Chapter 4

Question 1

What should you be able to distinguish between by the end of the chapter?

Answer 1

The role-players within public and private sector organisations

Question 2

Who do internal auditors typically report their findings to?

Answer 2

Superiors, senior management, the Board of Directors (BOD), and the Audit Committee (AC)

Question 3

What skills are crucial for internal auditors to succeed professionally?

Answer 3

Good human relation skills

Question 4

What is a key responsibility of internal auditors?

Answer 4

Examine and evaluate how people do their work

Question 5

True or False: Internal auditors must understand both individual and group dynamics.

Answer 5

True

Question 6

What is the typical organisational structure that includes internal auditors?

Answer 6

Owners, Financial director, HR director, Marketing director, Audit committee, External auditors, Operations director, Board of Directors, Chief Executive Officer

Question 7

Name three types of organisations in the public sector.

Answer 7

• National government
• Provincial government
• Local municipalities

Question 8

What is the role of the Board of Directors (BOD)?

Answer 8

Determines the organisation’s strategy and direction

Question 9

What is the purpose of the Chief Audit Executive reporting to the BOD?

Answer 9

To strengthen independence and provide a reporting line regarding management’s wrongdoings and/or inefficiencies

Question 10

What does functional reporting in internal auditing include?

Answer 10

• Approving the internal audit mandate and charter
• Communicating audit engagement findings
• Approving the appointment of the chief audit executive
• Determining remuneration of staff
• Reporting scope limitations

Question 11

What is the main difference between executive and non-executive directors?

Answer 11

Executive directors are part of day-to-day activities; non-executive directors are not

Question 12

What is the importance of an effective Audit Committee (AC)?

Answer 12

Ensures independence of the Internal Audit Function (IAF) and addresses audit findings

Question 13

How do internal auditors add value to operations?

Answer 13

By working with management to improve processes and provide assurance

Question 14

Fill in the blank: Internal auditors must stay _______.

Answer 14

objective

Question 15

What perception do 81% of staff have about internal auditors?

Answer 15

They see IA’s as policemen or attorneys

Question 16

What is participative auditing?

Answer 16

IA stays in control of the audit but allows staff to assist in obtaining evidence and reaching conclusions

Question 17

What are some reasons line staff may be hostile towards support staff?

Answer 17

• New procedures disrupt comfort zones
• Revised methods expose inefficiencies
• They only see the hassle of change

Question 18

What is the primary objective of external auditors (EA)?

Answer 18

To express an opinion on whether the financial statements fairly present the financial position of the organisation

Question 19

What differentiates internal auditors’ objectives from those of external auditors?

Answer 19

Internal auditors serve the needs of the organisation, while external auditors serve the needs of owners and third parties

Question 20

What are the two types of reporting for internal auditors?

Answer 20

• Functional reporting to the Audit Committee
• Administrative reporting to the CEO or senior manager

Question 21

True or False: Internal auditors are independent contractors.

Answer 21

False

Question 22

What should the Audit Committee ensure regarding management processes?

Answer 22

That proper processes are in place to ensure accountability

Question 23

What is the main focus of internal auditors?

Answer 23

Evaluating controls designed to achieve the organisation’s goals and objectives

Question 24

What should internal auditors do to maintain objectivity?

Answer 24

Not get involved in operations or decision-making processes

Question 25

What is a common conflict between internal auditors and staff?

Answer 25

Staff see internal auditors as watchdogs highlighting incompetencies

Question 26

How can internal auditors support the Audit Committee?

Answer 26

* Review the AC charter * Draft the AC's meeting agenda * Assist with distribution of materials for meetings

Question 27

What is an outcome of effective participative auditing?

Answer 27

A win-win positive outcome benefiting both internal auditors and staff

Question 28

What role does the Chief Audit Executive (CAE) play in communication with the Audit Committee?

Answer 28

Keeps AC informed of emerging trends and successful practices in internal auditing

Question 29

What is the professional body associated with Internal Auditors (IA)?

Answer 29

As a Certified Internal Auditor with the IIA ## Footnote The IIA stands for the Institute of Internal Auditors.

Question 30

What is the professional body associated with External Auditors (EA)?

Answer 30

As a CA(SA) with SAICA and with IRBA ## Footnote SAICA stands for the South African Institute of Chartered Accountants and IRBA stands for the Independent Regulatory Board for Auditors.

Question 31

What is required for all government entities under the PFMA and MFMA?

Answer 31

Internal Audits (IA) ## Footnote PFMA stands for the Public Finance Management Act and MFMA stands for the Municipal Finance Management Act.

Question 32

Which framework requires auditing for companies registered on the JSE Limited?

Answer 32

King IV ## Footnote King IV refers to the King Report on Corporate Governance.

Question 33

What does IA focus on?

Answer 33

Past, present, and future events through evaluating controls designed to achieve the organisation’s goals and objectives.

Question 34

What is the main focus of EA?

Answer 34

The accuracy of historical information expressed in the financial statements.

Question 35

What is the main concern of Internal Auditors (IA)?

Answer 35

With the prevention and detection of fraud (not main concern).

Question 36

What is the main concern of External Auditors (EA)?

Answer 36

About material misstatements in the financial statements.

Question 37

What standards do Internal Auditors (IA) follow?

Answer 37

GIAS ## Footnote GIAS stands for Generally Accepted Internal Audit Standards.

Question 38

What standards do External Auditors (EA) follow?

Answer 38

International Auditing Standards and Code of Ethics issued by SAICA.

Question 39

What types of audits do Internal Auditors (IA) perform?

Answer 39

Financial, compliance, operational, IT, environmental, forensic, risk management audits, consulting.

Question 40

What type of audits do External Auditors (EA) perform?

Answer 40

Financial audits.

Question 41

What is a benefit of coordination for External Auditors (EA)?

Answer 41

Gain more insight into the workings of the organisation due to the in-depth knowledge and experience of the IA.

Question 42

What is a benefit of coordination for Internal Auditors (IA)?

Answer 42

IA’s status can be enhanced if the IAA has been evaluated by the EA.

Question 43

What can the organisation enjoy through effective coordination between IA and EA?

Answer 43

A material saving on audit fees.

Question 44

What is the responsibility to coordinate efforts of EA’s and IA’s?

Answer 44

Lies with the Board of Directors (BoD), but is normally delegated to the Chief Audit Executive (CAE).

Question 45

What must CAE understand about the work performed by EA?

Answer 45

The nature, extent, and timing of work.

Question 46

What should be discussed in periodic meetings between IA and EA?

Answer 46

Audit coverage, common understanding of audit techniques, methods, and terminology.

Question 47

What do EA’s need to consider before relying on IA’s work according to International Standards on Auditing 610?

Answer 47

Organisational status, independence, objectivity.

Question 48

Fill in the blank: EA have to consider the _______ of the work performed by IA.

Answer 48

[scope]

Question 49

What skills are needed to achieve good relationships with all role-players?

Answer 49

Sound communication, behavioural and presentation skills.

Question 50

What is essential for effective communication with EA?

Answer 50

Understanding the EA’s techniques, methods, and terminology.

Question 51

True or False: IA’s can report to any level of management without limitations.

Answer 51

False.

Question 52

What does the CAE need to ensure regarding follow-up and corrective actions?

Answer 52

Appropriate follow-up and corrective action have been taken.

Question 53

What should CAE provide to EA’s for effective coordination?

Answer 53

Sufficient information so that EA’s can understand the techniques, methods, and terminology of the IA’s.