3. Management, Internal Audit And External Audit

Question 0

The management framework is in many ways analogous to the — framework

Answer 0

COSO

Question 1

— is supervised, run and controlled for the board by more junior, individual managers

Answer 1

Assurance

Question 2

When explaining how management contributes to corporate governance, what is a good framework to use?

Answer 2

The COSO framework

Question 3

Who operates the management framework on behalf of the board?

Answer 3

Management

Question 4

What is the chief disadvantage of management’s assurances to the board?

Answer 4

It is not independent or objective

Question 5

What two governance functions mitigate the subjectivity of management assurance?

Answer 5

Internal and external audit

Question 6

Name some assurance functions other than management, internal audit and external audit

Answer 6

Audit committee
Quality or planning team
Consultants and hired specialists
Non-executive directors
Specialist units (health and safety)
External reviewers

Question 7

As well as providing assurance, management also contributes to corporate governance by developing — and —

Answer 7

Policies and procedures

Question 8

— are management’s written guidance on the principles governing operations

Answer 8

Policies

Question 9

List some formal communication methods through which policies may be communicated to the organisation

Answer 9

Documented policy statements
Employee newsletters
Education workshops
Management or team meetings
Intranet

Question 10

A key role of management is seeking to achieve the organisation’s — through their activity and that of their staff

Answer 10

Objectives

Question 11

A key role of management is ensuring the e–, e– and e– management of risk

Answer 11

Economic, efficient and effective

Question 12

A key role of management is encouraging an appropriate — culture in the organisation

Answer 12

Ethical

Question 13

A key role of management is proactive — and — over their activities and functions

Answer 13

Monitoring and control

Question 14

A key role of management is the provision of accurate, complete, timely and objective — and — when required

Answer 14

Reporting and assurance

Question 15

A key role of management is ensuring they and their staff comply with p— and external — and —

Answer 15

Policies

Laws and regulations

Question 16

Which is the most obvious occasion at which the board of a private sector organisation reports to its shareholders?

Answer 16

Annual General Meeting

Question 17

Through what medium does the board primarily report to shareholders?

Answer 17

The Annual Report

Question 18

What are the main sections of an Annual Report?

Answer 18

Chairman’s report
Chief Executive Officer’s Report
Financial Statements
External Auditor’s Report

Question 19

External auditors report on financial operations to the —

Answer 19

Shareholders

Question 20

Internal auditors report internally to the audit committee on g–, r– m– and c– issues

Answer 20

Governance, risk management and control

Question 21

External — authorities may also require specific reporting from the organisation at predetermined intervals

Answer 21

Reporting

Question 22

Define internal audit (again!)

Answer 22

An independent, objective
Assurance and consulting activity
Designed to add value and improve an organisation’s operations.
It helps an organisation achieve its objectives
By bringing a systematic, disciplined approach
To evaluate and improve
The effectiveness of risk management, control and governance processes

Question 23

Internal audit in most countries is not a statutorily — function

Answer 23

Regulated

Question 24

Internal auditors who are members of the IIA are required to comply with what two key documents?

Answer 24

1. International Standards for the Professional Practice of Internal Auditing 2. Code of Ethics

Question 25

The role of internal audit includes providing an i-- and o-- analysis of the organisation's activities

Answer 25

Independent and objective

Question 26

The role of internal audit includes providing the board, audit committee and senior management with objective --- on corporate governance, risk management and control activity

Answer 26

Assurance

Question 27

The role of internal audit includes producing r-- and r-- for improvement for management

Answer 27

Reports | Recommendations

Question 28

The role of internal audit includes promoting awareness of r--- and c--- to help embed corporate governance

Answer 28

Risk and control

Question 29

The role of internal audit includes providing c--- and advice to managers on risk identification and assessment, mitigation, specific controls and related areas of expertise

Answer 29

Consultancy

Question 30

In providing oversight for an internal audit function, audit committees should ensure the function is structured in such a way that achieves organisational ---

Answer 30

Independence

Question 31

The head of internal audit should report to the --- --- --- and have a direct reporting line into the chair of the --- ---

Answer 31

Chief executive officer | Audit committee

Question 32

The audit committee should review the internal audit function's --- and ensure unrestricted access to ---, --- and --- ---

Answer 32

Charter | Records, personnel and physical properties

Question 33

The audit committee should review and approve the annual internal audit b---

Answer 33

Budget

Question 34

Decisions requiring the hiring or termination of appointment of the head of internal audit should require endorsement by...

