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Internal Auditing > LA 4&5 > Flashcards

LA 4&5 Flashcards

1
Q

What factors contribute to the need of governance

A

-Corporate failures and mismanagement
-Consideration for all stakeholders
-Consideration for the investors
-Need to restore investor confidence

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2
Q

What is the origin and meaning of governance

A

-Origin: Derived from Greek word “gubernare” meaning to steer
Therefore governance means to steer/direct

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3
Q

Examples of governing bodies

A

-Board of Directors
-University council
-Parliament

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4
Q

Governance definition according to Sir Cadbury

A

-Governance is the way in which orgs are directed and controlled

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5
Q

What does the Institute of Directors in SA in King IV report state about governance

A

Corporate governance is the exercise of ethical and effective leadership by the governing body towards the achievement of the following governance outcomes
-ethical culture
-good performance
-effective control
-legitimatacy

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6
Q

Define stakeholders

A

ppl/groups that are either involved in the org, impacted by the others it or have an interest in the org

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7
Q

Types of stakeholders

A

-Shareholders
-Board of directors
-Management
-Assurance providers
-Employees
-Lendors
-Suppliers
-Gov’t
-Society and the local community

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8
Q

What are shareholders

A

-Owners of the org and their interest is represented by the shares they hold in the org
-Many investors know get little about the internal operations and management of the org

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9
Q

What is management

A

-Group of ppl employed by the org and tasked w/ executing the decisions of the governing body
-Senior management = executives (CEO, CFO, COO etc)
-Some members of management may also be members if the governing body making them executive directors

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10
Q

What are assurance providers

A

-They provide assurance (verification) as a service to an individual stakeholder group/org
-Assurance provers are usually independent and objective
Eg: Internal or External auditors

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11
Q

What does principle 7 of King IV state

A

The governing body (BoD) should comprise of the appropriate balance of knowledge, skills, XP, diversity and independence for it to discharge its governance roles and responsibilities objectively and effectively

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12
Q

Board of Directors should comprise of…

A

…majority non-executive directors

And majority of this majority should be independent non-executive directors

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13
Q

How many executives should be in the BoD

A

2 (CEO and another (preferably CFO)) as it provides BoD w/ a point of interaction w/ management

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14
Q

What are executive directors

A

-They form part of the day-to-day running of the org and receive a salary from the org
Eg: CEO, CFO, COO

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15
Q

What are non-executive directors

A

-Don’t form part of day-to-day running of the org
Eg: resigned director

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16
Q

What’s an independent non-executive director

A

-someone w/ no interest or prior involvement in the org
-they aren’t a representative of a shareholder
-have no direct/indirect interest in the org
-in the past 3 financial years they have no been employed by the org or appointed as an external auditor
-they are not a family meme BER if an employee of the org
-free from business relationship

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17
Q

Can the CEO be the chairperson of the BoD

A

NO!!!
Even a retired CEO cannot chair UNLESS 3 full years have passed since they left the org

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18
Q

How should the audit committee be compromised of

A
  • 3-5members
    -All independent non-executive directors
    -have at least 1 financial expert
    -Should meet at least 3-4times a year
    -AC performance should be evaluated regularly
19
Q

Functions of AC

A

-Oversee various reporting initiatives
-Responsible for oversight function
-Report to BoD on activities

20
Q

Function of AC w/ regard to External Auditor

A

-Assist w/ selection and discharge of EA
-Approve each professional service provided by EA
-Review preliminary and final and annual financial statements

21
Q

Function of AC w/ regard to Internal Auditor

A

-Approve internal audit charter
-Review scope of internal audit work
-Assess level of coordination btwn IAF and EAF

22
Q

When internal and external assurance providers work together it’s called…

A

Combined assurance

23
Q

What does the IAF have to consider when performing governance assessment

A

-Relationship btwn governance, risk and control
-Result of other assurance providers work
-Results of the other governance related engagements

24
Q

Roles of IAF in terms of governance

A

They have a dual role
1. IAF forms part of governance structure
2. IAF is responsible for performing assurance and advisory services regarding governance

25
Q

When performing governance assessments what do EA have to consider

A
  1. Their focus is on information provided by management and less on auditing or assessing governance
  2. Governance issues considered in certain phases
  3. Consider governance structures if the integrity of the client is in question
26
Q

What is the nature of the internal audit work

A

-To audit/assess/evaluate the governance, risk management and control processes of the org

27
Q

For the CAE to understand the orgs GRMC processes, they must consider how the org…

A

-Oversees risk management and control
-Promotes an ethical culture
-Delivers effective performance management and accountability
-Structures its management and operating functions

28
Q

According to IIA what is internal control

A

-IC is action taken by management to enhance that the likelihood that established objectives will be achieved

29
Q

According to SAICA what is internal control

A

-Methods and procedures accepted by management to help in achievement of management’s goal

30
Q

According to COSO what is internal control

A

A process effected by an entity’s BoD, management and other personnel to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance

31
Q

What are control objectives

A

-Operational activities
-Reporting objectives
-Compliance objectives

32
Q

What are the 5 elements of COSO ll

A

-Control environment
-Risk assessment
-Control activities
-Information and communication
-Monitoring

33
Q

What does COSO stand for

A

-Committee of Sponsoring Organisations

34
Q

What factors affect control environment

A

-Philosophy and style of SM
-Organisational structure
-Methods used for communication
-HR management

35
Q

SM philosophy and style has 4 elements…

A

POLC w/ a D
-Planning
-Organising
-Directing
-Controlling

36
Q

What are control activities

A

Policies (what is XP’d) and procedures (policies in action) that management has put in place to ensure that the necessary actions are take to address risks and achieve managements objectives in the org

37
Q

Classifications of control activities

A

Preventative
Detective
corrective

38
Q

Types of control activities

A

-Segregation of duties
-Proper authorisation of transactions and activities
-Adequate documents and records
-Safeguarding of assets and info
-Independent reviews

39
Q

Describe segregation of duties

A

-Purpose is to reduce the opportunities for an individual to make and conceal errors while performing tasks
-To achieve this, no individual should be responsible for more than one of
-authorising a transaction
-recording a transaction
-executing a
transaction/having custody
of assets
-Collusion is when @ least personnel members work together to avoid complying w/ an established control

40
Q

Describe adequate documents and records

A

-Source documents are any electronic/manual document that could explain/give proof of a transaction
-SD’s should be
…Sequentially pre-numbered to facilitate control over completeness of recording, unused or missing documents
…Prepared at the time the transaction takes place to increase the likelihood of accurately recording details
…Designed to obtain sufficient details to fulfill business and accounting needs

41
Q

What is the responsibility of management in regards to IC

A

-Design an implement control activities
-Keep in mind objectives of control when designing control systems

42
Q

What is the responsibility of EA in regards to IC

A

-Focus more of financial controls and accounting systems

43
Q

What is the responsibility of IA in regards to IC

A

-Assess adequacy and test effectiveness
-to achieve engagement objectives
-IA’s DO NOT IMPLEMENT IC

44
Q

Name the 5 elements of COSO

A
  1. Control Environment
  2. Risk assessment
  3. Control activities
  4. Information and communication
  5. Monitoring

Internal Auditing (9 decks)

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