ACCA Audit

TECH PLANET (Questions 1 - 5) You are the internal auditor of Tech Planet, which runs a chain of DVD rental stores. The company guarantees that if a movie is not available for rental, the customer will get free alternative DVD rental until that movie DVD comes back into inventory. The company purchases several copies of each movie, with the aim of meeting demand, but has no way of monitoring whether their procurement strategy is effective. Procurement decisions are made and actioned locally (by each store). 1. Which TWO of the following are TRUE about BOTH internal audit and external audit? A. Both require professional qualifications for the auditor to be effective in carrying out their duties B. Both are expected to communicate with those charged with governance, particularly the Audit committee C. Independence and objectivity are essential in executing their role and duties D. Family members cannot work on the same audit team 2. Identify TWO business risks from the above scenanio A. Procurement decisions are made locally. This could lead to too few copies being purchased, leading to lost revenue or excessive purchases/costs B. A (possibly discounted) pre-booking system could be introduced. C. Centralised purchasing of all DVDs should be carried out by head office to ensure that the maximum discounts are obtained. D. Procurement decisions are made locally. Bulk discounts for purchase may therefore not be obtained 3. The role of internal audit is set by management and the type of work they do will depend on what management requires of them. A. True B. False C. Sometimes D. Only in exceptional circumstances, based on Acca's code of ethics 4. Which of the following are possible controls/strategies for the business risks at Virtual World?. [more than one response is possible] A. There is no pre-booking system in operation so stores cannot predict demand. This makes it more likely that the current guarantee will come into force B. Centralised purchasing of all videos should be carried out by head office to ensure that the maximum discounts are obtained C. A central budget should be introduced, establishing criteria by which the performance of individual stores is measured D. No central budgets are produced, as such each store has autonomy on the number of DVDs to purchase and maintain in inventory. This guarantees there will always be adequate supply 5. Which of the following statements are true (if any)? (I) The external audit operates essentially on an annual cycle, geared to the entity's financial reporting date. (II) Internal audit work is not linked precisely to the financial reporting date. As a result of this, intemal audit departments have more flexibility in the timing of their work and have scope for operating in a longer time frame. A. (I) only B. (II) only C. Both (I) and (II) D. Neither (I) nor (II)