Lily Limited imports electrical goods from abroad and distributes them to various wholesale companies. It has a large number of head office employees including an internal audit department that services the head office and also the various storage and distribution depots located around the country. Lily Limited owns its head office premises and all of its depots. The internal audit manager reports to the companys financial director who has ultimate responsibility for the effective and efficient operation of the internal audit department. At a recent meeting between Lily Limiteds chairman and representatives of the companys auditors, the chairman enquired as to why they could not place more reliance on the work carried out by the internal audit department when carrying out their own external audit procedures. In their $3$

response the auditors made reference, amongst other matters, to an experienced auditor and independence of the internal audit function.

Required:

a$)$ Defining the term internal auditing.

b$)$ Identifying and explaining three matters about which the internal audit manager should have a reasonable understanding if she is to meet the recognised criteria of being an experienced auditor.

c$)$ Explaining the importance of an independent internal audit function and why Lily Limiteds financial director should not be responsible for the effective and efficient operation of the companys internal audit department.

d$)$ Compare and contrast the role of external and internal audit.