Organisation control and audit

Question 1

Reasons why an internal control system can be ineffective

Answer 1

1. Mistakes or poor judgement
2. Collusion between staff - authoriser and processor fraud
3. Management over ride - lack of authority from processor
4. Coping with unusual situations - processes might only cope with routine

Question 2

What is an advocacy threat?

Answer 2

Representing a client for 2 different services

Question 3

What is a self interest threat?

Answer 3

Benefit you and not your client

Question 4

What is an intimidation threat?

Answer 4

Forced

Question 5

What is a familiarity threat?

Answer 5

Personal connections

Question 6

What is a self review threat?

Answer 6

Reviewing your own work

Question 7

When should auditors rotate?

Answer 7

5-7 years, recommended by governance

Question 8

Why is auditor independence necessary?

Answer 8

1. Auditors provide key quality control to financial information and therefore are trusted
2. Value for money work - price for the work necessary and no discounts therefore not rushed
3. A lack of independence may lead to a failure of professional standards

Question 9

Compare duties and responsibilities of employee and professional accountant

Answer 9

1. Obedience
   > employee - duty of obedience to manager
   > accountant - comply with ethical standards
   established by ACCA (professional body)
2. Interests of employer and profession
   > employee - responsible to promite the interests of
   her employer (making money)
   > accountant - honest and objective, not allowing
   herself to be involved with misleading info
3. Obligations
   > employee - fit in with organisation culture
   > accountant - act within the standards of the
   professional body

Question 10

Importance of IA in a highly regulated industry

Answer 10

1. Compliance - external requirements (loss of license or fines)
2. Reputation

Question 11

Why is the audit committee responsible for overseeing the IA function?

Answer 11

1. Compliance requirements
2. Independence
3. Authority

Question 12

How can effective internal controls provide assurance on the integrity of financial reporting?

Answer 12

Shareholders rely on effective internal controls as a basis for making their investments.

Timely, relevant and reliable information of FR. Controls to assist this

Segregation of duties

Staff have sufficient knowledge and competence

Detailed audit trails that can be followed by internal and external auditors

Question 13

What is the role of the IA?

Answer 13

Independent appraisal function that examines and evaluates its functions.
Reviews of accounting systems, internal controls, risk management, compliance and value for money