AUE2601 May/Jun 2012 exam paper — questions

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  1. Question 1.1 · Code of Ethics · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. The IIA Standards require internal auditors to remain objective when conducting internal audits. Suppose the chief audit executive (CAE) receives an annual bonus forming part of his or her remuneration package. Under which circumstance would this bonus most likely impair the CAE's objectivity?Show the full question

  2. Question 1.2 · Code of Ethics · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. Management asks the internal audit function to carry out an operational audit of the telephone marketing operations of a major division, and also to recommend procedures and policies that would improve management control over that operation. What should the internal auditor do?Show the full question

  3. Question 1.3 · Definition, role and responsibilities of internal audit · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. Follow-up activity must be carried out to confirm that corrective action has actually taken place. In which document should the internal audit function's responsibility for performing such required follow-up activities be defined?Show the full question

  4. Question 1.4 · The internal audit process and fieldwork · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. Consider the following three statements about internal audit action taken in response to the risk assessment process: (I) low-risk areas may be delegated to the external auditor, while high-risk areas should be audited by the internal audit function; (II) high-risk areas should be integrated into an internal audit plan together with the high-priority requests of management and the audit committee; (III) because the risk analysis is used to determine an annual internal audit work plan, the risk analysis should therefore be performed only once a year. Which of these statements correctly represents appropriate internal audit action?Show the full question

  5. Question 1.5 · Fraud and fraud risk · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. An internal auditor fails to detect an employee fraud while performing an internal audit. Under which circumstance would this non-discovery most likely suggest a violation of the IIA Standards?Show the full question

  6. Question 1.6 · Code of Ethics · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. While conducting an internal audit, an internal auditor discovers that a clerk is defrauding the company. Even though this is the first fraud ever encountered at the organisation, and even though the organisation has its own security department, the internal auditor decides to personally interrogate the suspect. If the internal auditor is violating the Code of Ethics by doing so, which rule has most likely been violated?Show the full question

  7. Question 1.7 · Code of Ethics · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. During an internal audit, an employee with whom you have built a good working relationship tells you she has information about top management that could damage the organisation and may relate to illegal activities. She does not want her name linked to the release of this information. Which one of the following actions would constitute a violation of the IIA Code of Ethics and Standards?Show the full question

  8. Question 1.8 · The internal audit process and fieldwork · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. When designing an internal audit programme for a comprehensive internal audit of a purchasing function, what should it include?Show the full question

  9. Question 1.9 · The internal audit process and fieldwork · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. Among the activities carried out by a payroll clerk, identify the one that represents a control weakness rather than a control strength.Show the full question

  10. Question 1.10 · Fraud and fraud risk · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. An adequate system of internal control is most likely to detect an irregularity perpetrated by which of the following?Show the full question

  11. Question 1.11 · International Professional Practices Framework (IPPF) and standards · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. According to the IIA Standards, how is competent information defined?Show the full question

  12. Question 1.12 · The internal audit process and fieldwork · 1.5 marks

    This question consists of twelve multiple-choice items, each worth 1½ marks. For each item you must choose the single most correct alternative, then in your answer book write the sub-question number followed by the letter of your chosen option (for example 1.1 A, 1.2 C), answering the items in numerical order. When reviewing internal audit working papers, what is the primary responsibility of an internal audit supervisor in determining their adequacy?Show the full question

  13. Question 2.1 · Definition, role and responsibilities of internal audit · 6 marks

    You are a trainee internal auditor employed by the Department of Education (DoE) in Pretoria, and you are also currently registered as a BCom Internal Auditing student with Unisa. This question is divided into three parts: Part A (25 marks), Part B (15 marks) and Part C (20 marks), each set in a different scenario relating to your role as trainee internal auditor. Part A scenario: the Minister of Basic Education has launched an awareness programme to introduce Grade 10 learners to different professions so that they know what options are open to them after finishing secondary school. Every division of the DoE was asked to present its field of work, and the internal audit department chose you to give a presentation introducing internal auditing to a local secondary school. As part of preparing this presentation, describe the objective, the boundaries and the methodology of the internal audit activity as these are set out in the definition of internal auditing.Show the full question

