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Core Markers Comment Sheet

Course Name: Internal Auditing and Controls (MU1)
Assignment: 5
Modules: 1 to 9

General Comments

Core Markers Comments are not full solution sets to the questions. Rather, they are intended to
provide students with guidance in responding to each of the assignment questions by providing
direction as to where the questions responses can be found within the readings/textbook (i.e., topic
location); clarification/direction on complex readings; layout and format suggestions; and from time to
time, segments of the solution sets.

If you have any comments or suggestions for improvements of these markers comment sheets,
please forward them to your marker or CGA-BC. Your feedback is important to us.

This assignment covers the material from Module 9 as well as some questions which integrate
material earlier modules. Module 9, like Module 8, provided you with realistic and challenging
opportunities to apply the internal auditing concepts and methodologies developed in earlier modules
to the three more functional areas of operations. The module notes explain the role, functions and
risks associated with the human resources planning, treasury, and strategic planning activities and
how to develop audit programs for risk-based internal audits of these functions.

Question 1 (20 marks)

1. The correct answer is c. Managing the risks arising from foreign exchange exposures is
usually part of the responsibilities of the treasury function.

2. The correct answer is c. The internal auditor should encourage formation of disclosure
committees to review oversight of the financial reporting process. Such a committee would
meet prior to release of the quarterly and annual financial statements.

3. The correct answer is d. The lack of appropriate controls over independent contractors is an
example of a weakness.

4. The correct answer is b. High overtime can be a direct result of ineffective human resources
planning with respect to identifying resource needs and/or developing plans to address
shortfalls in resources.

5. The correct answer is a. The responsibility for monitoring controls on a day-to-day basis is
always that of line management, regardless of the size of the company. Because smaller
public companies may not have internal audit departments, line management in such
companies may be the only ones able to monitor controls continuously.

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6. The correct answer is a. Production and finance should also be involved in pricing decisions.
(Marketing research costs are generally discretionary and budgets may be set with reference
to industry averages. Target costing is one way of attempting to ensure adequate margins in
price-sensitive market situations.)

7. The correct answer is c. These are all ways of managing risks associated with the workforce.

8. The correct answer is c. The purchasing department is responsible for monitoring the
performance of suppliers and taking it into account before placing repeat orders.

9. The correct answer is d. The audit committee will usually oversee internal and external audit,
the entitys financial reporting process and its risk management and control processes.
Monitoring compliance with the entitys banking arrangements is not a responsibility of the
audit committee of the board.

10. The correct answer is d. The staffing level should not be determined by the location of the
unit being audited but should be based on the assessment of risks and complexity of the
operations being audited and the experience of the staff available. Care must be taken,
however, to ensure that there is adequate supervision wherever the work is done.

Question 2 (14 marks)

This question is based on material found in Topics 5.6, 5.9 and 7.8.

This question, like question 2 in Assignment 4, is similar to questions which have appeared on most
of the course examinations in recent years. The question was slightly different in that you were also
asked to identify potential improvements in the presentation of the data.

Again, because of the importance of this type of question on the course examination, the full answer
is provided:

a) Preliminary conclusions may include the following:
Some staff members (Lower, Marshall, and Whitehead) have software assigned to them
but no computer.
One staff member (Tsui) has a computer assigned but no software.
One staff member (Lower) has two copies of Excel assigned this may be sloppy
record-keeping but could also indicate a potential fraud.

b) Improvements to the presentation of the data may include
sorting by user name to facilitate determining what software and hardware each staff
member has
sorting by type of software to identify multiple copies assigned to one employee

c) Other tests that may be performed are
reconcile number of copies of software to licences paid for
investigate all situations where employees have hardware but no software, or vice versa
investigate situations where employee has two copies of Excel
verify all software actually on computers, particularly for employees with computers and
no software assigned

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(2 marks were awarded for each valid conclusion, improvement, or audit procedure, to a maximum of
6 marks, 2 marks, and 6 marks per part, respectively.)

Question 3 (14 marks)

This question is based on material found in Topics 5.6 and 9.3 and was included to provide
additional practice in a type of question which has appeared on most recent course examinations.

In answering the question, you should be careful not to jump to the conclusion that a fraud is
necessarily taking place. Two payments to the same bank account could indicate payment of a
bonus or multiple employees who are members of the same household. Nonetheless, they raise the
possibility of a fraud, and additional audit procedures should be designed to confirm or dispel any
suspicions in that regard. The auditor should, for example, carry out procedures to determine why
multiple payments were made to the same bank account in the same pay period.

Question 4 (26 marks)

This question is based on material found in Topics 8.6 and 8.7.

Your answer should have begun with a brief overview of the four phases in the internal audit
process: the planning, examination, reporting, and monitoring phases.

You should then have set out the sources of information available to you at the planning stage. This
requires you to integrate general knowledge from Module 4 with specific knowledge related to
production from Module 8. You could have identified the sources of information available (e.g.,
organization charts, job descriptions, etc.) and the systems and practices that you would need to
gain familiarity with (e.g., forecasting production demand, determining raw material needs,
production scheduling, etc.). You should have concluded this section of your answer with a brief
statement of how you would use that information to determine the objectives and scope of your audit.

The final part of your answer should have identified some of the criteria that you would use in
auditing the control of labour and the related audit procedures that you would use to determine if
actual performance met the criteria. Reading 8-8 might be helpful in identifying appropriate criteria
and procedures.

Question 5 (26 marks)

This question is based on material found in Topics 9.1 and 9.2.

This question is relatively straightforward in testing students understanding of the nature and audit of
human resource planning; the challenge in the question lies in adapting the concepts to the specific
circumstances of SciTech.

The nature of human resources planning activities is set out in Topic 9.1 of the module notes. Steps
in the audit of human resource planning include:

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obtaining knowledge of human resources systems and practices;
reviewing the overall organization for human resources management;
reviewing systems and practices for human resources planning;
reviewing the companys human resources planning process (including its methods of
forecasting demand, forecasting supply, determining human resource requirements, and
determining and implementing action plans;
reporting and monitoring the implementation of recommendations.