Answer 34

The chair of the audit committee

Question 35

The chair of the audit committee should be appropriately involved in --- --- and compensation decisions related to the head of internal audit

Answer 35

Performance evaluation

Question 36

The audit committee should regularly provide the head of internal audit and the external audit with the opportunity to --- --- with the committee without the presence of management

Answer 36

Confer privately

Question 37

What is the core purpose of external audit?

Answer 37

To undertake an independent review of the financial statements To ensure they are objective and can be relied upon

Question 38

In the private sector, external auditors will give their opinion on whether the company is a g--- c---

Answer 38

Going concern

Question 39

External audit is a --- --- for large and public companies

Answer 39

Statutory requirement

Question 40

In the public sector, external audit of Central government is undertaken by...

Answer 40

The National Audit Office

Question 41

The primary external auditor of local public services is...

Answer 41

The Audit Commission

Question 42

External audit involves consideration and assessment of the c---, r---, a--- and p--- of the financial records.

Answer 42

Completeness Relevance Accuracy Presentation (CRAP)

Question 43

What are the five key principles that underpin the work of external audit?

Answer 43

``` Evidence Due audit care Fair presentation Independence Ethical conduct ```

Question 44

Fundamental to the work of external auditors is v---, which implies that another body of examiners, using the same data, would make very similar conclusions and recommendations

Answer 44

Verifiability

Question 45

Good practice in corporate governance now considers limits on --- --- --- that external auditors should undertake as appropriate

Answer 45

Non-audit work

Question 46

Name the foremost non-audit services that external audit firms should not now provide to their clients (unless not providing external audit services to same client)

Answer 46

``` Accountancy Financial IT Systems development Internal audit ```

Question 47

Why might external auditors be seen as MORE independent than internal auditors

Answer 47

External firm

Question 48

Why might external auditors be seen as LESS independent than internal audit?

Answer 48

Receive audit fees

Question 49

What are the fundamental similarities between internal and external audit?

Answer 49

They both provide assurance They are both independent They both have close working relationships with the audit committee They both work to professional and ethical standards They are both mandatory in the UK public sector They both work in a systematic and disciplined way

Question 50

What is the fundamental difference between internal and external audit in terms of their reporting lines?

Answer 50

External audit reports to shareholders | Internal audit reports to senior management, usually to the audit committee and/or CEO

Question 51

What is the fundamental difference between internal and external audit in terms of statutory requirements?

Answer 51

In the UK private sector, external audit is a statutory requirement for a plc. This is not the case for internal audit

Question 52

According to the UK Corporate Governance Code, what should a listed company do if it does not have an internal audit function?

Answer 52

Review the need for one annually | Explain reasons for not having one in the annual report

Question 53

What is the difference between internal and external auditors with respect to professional qualification?

Answer 53

External auditors must be professionally qualified with a recognised professional body Internal auditors have no such requirement

Question 54

What is the difference between internal and external audit with respect to the focus of audit work?

Answer 54

External audit focuses on financial systems and controls | Internal audit covers a wide range of systems and processes

Question 55

What is the difference between internal and external audit with respect to knowledge of the company?

Answer 55

Internal audit will tend to develop a better understanding of the organisation than external audit

Question 56

What are the three main approaches to locating internal audit functions?

Answer 56

In-house Outsourced Shared service

Question 57

In-house internal audit functions are resourced by --- --- of the organisation

Answer 57

Permanent employees

Question 58

What are the chief benefits of in-house internal audit arrangements?

Answer 58

``` Cost effective Experience of the organisation Development opportunity for future senior managers Confidentiality Conflicts of interest less likely Consistency over time ```

Question 59

What are the three generally accepted styles of outsourcing internal audit?

Answer 59

Supplementation Co-sourcing or partnering Total outsourcing

Question 60

Methods of outsourcing internal audit include "supplementation". How does this work?

Answer 60

Outside help is brought in to assist internal audit with specific tasks, e.g. IT audit specialists

Question 61

Methods of outsourcing internal audit include "co-sourcing" or "partnering". How does this work?

Answer 61

Consultants brought in on day-to-day basis, but usually report to an in-house chief audit executive. Regular and formalised as opposed to supplementation.

Question 62

Methods of outsourcing internal audit include "total outsourcing". How does this work?

Answer 62

Entire internal audit operation is undertaken by external consultants.