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.
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.
