AUI3701/202/2/24

Tutorial Letter 202/2/2024

The Internal Audit Process: Planning the
engagement.

AUI3701

Semester 1

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

Bar code
 AUI3701/202/2

CONTENTS

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

2 KEY TO ASSIGNMENT 02/2024 ................................................................................................. 4

2
 AUI3701/202/2

1 BRIEFING
This tutorial letter contains the solution to Assignment 02 for this semester. 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: AUI3701

3
 AUI3701/202/2

2 KEY TO ASSIGNMENT 02/2024

QUESTION 1: 18 MARKS
PART A: 8 Marks
Reference:
• Study Guide - Learning Unit 7
• Internal Auditing: An introduction, 2017 (page 117)

Step 1 = D, Obtain an understanding of the auditee

Step 2 = E, Meet the auditee
Step 3 = C, Conduct a preliminary survey
Step 4 = A, Identify the risk areas associated with the engagement.
Step 5 = H, Determine the engagement objectives, criteria and scope.
Step 6 = G, Determine the resources needed to perform the engagement.
Step 7 = F, Prepare the engagement work programme
Step 8 = B, Obtain final confirmation from management to proceed with the engagement
(1 mark each, maximum 8 marks)

PART B: 10 Marks
Reference:
Study Guide - Learning Unit 1

A. Violation (1) of the IIA Code of Ethics i.e. Objectivity. In this instance, the internal
auditor’s decision not to report to the audit committee was influenced by management.
Internal auditors must display the highest level of professional objectivity in gathering,
evaluating, and communicating information about the activity or process under review.
Internal auditors must make a balanced assessment of all the relevant circumstances
and not be unduly influenced by their own interests or by others in forming judgments.
(1)
B. Violation (1) of the IIA Code of Ethics i.e. Competency. In this instance, the internal
auditor lacks the competency to perform a high-risk audit. Internal auditors must engage
only in those services for which they have the necessary knowledge, skills, and
experience. (1)
C. Violation (1) of the IIA Code of Ethics i.e. Integrity. In this instance, the internal auditor is

4
 AUI3701/202/2

dishonest. The integrity of internal auditors establishes trust and thus provides the basis
for reliance on their judgment. Internal auditors are expected to perform their work with
honesty, diligence, and responsibility. (1)
D. Not a violation (1) of the IIA Code of Ethics. The internal auditor’s lack of competence
was mitigated by the use of an expert. (1)
E. Violation (1) of the IIA Code of Ethics i.e. Objectivity. Although Sipho’s work will be
supervised, his objectivity may still be impaired. Internal auditors shall not participate in
any activity or relationship that may impair or be presumed to impair their unbiased
assessment. (1)
(Marks as indicated. Maximum 10 marks)

QUESTION 2: 26 MARKS

PART A: 12 Marks

Reference:
• Assurance: An Audit Perspective, 2018 (chapter 6).
• Study Guide - Learning Unit 4
Element of fraud (1 mark Explanation (2 marks each)
each)
a. Pressure (1) The family is unable to maintain the standard of living that
they are used to (1), loss of income has put pressure on
Jennifer to commit the fraud. (1)
b. Rationalisation (1) Jennifer feels injustice that Sean is taking all the credits
(1) that are otherwise due to her. (1)
c. Rationalisation (1) Jennifer believes that she should be earning more than
what she is currently earning. (1) She believes that she is
underpaid and overworked. (1)
d. Opportunity (1) The system access privilege and the un-monitored
amendments may lead to a situation whereby Jennifer is
able to commit fraud (1), which indicates, internal controls
weaknesses. (1)
(Marks as indicated. Maximum 12 marks)

5
 AUI3701/202/2

PART B: 5 Marks

Reference:
• Assurance: An Audit Perspective, 2018 (page 172)
• Study Guide - Learning Unit 4
1. A fraud hotline or other anonymous reporting mechanism (1).
2. Fraud awareness or ethics training for all personnel (1).
3. Establishment of the internal auditing and /or fraud examination department (1).
4. Performing surprise internal assurance engagements on a regular basis (1).
5. Making use of external audit function services (1).
(Marks as indicated. Maximum 5 marks)

PART C: 7 Marks

Reference:
• Assurance: An Audit Perspective, 2018 (page 173)
• Study Guide - Learning Unit 4

1. Pay attention to anything that seems to be unusual. Don’t just follow the audit work
program (1).
2. In addition to scrutinising usual errors and omission, also focus on all exceptions,
abnormalities and patterns of conduct (1).
3. Do not only consider aspects of financial accounting, but also the behavioural motives,
opportunities and individual integrity (1).
4. Have sufficient knowledge of fraud to be able to identify fraud indicators (1).
5. Be invigilate of opportunities that could allow fraud to occur (1).
6. Be able to evaluate indicators that fraud may have been committed and decide whether
further action is necessary (1).
7. Notify appropriate authorities if an investigation appears to be necessary (1).
8. Think like fraudster (1).
9. B alert to any fraudulent activity taking place (1).
(Marks as indicated. Maximum 7 marks)

