Solution TEST AUD679 October 2020 PDF

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AUDANSWER SCHEME - INTERNAL AUDITOCTOBER 2020This test comprises of three (3) questions. Please answer ALL the questions using the given answer booklet (soft-copy).QUESTION 1a) Explain how internal auditors’ functions can help to create value for the organization. IA review past performance of an or...

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AUD679 ANSWER SCHEME - INTERNAL AUDIT OCTOBER 2020 This test comprises of three (3) questions. Please answer ALL the questions using the given answer booklet (soft-copy). QUESTION 1 a) Explain how internal auditors’ functions can help to create value for the organization. 1) IA review past performance of an organization as well as the current and provide recommendation to improve the organization’s performance 2) A form of management control providing an independent check on the control systems in an organization. 3) Provide consultation services to the management of the organization. (any 2 points and elaborations or any other relevant answers = 4 marks) b) Discuss three (3) success factors to be considered in establishing the internal audit function as a reputable profession. 1) 2) 3) 4) 5)

Professional education and training Professional discipline: The professional Practices Framework Direct reporting channel to the audit committee Awakening of shareholder activism Broad scope of Internal Audit functions (Any 3 points of the above answers or any other relevant answers and elaboration = 6 marks)

c) The role of internal auditors has changed since the last century and many have seen that the profession is indeed making a prominent emergence in the new century. Internal auditors are expected to be more proactive and dynamic in playing their roles within the organization and to consider the community and environment at the same time. Internal auditors are in fact leading the way to a better global environment. Discuss the above statement. 1) The role of IA has evolved as compared to a decade ago. 2) IA is seen as an adding value agent for the organization. 3) The role of IA is important with the development of Corporate governance mandate in Malaysia and around the globe. 4) IA has become a reputable profession with the Professional standards and Practices governing the profession and maintaining high quality of work. 5) IA has set up their own Institute of Internal Audit (IIA) and IIAM in Malaysia to assist and ensure the quality and effectiveness of the IA profession will always be uphold In the current and future generation. (Any of the 5 points above or any other relevant answers with explanations = 10 marks) (Total: 20 marks)

QUESTION 2 Internal auditors have been identified as one of the corporate governance agents responsible to ensure that good corporate governance is practice throughout the organization. Required: a) Explain two (2) duties of the board of directors in accordance with the Malaysian Code of Corporate Governance 2012. 1) Assessing the scope and effectiveness of the systems established by the management to identify, assess, manage and monitor the various risks arising from the organization’s activities. 2) Ensuring senior management establishes and maintains adequate and effective internal controls. 3) Satisfying itself that appropriate controls are in place for monitoring compliance with laws, regulations, supervisory requirements and relevant internal policies. 4) Monitoring and reviewing the effectiveness of internal audit plan and its progress. 5) Considering management’s response to major internal audit recommendations and progress in their implementation. 6) Approving the appointment or dismissal of the head of internal audit. (Any 2 points above with elaborations = 4 marks) b) Explain three (3) roles of internal auditors in ensuring effective corporate governance in an organization. 1) Objective evaluation of the existing risk and internal control framework. 2) Systematic analysis of business processes and associated controls. 3) Reviews of the existence and value of assets. 4) A source of information on major frauds and irregulates. 5) Ad hoc reviews of other areas of concern, including unacceptable levels of risk 6) Reviews of the compliance framework and specific compliance issues. 7) Reviews of operational and financial performance. 8) Recommendations for more effective and efficient use of resources. 9) Assessments of the accomplishment of corporate goals and objectives. 10) Feedback on adherence to the organization’s value and code of conduct/code of ethics. (Any 3 points above with elaborations = 6 marks) c) Discuss the challenges faced by the internal auditors and the audit committee in promoting good governance in an organization. 1) IA provide independent regular and systematic reviews of internal controls so as to provide the audit committee with independent and objective feedback and reports that the internal controls systems continue to operate satisfactorily. 2) Internal auditors might also be asked to evaluate the occurrence of fraud risks in the company. 3) IA has an expanded scope of work where they would have to review, conduct an appraisal of risk management, internal control and governance process. 4) IA should engage with the audit committee.

5) IA should be engaged in both value preservation (compliance) and also value creation (consulting) and they are required to render an opinion on issues highlighted by management. (Any of the 5 points above + elaboration = 10 marks) (TOTAL: 20 marks)

QUESTION 3 Enterprise Risk Management (ERM) is a structured approach aligning strategies, processes, people, technology and knowledge with the purpose of evaluating and managing the risks faced by a company as it creates value. ERM also incorporates a well-structured systematic process to identify business risks and lessen their impact on the company. Required: a) Identify any four (4) factors that demand the management of risks in a company. 1) 2) 3) 4)

To ensure that the system is functioning effectively. To ensure that organizations can minimized losses. IA may help the management to manage the organizational risk using ERM. To plan and mitigate the risk (4 marks)

b) Discuss any three (3) limitations of internal auditors in an organization’s risk management process. 1) 2) 3) 4) 5) 6) 7)

Judgment errors Management override Excessive redundant controls Overreliance on controls Overemphasis on controls or Obsolete controls Negative views on the control by the employees (Any 3 points + elaborations = 6 marks)

c) In ensuring effectiveness in a risk management programme, there are eight (8) components which are essential to achieve the objective of ERM. Discuss any five (5) of the components. 1) 2) 3) 4) 5) 6) 7) 8)

Internal environment Objective setting Event identification Risk assessment Risk response Control activities Information and Communications Monitoring (Any 5 points with elaborations = 10 marks) (TOTAL: 20 marks)...