AUI2601 ASSIGNMENT 2 SOLUTIONS 2022 SEMESTER 2
QUESTION 1
QUESTION 1 25 MARKS
Scenario A
Medical Supplies (Pty) Ltd manufactures and sells medical equipment. You are the newly
appointed chief audit executive (CAE) for the recently established internal audit function in
the company. The board and the chief executive officer (CEO) are in dispute over who the
CAE should report to and have asked for your guidance on the matter.
REQUIRED MARKS
1.1 Based on the information in scenario A:
Explain the type of reporting preferred for organisational independence purposes according to
the International Standards for the Professional Practice of Internal Auditing (Standards). [2]
To achieve the degree of independence necessary to effectively carry out the responsibilities
of
the internal audit activity, the chief audit executive has direct and unrestricted access to senior
management and the board. This can be achieved through a dual-reporting relationship
(Interpretation of Standards1100 Independence and Objectivity) in which the CAE reports
functionally to the Audit Committee and administratively to the Chief Executive Officer.
1.2 Provide two (2) reasons why reporting functionally to the CEO is not an ideal reporting
structure for the internal audit function. [4]
The influence and authority of the internal auditor may be affected if such audit matters
receive the attention of the CEO to the detriment of other management matters, the
efficiency of management will suffer and distrust might increase.
, Owing to the fact that the CEO is usually a fairly busy official, the CAE may find that
he or she does not receive the guidance and support necessary to perform his or her
task effectively.
1.3 Explain to the board how they can support internal audit function to ensure that
independence is upheld by listing four (4) examples of functional reporting activities. [4]
Organizational independence is effectively achieved when the chief audit executive reports
functionally to the board. Examples of functional reporting to the board involve the board:
• Approving the internal audit charter.
• Approving the risk-based internal audit plan.
• Approving the internal audit budget and resource plan.
• Receiving communications from the chief audit executive on the internal audit activity’s
performance relative to its plan and other matters.
• Approving decisions regarding the appointment and removal of the chief audit executive.
• Approving the remuneration of the chief audit executive.
• Making appropriate inquiries of management and the chief audit executive to determine
whether there are inappropriate scope or resource limitations.
1.4 The COSO model provide guidance on the internal control process.
Name and give two (2) examples of a component of the COSO model that emphasises on the
behavioural conduct of the board and senior management to promote governance. [3]
Control environment :
Scenario B
Medical Supplies (Pty) Ltd management believes the internal audit function is responsible
for
policing whether employee complies with policies and procedures. As the CAE, you decided
to organise a session with senior management to explain the role, purpose and authority of
internal auditing in the company.
QUESTION 1
QUESTION 1 25 MARKS
Scenario A
Medical Supplies (Pty) Ltd manufactures and sells medical equipment. You are the newly
appointed chief audit executive (CAE) for the recently established internal audit function in
the company. The board and the chief executive officer (CEO) are in dispute over who the
CAE should report to and have asked for your guidance on the matter.
REQUIRED MARKS
1.1 Based on the information in scenario A:
Explain the type of reporting preferred for organisational independence purposes according to
the International Standards for the Professional Practice of Internal Auditing (Standards). [2]
To achieve the degree of independence necessary to effectively carry out the responsibilities
of
the internal audit activity, the chief audit executive has direct and unrestricted access to senior
management and the board. This can be achieved through a dual-reporting relationship
(Interpretation of Standards1100 Independence and Objectivity) in which the CAE reports
functionally to the Audit Committee and administratively to the Chief Executive Officer.
1.2 Provide two (2) reasons why reporting functionally to the CEO is not an ideal reporting
structure for the internal audit function. [4]
The influence and authority of the internal auditor may be affected if such audit matters
receive the attention of the CEO to the detriment of other management matters, the
efficiency of management will suffer and distrust might increase.
, Owing to the fact that the CEO is usually a fairly busy official, the CAE may find that
he or she does not receive the guidance and support necessary to perform his or her
task effectively.
1.3 Explain to the board how they can support internal audit function to ensure that
independence is upheld by listing four (4) examples of functional reporting activities. [4]
Organizational independence is effectively achieved when the chief audit executive reports
functionally to the board. Examples of functional reporting to the board involve the board:
• Approving the internal audit charter.
• Approving the risk-based internal audit plan.
• Approving the internal audit budget and resource plan.
• Receiving communications from the chief audit executive on the internal audit activity’s
performance relative to its plan and other matters.
• Approving decisions regarding the appointment and removal of the chief audit executive.
• Approving the remuneration of the chief audit executive.
• Making appropriate inquiries of management and the chief audit executive to determine
whether there are inappropriate scope or resource limitations.
1.4 The COSO model provide guidance on the internal control process.
Name and give two (2) examples of a component of the COSO model that emphasises on the
behavioural conduct of the board and senior management to promote governance. [3]
Control environment :
Scenario B
Medical Supplies (Pty) Ltd management believes the internal audit function is responsible
for
policing whether employee complies with policies and procedures. As the CAE, you decided
to organise a session with senior management to explain the role, purpose and authority of
internal auditing in the company.
