Question One
Phil shows that he was not fully prepared by arriving late. Although he was familiar with how long it would take to get to the organization, he did not adjust his time so as to arrive on time. Consequently, he missed several steps he should have undertaken in order to improve the quality of his audit. First, he did not have a comprehensive entrance meeting with the client so he did not have the opportunity to meet key personnel that will have significant involvement in the process considering the main contact person would not be available until the end of the day. Second, Phil did not have the opportunity to review the information checklist and determine whether all the information that was requested is available which led to Phil Outburst regarding the costing of the machine which could have been sorted by seeking clarification. Also, during the audit, Phil ought to have conducted a status meeting and discussed the audit progress with the contact personnel. Finally, Phil recognized a resolvable issue as an audit finding which he informed various people yet the issue was easily resolvable and the relevant supporting documentation and explanations were available to clear the issue.
Question Two
First, Phil failed to exercise individual objectivity which led to a conflict of interest. When Phil identified the discrepancy, due to his unbiased attitude towards the controller, he saw an opportunity to punish the controller for his cold treatment thus instead of seeking a clarification, he treated the issue as a fraud. Second, Phil did not exercise professional care when handling the discrepancy identified. Although he was experienced and knowledgeable in audit matters, Phil failed to apply this knowledge to carry out the audit as expected instead of witch hunting.
Question Three
Question 3A
The audit Plan: Refers to a document that establishes the scope, criteria, objectivity and the agenda of the audit. The plan further details the areas that will be audited, when they will be audited and the personnel responsible for the audit.
The opening meeting: This refers to a meeting between the auditors and the audit committee, informal or informal, which is carried out to set the scope of the audit, methods of working and setting the date to hold the closing meeting
Evidence Collection: It is a concept that refers to review of various documentation and evaluation of supporting explanations to examine compliance with policies and various standards
The Checklist: Refers to a document maintained by the auditor to guide the internal audit to ensure that all the topics relevant to the audit are examined.
Context Persons: Concept that refers to individuals that will avail relevant explanations when sorted by the internal auditor.
Audit Report: Refers to a report that an auditor generates to details the finding and presents the recommendation to process improvements.
Audit Program: Refers to a program that defined the necessary field work to be undertaken
Fieldwork: refers to a process reviewing the firm processes and adherence to policies and standards
Question 3B
The following are some thematic questions that an internal auditor may ask:
The auditors may ask questions that are geared towards understanding the state of the organization. An example is what are the biggest challenges that your department is facing?
An internal auditor will ask a question seeking to understand the view of lower management on policies and internal control procedures. An example is do you see any benefit that would accrue to your department if the current procedures and policies are changed, re-designed?
An auditor may ask a question to examine the employee perception of power and authority thus determining the ease of flow of work. An example will read are you convinced that the decision to set prices should be at the departmental level?
The auditor may ask a question to identify how key employee identifies and view risks. An example is how do you identify various risks and respond to these risks in your docket?
The auditor may seek to understand the level of compliance with internal controls and procedures. An example will read how do you enforce the internal control procedures set out?
Question 3C
The following are some of the inferences, judgments and assumptions that internal auditors make:
Relationship and attitudes that people have towards each other influence the effectiveness of internal controls
In order to achieve effective risk management, the organization needs to design process and tasks with respects to established internal controls
Any risk is within the scope of internal audit
Auditor’s values and attitudes define the objectivity and independence
Every organization has a unique risk profile and, therefore, must develop control that matches the profile
The auditor is a facilitator helping the organization to manage risk effectively
Question Four
Question 4A
Formally, the audit engagement communication should be in a written form. Loosely, audit engagement can be defined as the audit work that will be performed. However, in most cases, the audit engagement refers to the initial state in which the auditor will let the client know that the auditor has accepted the audit work and details the understanding of the audit work in both scope and purpose. Going by the specific definition, the engagement communication will mean the letter of notification to let the client know that the auditor has accepted the audit work and details the understanding of the audit work in both scope and purpose. However, using the loose definition, this will refer to any information officially conveyed to the client during the entire auditing process starting from the letter of engagement all the way to the final audit report i.e. engagement letter, planning, testing controls, fieldwork and final report.
Question 4B
Follow up on audit report is the final activity in the audit cycle. Having made various recommendation and observation in the report, the auditor will seek to know whether the firm is implementing the recommendation as discussed and the effect they have brought in the organization. The auditor is also free to consult for the auditee to further improve the recommendation made earlier if the desired effect is not realized and also help solve any problem that may arise as a result of the implementation of the recommendation.
