Part 1 of 1 - Topic 6, 7, 8 & 9 Question 1 of 2 1.0 Points (51 Marks) TOPICS 6, 7,8 & 9 Pumps (Pty) Ltd manufactures of water pumps. You are the senior manager internal audit responsible for operations audits. Four new intemal audit trainees were appointed a week ago and the chief audit executive (CAE) tasked you to organise two days of training to ensure that they understand the company processes and to develop their understanding of governance, risk management and control as well as the audit process. You prepared some training material, using previous internal audit reports as examples Governance, risk management and control 1.1 Briefly explain the responsibilities of internal audit regarding governance, risk management and control in your own words. (12) Elements of the COSO framework 1.2 According to the COSO model, internal controls consist of the following five interrelated components: Control environment, Risk assessment, - Control activities, Information and communication, and Monitoring activities Classify the following internal audit findings/weaknesses (2-1) in terms of the elements of the coso model e... x) control activities (9) a) The code of conduct and employee disciplinary policy were not approved by the board, this lead to management behaving in an unethical manner and not being held accountable for their actions. b) Payments made over R250 000 paid by electronic funds transfer (EFT) were not authorised by the financial director as per delegation of authority c) The risk register did not include business risks for financial reporting objectives and there are instances whereby risks were not assessed for likelihood and frequency. d) There is no recruitment policy and procedures to ensure the right people are recruited in the company, c) There is no proper flow of information to ensure that employees are aware of the changes to labour management law and regulation ) The financial system used by the company to accumulate, record, process and summarise information for the preparation of the financial statements was not functioning for a month, this lead to inaccurate financial reporting to the board. ) There is no segregation of duties between requisitioning and ordering of spare materials. h) Management did not monitor the long-term impact of waste material in the environment as required by the laws and regulation. 1) The chief financial officer (CFO) did not share the external audit reports with all relevant managers to rectify deficiencies prior to the next audit. Types of controls 1.3 Classify the controls recommended for Pumps (Pty) Ltd below according to preventative, detective and directive controls. Your answer should be in the format below: No Controls Type of control x) e.g. The financial director reviews Detective exception reports on employee claims. (6) a) The human resources manager inspect that approved leave applications are signed as per human resources policy and procedures. b) Review of reports on unsuccessful attempts to gain access to the system should be done on a weekly basis and followed-up. c) Employees should use biometric recognition to gain access to the warehouse. d) Insurance cover should be obtained against damage and loss of manufacturing machines. e) A company policy on trade receivables should clearly outline the criteria and conditions for discount allowed. ) The accounting clerk should reconcile sales joumal with internal sales orders and delivery notes. Type of audit procedures and audit evidence 1.4 The third phase of the internal audit process is audit fieldwork and during this phase, the auditor performs audit procedures. Identify the type of audit procedures for the following scenarios e.g., x) inspection: (6) a) Examine sales document for authorisation signatures of all discounts and allowances, b) Arrange an interview with the store manager to determine the level of understanding on the impact of incorrect storage of spare materials. c) Physically verify the existence of the acquired asset recorded under non-current assets. d) Compare the current year's trade creditors as a percentage of the current liabilities with previous years and with industry data. e) Take a walkthrough in the warehouse to confirm that inventory has been properly stored. f) Confirm with Coverage Insurance (Pty) Ltd whether damage to company printers is adequately covered. 1.5 From the above scenarios (a-f), identify the type of audit evidence that was gathered e.g., x) physical evidence (6) Phases of internal audit 1.6 The following is a list of activities the internal audit performed. Classify the activities according to the phases of internal audit process e.g., k) Audit reporting and follow-up (5) (a) The senior manager informed the operations manager that the warehouse and inventory internal audit engagement will take place in two weeks and is scheduled for the period 01 to 22 July 2021. (b) The manager of internal audit held a discussion with the chief financial officer (CFO) on the action plan required for weaknesses identified in the financial system. (c) Boleng Ramos, discussed the risk assessment report with the warehouse manager to identify any further risks identified in the warehouse division prior to finalisation of the risk-based internal audit plan. (d) The senior internal auditor physically inspected the dispatch process to ensure that procedures for dispatch are carried out as outlined in the policy and procedures document. (e) Bruce Shan, obtained details of the layout of the warehouse facilities with an indication of the tasks that are performed and the extent of each one. Elements of audit finding 1.7 Audit reporting is the final stage of the internal audit process. In preparing an audit report of the findings, each of the aspects might be classified as criteria, cause, condition, effect and recommendation. Identify each of the following scenarios as either Criteria, Condition, Cause, Effect or Recommendations". Your answer should be in the format below: No Statement Aspects of a finding x) This resulted in reputational damage to Effect the company (7) a) In the absence of any employee who holds authority, a stand-in should be appointed with necessary authority delegation of authority for continuity of operations and to ensure all necessary work is properly approved. b) The infrastructure manager was on study leave and there was no stand-in manager appointed to approve contracts for urgent maintenance nor delegation of authority. c) Non-compliance with supply chain management policies and procedures could result in financial loss if the contractor fails to deliver and this could be viewed as unauthorised expenditure. d) Appointments of contractors for road construction and maintenance is done in accordance with supply chain management policies and procedure and an approved delegation of authority. e) A Contract for maintenance of potholes to the value of R300 000 was not approved by the infrastructure manager as per maintenance policy and procedure. f) Potholes on road N3 leading to Durban were not repaired by the contractor leading to a loss of R120 000 which was classified as wasteful expenditure. g) The stand-in infrastructure manager was appointed but without authority to approve any contracts. Maximum number of characters (including HTML tags added by text editor): 32,000 Part 1 of 1 - Topic 6,7,8 & 9 Question 2 of 2 1.0 Points (20 Marks) TOPICS 6,7,8 & 9 Relationship between the audit committee and the CAE 2.1 Discuss five (5) factors that could give rise to a poor relationship between internal auditors and external auditors. (5) Compilation of audit working papers 2.2 The information below was compiled by a trainee internal auditor, Samuel Naidoo, on 15 January 2021 and filed in an arch lever file, marked "IARM001". Samuel's file was reviewed by the senior auditor, Janine Moraba on 25 January 2021. You are part of the team that conducted audit in the finance section and Sarah tasked you to compile a proper working paper to serve as an example for Samuel. She also instructed that Samuel's details should reflect on the working paper because he compiled the information. Your audit working paper should indicate all the elements of a proper working paper. (15) "Out of a sample of 5 invoices, only 2 were approved by the financial manager for payment. I noted that the control over payment approval is ineffective as it could be processed for payment without approval, a finding is raised. The sample was taken from a list of 15 invoices received from the financial manager on 10 January 2021. The purpose of the testing was to verify that all payments made were approved by the financial manager. I inspected the invoice and payment instruction attached for the financial manager's signature. I then verified that the signature matches the specimen signature as per delegation of authority." The table below is evidence of my testing: in R Signature matches specimen Invoice Payment Date of Amount Invoice No instruction payment properly no approved IR2003 7681 11-06-2020 2,600 INB230 7682 01-03-2020 5,500 INV050 7683 15-06-2020 16,301 BES21 7684 19-08-2020 21,999 Q2001 7685 23-05-2020 12.890 XX