CFAB 2 - Chapter 9

The scope and objectives of the internal audit function vary widely and depend on the size and structure of the entity and the requirements of its management.

Which TWO of the following functions could internal audit perform and still operate effectively?

• A. Examination of financial and operating information

• B. Review of the company's compliance with laws and regulations

• C. Authorisation of unusual transactions

• D. Development of internal control systems

Which TWO of the following roles could internal audit carry out in respect of risk management and still operate effectively?

• A. Monitoring the company's overall risk strategy

• B. Designing an internal control system in a production department

• C. Testing internal controls in the purchasing department

• D. Implementing internal controls in the sales department

Which THREE of the following roles could the internal audit function take on to help the board in its management of the company and still operate effectively?

• A. Carrying out the statuory audit

• B. Giving expert advice on technical accounting matters

• C. Liaising with the external auditors

• D. Auditing board reports not audited by the external auditors

Internal audit helps in achieving corporate objectives.

For each of the following statements, select whether or not they are true or false.

1. 1. Having an internal audit function is a requirement of the UK Corporate Governance Code.

2. 2. Internal audit can be seen as an internal control in a company.

3. 3. Internal auditors should not get involved in operational matters.

• A. True - True - False

• B. False - True - True

• C. True - False - True

• D. False - False - True

For each of the following statements, concerning internal audit, select whether they are true or false.

1. 1. Internal audit can never be independent of those on whom they are reporting, because they are employees of the company.

2. 2. The UK Corporate Governance Code requires all listed companies in the UK to have an internal audit function.

3. 3. Internal audit focuses on the efficiency and effectiveness of a company's operations by testing its internal controls. They do not carry out substantive testing.

• A. True - True - False

• B. False - True - False

• C. False - True - True

• D. False - False - False

Hiltson Hotels is a global group of hotels. The parent company, Hiltson Holdings plc, employs an internal audit function which carries out audits and investigations on the individual hotels in the group.

Which TWO of the following could the internal audit function carry out and still operate effectively?

• A. Secondment to the accounts department of the Singapore Hiltson to cover the maternity leave of the financial controller

• B. Special investigation into the profits of the New York Hiltson where the group directors suspect a fraud may have been carried out

• C. Tests of the controls at the Edinburgh Hiltson as part of a routine internal audit cycle

• D. Identification of risks at the proposed Nairobi Hiltson, which is due to open in nine months' time

Many of the procedures undertaken by the internal auditor are very similar to those performed by the external auditor.

Which THREE of the following may be performed by the internal auditor if he is to operate effectively?

• A. Monitoring of internal controls

• B. Making recommendations regarding improvements to controls

• C. Examining and testing financial information

• D. Expressing an opinion on the truth and fairness of the financial statements

Which ONE of the following best describes the term 'operational audit'?

• A. Any audit performed by the internal auditor

• B. An audit of the operational processes of the organisation

• C. An audit performed by the operations director

• D. A statutory audit

To which TWO of the following parties would the internal auditor report?

• A. Board of directors

• B. Shareholders

• C. Audit committee

• D. External auditors

Which THREE of the following activities would typically be performed by BOTH the internal and external auditor?

• A. Review of compliance with laws and regulations

• B. Assessment of the effectiveness of internal controls

• C. Review of the efficiency of operations

• D. Carrying out tests of details on transactions and balances