6
 AUI3701/202/2

PART D: 2 Marks

Reference:
• International Professional Practices Framework (IPPF), Standard 1210.A1
• International Professional Practices Framework (IPPF), Standard 1220.A1
• Study Guide - Learning Unit 4

Internal auditors must have sufficient knowledge to evaluate the risk of fraud and the
manner in which it is managed by the organisation (1) but are not expected to have the
expertise of a person whose primary responsibility is detecting and investigating fraud. (1)
Internal auditors must exercise due professional care by considering the probability of
significant errors, fraud or non-compliance. (1)
(Marks as indicated. Maximum 2 marks)

QUESTION 3: 27 MARKS

References:
• Performing Internal Audit Engagements, 2017 (chapters 3,5 and 6).
• Study Guide - Topic 6
Weakness (1½ marks for Risk identified from Recommended controls
each weakness mentioned) weakness (1½ marks for (1½ marks for each
each risk mentioned) recommended control
mentioned)
Non-functioning surveillance Theft of stock as it moves Surveillance cameras should
cameras to monitor via interleading doors and be fixed and be in good
movements of stock from passages. (1½) working condition.
Fashionware (Pty) Ltd’s Alternatively, trolley bins
warehouse to Cashwear’s should be locked or sealed
storage area. (1½) when moving the stock
between Fashionwear and
Cashwear. (1½)

There should be a sound

control of keys to the lockers
and the seals. (1½)

Lack of segregation of Theft of stock or money by Incompatible duties such as

incompatible duties whereby Mrs Naidoo. (1½) stock controlling, sales
Mrs Naidoo is a stock consulting and cashiering
controller, sales consultant, should be segregated. (1½)
and a cahier. (1½)
Someone different should
take over some of the
functions performed by Mrs
Naidoo. (1½)

Inconsistent issuing of the Incomplete and inaccurate The cash register must be

7
 AUI3701/202/2

Weakness (1½ marks for Risk identified from Recommended controls

each weakness mentioned) weakness (1½ marks for (1½ marks for each
each risk mentioned) recommended control
mentioned)
sales receipts when sales are accounting records will be used at the till which will
made. (1½) generated. (1½) automatically record all the
incurred transactions and
Theft of cash by the clerks generate a sales receipt
because the sales receipts (1½) or every staff member
are not issued. (1½) doing sales must have an
individual sales receipt book
(1½) and all the cash sales
receipts must be reconciled
at the end of day with the
money in the cash register.
(1½)
Poor controls whereby the Mrs Naidoo will have an Sales invoice must always
sales receipt booklet is kept opportunity to commit be generated when goods
by Mrs Naidoo in her fraud by altering the sales are purchased and paid for.
handbag. (1½) receipts. (1½) The sales invoice can act as
a receipt by stating goods
have been paid. (1½)

Lack of segregation of Theft of cash by Mrs The metal box where the
incompatible duties, Mrs Naidoo. (1½) cash is dropped should be
Naidoo is the cashier and is opened by Mrs Naidoo and
responsible for taking cash someone senior to her
out of the safety deposit box together. Then the cash
into the money bags without should be counted and
supervision. (1½) recorded in the presence of
both these individuals. (1½)

Lack of recording of cash Theft of cash by Mr Nel. Ideally, Mr Nel and Mrs
when it is handed to Mr Nel (1½) Naidoo should open the cash
for storage in the safe. (1½) drop metal box together.
Both should count the money
and record it as such, then
they should both sign the
records and keep a copy.
(1½)

Inadequate access control Theft of cash by Miss There should be a proper

around the safe because Mahlangu. (1½) cash withdrawal form that
Miss Mahlangu can collect must be completed and
money alone from the safe. signed by Miss Mahlangu
(1½) and someone senior in
finance when cash is
required to pay wages. (1½)

Lack of control on the Theft of clothing while in Surveillance cameras been

movement of clothing and the transit, and incorrect installed and inventory
obsoletion of inventory. reporting on the level of reconciliation. Reconciliation
obsoletion of the inventory of records of factory and the

8
 AUI3701/202/2

Weakness (1½ marks for Risk identified from Recommended controls

each weakness mentioned) weakness (1½ marks for (1½ marks for each
each risk mentioned) recommended control
mentioned)
in the financial statements. factory store.
Lack of other payment Revenue leakages or lost Allow the use of debit cards,
methods such as debit card, business opportunity as credit cards and eft in the
credit card and electronic customers who want to payment of purchases.
fund transfers (eft). pay via debit card, credit
card and eft will be turned
away.
(Marks as indicated. Maximum 27 marks)

---©---
UNISA 2024