AUDB323 Audit and Investigation

Review Questions: Introduction to Internal Auditing

Question 1

Matalas Co sells cars, car parts and petrol from 25 different locations in one country. Each branch
has up to 20 staff working there, although most of the accounting systems are designed and
implemented from the company’s head office. All accounting systems, apart from petty cash, are
computerised, with
the internal audit department frequently advising and implementing controls within those
systems.

Matalas has an internal audit department of six staff, all of whom have been employed at Matalas
for a minimum of five years and some for as long as 15 years. In the past, the chief internal auditor
appoints staff within the internal audit department, although the chief executive officer (CEO) is
responsible for appointing the chief internal auditor. The chief internal auditor reports directly to
the finance director. The finance director also assists the chief internal auditor in deciding on the
scope of work of the internal audit department.

Required:
Explain the issues which limit the independence of the internal audit department in Matalas Co.
Recommend a way of overcoming each issue.

Question 2
Greystone Co is a retailer of ladies clothing and accessories. It operates in many countries around
the world and has expanded steadily from its base in Europe. Its main market is aimed at 15 to 35
year olds and its prices are mid to low range. The company’s year end was 30 September 2014.

In the past the company has bulk ordered its clothing and accessories twice a year. However, if
their goods failed to meet the key fashion trends then this resulted in significant inventory write
downs. As a result of this the company has recently introduced a just in time ordering system.
The fashion buyers
make an assessment nine months in advance as to what the key trends are likely to be, these
goods are sourced from their suppliers but only limited numbers are initially ordered.

Greystone Co has an internal audit department but at present their only role is to perform regular
inventory counts at the stores.

Required
Describe additional assignments that the internal audit department of Greystone Co could be
asked to perform by those charged with governance.