegated by the governing body, the audit committee should approve the annual financial
statements. (1)
 As delegated by the governing body, the audit committee should provide oversight on the
effectiveness of risk governance. (1)
 The audit committee should express their views on the effectiveness of the design and
implementation of internal financial controls, and on the nature and extent of any significant
weaknesses in relation to internal financial controls. (1)
 The audit committee should meet annually with the internal and external auditors respectively,
without management being present, to facilitate an exchange of views and concerns that may
not be appropriate for discussion in an open forum. (1)
 The audit committee to assess the effectiveness of the chief audit executive and the
arrangements for internal audit. (1)
 The audit committee should express their views on the effectiveness of the CFO and the
finance function. (1)
 The audit committee should express their views on the effectiveness of the combined
assurance arrangements. (1)
 A statement as to whether the audit committee is satisfied that the external auditor is
independent of the organization:
o The policy and controls that address the provision of non-audit services by the external
auditor, and the nature and extent of such services rendered during the financial year.
(1)
o The tenure of the external audit firm and, in the event of the firm having been involved in
a merger or acquisition, including the tenure of the predecessor firm
o The rotation of the designated external audit partner. (1)
o Significant changes in the management of the organization during the external audit
firm’s tenure which may mitigate the attendant risk of familiarity between the external
auditor and management. (1)
 The audit committee’s views on the quality of the external audit, with reference to audit quality
indicators such as those that may be included in inspection reports issued by external audit

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regulators. (1)
(Maximum 7 marks)

1.4 Other committee as recommended by King IV

Name of committee Member composition requirements as per

King IV

Nominations committee (½) All members should be non-executive members

of the governing body (board) and should be
independent (1).

Risk steering committee (½) The committee should have non-executive and
executive members, with majority being non-
executive members of the board (1).

Remuneration committee (½) All members should be non-executive members

of the governing body (board), with majority
being independent, non-executive members of
the board (1).

The chairman should be independent and

nonexecutive (1).

Social and ethics committee (½) The committee should have non-executive and
executive members, with majority being non-
executive members of the board (1).

(Maximum 2 marks) (Maximum 4 marks)

Total 6 marks

QUESTION 2 20 marks

2.1 Definition of integrated reporting

Reference: King IV Report and study guide section 2.2.2
“Integrated reporting” is defined in King IV as a concise communication about how an
organisation’s strategy, governance, performance and prospects, in the context of its external

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environment, lead to the creation of value in the short medium and long term (4).
A company should report not only on its financial performance, but also on its sustainability by
disclosing the positive and negative impact that its operations have on stakeholders. (2)

King IV widened integrated reporting and extended integrated thinking beyond only financial
capital to all forms of capital, including human, intellectual, manufactured, social and
environmental capital, namely the six capitals (2)

It is felt that this holistic approach will better enable stakeholders to make a more informed
assessment of the value of a company. Note that sustainability reporting and disclosure should
be assured independently. (2)

The glossary of terms attached to King IV describes integrated reporting as follows: “A process
founded on integrated thinking that results in a periodic integrated report by an organization
about value creation over time. It includes related communication regarding aspects of value
creation.” (1)

(Maximum 5 marks)

2.2 Aspects that should be reported for integrated reporting purposes

Reference: Study guide section 2.2.2.1

For integrated reporting, we look at the economic, social and environmental aspects of the
company.
Strategy and mission, governance, performance, risks and opportunities, value-creation,
sustainability.
The six capitals are financial, manufactured, intellectual, human, social and relationship, and
natural.

Economic aspects
 The financial results should be presented. The financial position of the company is the main
reason for the company’s existence (that is, its profitability). (1)
 Since Xtract Mining Ltd is a mining company, the safety of the miners should be ensured.
(1)
 All the procedures implemented for the safety of employees should be presented.
o Statistical information such as the number of workplace accidents (mining
accidents resulting in R350 million loss) or fatalities among employees over the
years should also be reported. This would show the effectiveness of their quality
control over equipment (1).
o Procedures for the improvement of employee health and living conditions should
also be shown. (1)

(1 mark for each valid reporting aspect)

Social aspects - SDG’s / community engagement / Corporate Social Responsibility

 Community engagement - The company’s interaction with the local communities should be
documented. Examples include any partnership with the local municipality or communities
where the company is operating, any assistance (financial, providing equipment, personnel

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time, etc) with health care services in the community or upgrade of education centres in the
community.

 Training - developing the people in the community or workforce of the community should be
reported, such as training people (e-learning); skills development in their relevant field;
safety training for employees; and leadership training for top, middle and lower
management.
 BEE reporting - The main assessment of the BEE objectives regards whether the company
is employing a diverse workforce (more BEE and historically disadvantaged individuals
(HDI). Another aspect of BEE is whether the company is using BEE companies and
suppliers for their projects. This would give an overview of whether the company is focused
on improving their BEE status.
 Review of the OHS plan (the OHS plan has not been reviewed in ten years), rescue and
emergency plans (evacuation drills)
 No disaster recovery plan in place
 Safe hazards site inspections.

(1 mark for each valid reporting aspect)

Environmental aspects
 Companies have to show their responsibility towards the environment. The rehabilitation
and sustainability of the environment is especially crucial for the success of companies that
use the earth’s natural resources.
 The company should report on whether they are complying with the relevant local and
international standards for safety and sustainability in their field (ISO 14001).
 Since Xtract Mining Ltd is a mining company, we would expect to see reporting on their
treatment of by-products or emissions during mining (any usage of by-products) (1). Their
main resource is coal and therefore they should report on what procedures they have put in
place to ensure the sustainability of the coal supply.
 Water is essential in mining activities; therefore a proper water management system should
be put in place and reported on.
 Company’s reporting on their response to climate change.

(1 mark for each valid reporting aspect)

(Maximum 15 marks)

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