Tutorial 1

Question 1 Internal auditors can assist management in: Monitoring activities Each year the director of internal auditing prepares a schedule of proposed audits that specify the activities to be monitored. These are presented to executive management and the BOD are adjusted to meet the needs and wished of senior officials. Identifying and minimising risks Many IA organisations identity the more serious risks to the enterprise. These may include such diverse matters as controls over master keys, blank cheques, and rotation/ vacations of employees in key positions. The items on this list are referenced to the regular audits scheduled to be carried out. Audit supervisors make sure that the risks and the controls over them have been thoroughly examined. Validating reports to senior management Senior managers make their decisions on the basis of reports to them. Accurate and timely reports are more likely to produce knowledgeable decisions. Some audit organisations make lists of such executive reports and reference them to scheduled audits. When such audits are made, the auditors review the reports for accuracy, timeliness and meaningfulness. Management decisions are then more likely to be valid. Protecting management in technical fields The growing complexity of business brings with it matters that maybe beyond the scope of the manager who must decide on them. Example: The budget manager in a financial division proposed a method of developing overhead rates on the basis of a computer program using multiple regression analysis. The vice president of finance had no knowledge of the field and therefore no basis for approving or rejecting the plan. He called on the IA. They processed the subordinates calculations on a comparable programme they developed. The initial process revealed errors that were corrected and the budget managers programme then passed the test. The vice president was thereby able to approve the proposed program with confidence.

 Helping in the decision making process Managers make operating decisions, not internal auditors. But IA can supply or validate the data on which these decisions are made. Also, they can evaluate the effect of decisions made and point out risks that were not anticipated. Example: In an organisations, management decided to make a major change in a large produce. This involved redesign of the product and the purchase of new parts to replace the old. The IA, reviewing the results of the decision, learned that the purchasing agents had been instructed on what new parts to buy. But nobody had alerted them to cancel the orders for the old parts that were how obsolete. The auditors immediately notified management who promptly issued instructions to cancel orders for superseded parts.

Question 2 (Answer from slide page 2) Common interests: An effective system of internal control Continuous effective operation of such system Adequate management information flow Asset gate guarding Adequate accounting system Ensuring compliance with statutory and regulatory equipment

Differences: Scope IA determined by management EA laid down by statute Approach IA may have a number of aims (eg: an appraisal of the efficiency of the internal control system and the management information system) EA interested primarily in the truth and fairness of the accounts Responsibility IA answerable only to management EA responsible to shareholders *Both are of course answerable to their consciences and the ethical conceptions of their professional bodies. Areas of work overlap: Examination of the system of internal control Examination of the accounting records and supporting documents Verification of assets and liabilities Observation, enquiry and the making of statistical and accounting ratio measurements

Tutorial 2
Question 1 (a) (b) Major objectives: The system is well controlled. The controls that should be in place Controls are operating effectively The operations are performed efficiently and effectively Opportunities for improvement are identified and communicated Criteria: Previous results of the department Best practices of their companies in the same industry Best practices by leading edge companies access all industries Generally accepted leading edge practices identified in textbooks Policies and objectives set by the organisations

(c) Information gathered: Previous audit results from previous audits Major policies adopted by the organisation for the sales department from company policy and procedural manuals. Major contracts signed in significant customers Management and audit committee concerns with the area from discussions with each party Management objectives in having the audit performed Changes in personnel in the department and the rationale for all significant change Leading edge practices from industry analysis / reported data on leading edge practices from textbooks / industry newsletters. Question 2 answer from slides page 5 and 6 (principles and rules of conduct)