  14. Question 2.2 · Definition, role and responsibilities of internal audit · 4 marks

    You are a trainee internal auditor employed by the Department of Education (DoE) in Pretoria, and you are also currently registered as a BCom Internal Auditing student with Unisa. This question is divided into three parts: Part A (25 marks), Part B (15 marks) and Part C (20 marks), each set in a different scenario relating to your role as trainee internal auditor. Continuing with the presentation you, as trainee internal auditor at the DoE, are preparing for Grade 10 learners on internal auditing, indicate what an effective internal audit activity should contribute to both the company (or organisation) and to its board.Show the full question

  15. Question 2.3 · Definition, role and responsibilities of internal audit · 6 marks

    You are a trainee internal auditor employed by the Department of Education (DoE) in Pretoria, and you are also currently registered as a BCom Internal Auditing student with Unisa. This question is divided into three parts: Part A (25 marks), Part B (15 marks) and Part C (20 marks), each set in a different scenario relating to your role as trainee internal auditor. As part of the same presentation on internal auditing to the Grade 10 learners, list ten personal characteristics that an internal auditor should possess in order to carry out his or her tasks efficiently and professionally.Show the full question

  16. Question 2.4 · Definition, role and responsibilities of internal audit · 9 marks

    You are a trainee internal auditor employed by the Department of Education (DoE) in Pretoria, and you are also currently registered as a BCom Internal Auditing student with Unisa. This question is divided into three parts: Part A (25 marks), Part B (15 marks) and Part C (20 marks), each set in a different scenario relating to your role as trainee internal auditor. Still as part of your presentation on internal auditing, describe the nature of the work that the internal audit activity is required to perform in order to improve the risk management and governance processes of an organisation, or of the DoE specifically, making reference to the (IIA) Standards.Show the full question

  17. Question 2.5 · Definition, role and responsibilities of internal audit · 10 marks

    You are a trainee internal auditor employed by the Department of Education (DoE) in Pretoria, and you are also currently registered as a BCom Internal Auditing student with Unisa. This question is divided into three parts: Part A (25 marks), Part B (15 marks) and Part C (20 marks), each set in a different scenario relating to your role as trainee internal auditor. Part B scenario: you have been assigned to an internal audit of the payroll function at the DoE. The DoE pays weekly wages to maintenance, cleaning and gardening staff, while all other personnel are paid monthly by electronic fund transfer (EFT). Two colleagues have also been assigned to this payroll audit: (I) Ms Z, the internal audit senior on the assignment, is married to the payroll manager, Mr X, but has kept her maiden surname because she does not want anyone to know she is married to Mr X; and (II) Ms Knowledge, the internal auditor on the assignment, previously worked in the payroll department and was appointed as an internal auditor only the previous month because of a staff shortage in the internal audit department. Considering each of these two scenarios in light of the Institute of Internal Auditors' (IIA's) code of ethics, indicate for each whether or not it contravenes the code of ethics, and if it does, state the principle(s) involved, the relevant rules of conduct, and give reasons for your answer. Present your answer using a table with columns for Question number, Yes/No, Principle, Rules of conduct and Reason, where for scenario (I) the mark allocation is half a mark for Yes/No, 1 mark for Principle, 2 marks for Rules of conduct and 2 marks for Reason, and for scenario (II) it is half a mark for Yes/No, 2 marks for Principle, 3 marks for Rules of conduct and 2 marks for Reason.Show the full question

  18. Question 2.6 · Definition, role and responsibilities of internal audit · 5 marks

    You are a trainee internal auditor employed by the Department of Education (DoE) in Pretoria, and you are also currently registered as a BCom Internal Auditing student with Unisa. This question is divided into three parts: Part A (25 marks), Part B (15 marks) and Part C (20 marks), each set in a different scenario relating to your role as trainee internal auditor. Still in relation to your work as an internal auditor on the DoE payroll audit, describe the liability which an internal auditor can incur towards his or her employer.Show the full question

