Question 1

With regard to the rote of the audit committee which of the following statements are correct? Select ALL that apply

Options :

A : The audit committee should design the system of internal controls

B : The audit committee should decide annually whether it needs an internal audit function

C : The audit committee should decide annually whether it needs an external audit function

D : The audit committee should review and monitor the effectiveness of the company-s internal audit function

E : The audit committee should provide arrangements for whistle blowing

F : The audit committee should engage consultants to carry out business reviews

Answer: A,D

Question 2

C is a large international supermarket chain. It has many thousands of suppliers and many thousands of potential suppliers competing for shelf space m its supermarkets.
Which of the following provisions would be appropriate for C to include m its ethical code in relation to its suppliers?
Select ALL that apply

Options :

A : C shall insist on an exclusivity agreement with each supplier so that identical products are not available from other outlets

B : C shall endeavour to adhere to the terms of its contracts with its suppliers at all times

C : Cshall continuously remind suppliers that it always has several alternative suppliers to choose from.

D : C shall not use its buying power unscrupulously.

E : C shall keep confidential all information received from suppliers and potential suppliers

F : C shall endeavour to take as high a percentage of each supplier-s output as possible

Answer: A,B,D

Question 3

The management of U isreviewing internal controls throughout the company. Ithasnoted the following:-
1. In the trade receivables section, journal adjustments are made by the clerks, without any reference to their supervisor. Journal adjustments may relate to sales returns, discounts allowed, or transfers between accounts.
2. In the purchasing department, the purchasing manager selects and approves all suppliers, astheyarethe only person with sufficient experience to do so. They usea very limited number of suppliers becausethey can rely on these suppliers to provide goods of the quality required at a competitive price. They donot keep any documents in relation to negotiations with other potential suppliers or other quotes obtained.
In relation to the above, which of the following statements are valid?

Options :

A : The fact that the purchasing manager uses a very small number of suppliers is, in itself, a sign of poor internal controls.

B : It is acceptable for clerks in the trade receivables section to make journal adjustments without authorisation provided the amounts involved are not material to U-s financial statements.

C : It is acceptable for clerks in the trade receivable section to make journal adjustments without authorisation, provided they have no access to cash receipts.

D : The fact that the purchasing manager does not keep documentation relating to negotiations with suppliers, or potential suppliers,is evidence that they are involved in fraudulent activity.

E : Clerks making journal adjustments without reference to their supervisor is evidence of inadequate separation of duties.

F : The way the role of purchasing manager is carried out in U increases the chance that the company will fall victim to fraudulent activity.

Answer: A

Question 4

A capital investment project shows a NPV of 3,450 at a discounted rate of 8% and an NPV of 1,210 at a discounted rate of 9%.Whatistheinternal rate ofreturn?

Options :

A : 11.85%

B : 10.85%

C : 10.54%

D : 9.54%

Answer: D

Question 5

The internal audit department has just completed an investigation into the HR department's procedures relating to new staff appointments The head of HR is unhappy with the draft report prepared by the lead internal auditor The report lists several cases in which appointments were made despite the fact that one or more of the entity's formal procedures were not followed
The head of HR has complained that the internal auditor's comments do not allow for the fact that the HR department's staff members are often very busy and do not always have time to conduct every check.
The internal auditor's comments also reflect a failure to complete documents None of the omissions have led to the appointment of an unsuitable member of staff
Which TWO of the following statements reflect an appropriate response by the board of directors to this report?

Options :

A : Ignoring a compliance error altogether may undermine the control environment

B : The procedures should be removed if the HR department staff believe that they are unnecessary

C : The board should be seen to support the internal audit

D : The errors are immaterial because they did not lead to an inappropriate appointment

E : The members of staff responsible for these omissions should be subjected to disciplinary action

Answer: A,C

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