  19. Question 2.7 · Definition, role and responsibilities of internal audit · 8 marks

    You are a trainee internal auditor employed by the Department of Education (DoE) in Pretoria, and you are also currently registered as a BCom Internal Auditing student with Unisa. This question is divided into three parts: Part A (25 marks), Part B (15 marks) and Part C (20 marks), each set in a different scenario relating to your role as trainee internal auditor. Part C scenario: you have been assigned to conduct a review of wage payments, and the following internal controls have been identified: (I) all overtime worked is authorised by the section head; (II) the payroll administrator checks the payroll for arithmetic accuracy; (III) the payroll manager matches the wages cheque amount to the total net wages for the same period; and (IV) employees are required to sign for their wages. For this review, list, in the correct sequence, the four main phases or steps of the internal audit process, and briefly describe each phase or step.Show the full question

  20. Question 2.8 · Definition, role and responsibilities of internal audit · 6 marks

    You are a trainee internal auditor employed by the Department of Education (DoE) in Pretoria, and you are also currently registered as a BCom Internal Auditing student with Unisa. This question is divided into three parts: Part A (25 marks), Part B (15 marks) and Part C (20 marks), each set in a different scenario relating to your role as trainee internal auditor. Referring to the same wage payment review, where the identified controls are (I) all overtime worked is authorised by the section head, (II) the payroll administrator checks the payroll for arithmetic accuracy, (III) the payroll manager matches the wages cheque amount to the total net wages for the same period, and (IV) employees are required to sign for their wages, give one example, for each of these four controls, of what could go wrong if that particular control were absent.Show the full question

  21. Question 2.9 · Definition, role and responsibilities of internal audit · 6 marks

    You are a trainee internal auditor employed by the Department of Education (DoE) in Pretoria, and you are also currently registered as a BCom Internal Auditing student with Unisa. This question is divided into three parts: Part A (25 marks), Part B (15 marks) and Part C (20 marks), each set in a different scenario relating to your role as trainee internal auditor. Again referring to the wage payment review with the same four controls listed - (I) authorisation of overtime by the section head, (II) the payroll administrator's check of the payroll for arithmetic accuracy, (III) the payroll manager matching the wages cheque amount to total net wages for the period, and (IV) employees signing for their wages - give one basic audit procedure you could use to test the reliability of each of these four controls.Show the full question

  22. Question 3.1 · Fraud and fraud risk · 6 marks

    You work as an internal auditor at Creative Business, a short-term insurance company. The following facts apply to the company: (I) the company adheres to the principles of sound corporate governance; (II) the remuneration of the directors is largely dependent on the company's financial results; (III) management decisions are strongly influenced by the managing director, who is described as a clever but forceful, autocratic man; (IV) recommendations made by the internal auditors to management at the conclusion of an audit are implemented in good time; (V) the financial director shows little regard for the external auditors, describing the annual audit as an irritation; (VI) the company has converted itself from a complex corporate structure to a simpler one by unbundling itself; (VII) the staff in the information technology department are very inexperienced; and (VIII) the company's motto is 'no question – we will be number one', with employees encouraged to be aggressive and competitive since progress depends on results. With reference to the Standards, explain what responsibility an internal auditor has regarding the prevention and detection of fraud.Show the full question

  23. Question 3.2 · Fraud and fraud risk · 16 marks

    You work as an internal auditor at Creative Business, a short-term insurance company. The following facts apply to the company: (I) the company adheres to the principles of sound corporate governance; (II) the remuneration of the directors is largely dependent on the company's financial results; (III) management decisions are strongly influenced by the managing director, who is described as a clever but forceful, autocratic man; (IV) recommendations made by the internal auditors to management at the conclusion of an audit are implemented in good time; (V) the financial director shows little regard for the external auditors, describing the annual audit as an irritation; (VI) the company has converted itself from a complex corporate structure to a simpler one by unbundling itself; (VII) the staff in the information technology department are very inexperienced; and (VIII) the company's motto is 'no question – we will be number one', with employees encouraged to be aggressive and competitive since progress depends on results. For each of the eight conditions described about Creative Business (numbered I to VIII), state whether it will increase or decrease the risk of fraud occurring within the company, and provide a motivation for your answer in each case. Present your answer using a table with columns for the Question Number, whether the risk will Increase or decrease, and the Motivation for your choice.Show the full question

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