aud 571 past year

8/3/2019 Aud 571 Past Year

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AUD 571

INTERNAL AUDITING

PAST YEAR QUESTION(OCT 2010 ,Q3 & OCT 2008, Q2)

PREPARED BY:

AKMA HANI BINTI SUKADARIN 2009458674

SITI AMALINA BINTI RAMLI 2009876722

SITI NUR SUHARA BINTI SELAMAT 2009449534

WAN NUR NADHIRAH BINTI WAN 2009828188

MOHD. KAMIL

BAC2208B


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OCT 2010

QUESTION 3


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(a) i) explain outsourcing and why a company needs tooutsource its internal audit function.

Outsourcing is an arrangement in which onecompany provides services for another companythat could also be or usually have been provided in-house.

Company needs to outsource its internal auditfunction because:

Comprehensive Internal Audit Function

Internal Audit provides a comprehensiveapproach to establishing, directing andmanaging the entire internal audit function of thecompany.


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Responsive and Reliable

Internal audit group will respond to thecompany needs when we need assistancethroughout the year.

Independent

outsourced internal auditors are favored byAudit Committees and external auditorsbecause they maintain the highest level ofindependence and competency.


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(a) ii) Suggest the advantages and limitations thatEncik Abu would face if he decides to outsource theinternal audit function

Advantages of outsourcing:

Focus on core competencies Outsourcing allows management to focus on core

competencies instead of the day to day low paybackactivities that are time consuming. The resulting

improvement in staff allocation allows the business toafford the luxury of having access to global expertiseand cutting edge technology. It will increase thebusiness return and effective management of theexisting resources


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Cost

Internal audit outsourcing helps the business to reduce

its costs by converting the fixed costs of an internalaudit function to variable costs. The costs ofoverlapping positions and audit effort can also bereduced thus creating more flexibility in increasing anddecreasing workload demands.

Credibility

The external provider with a good reputation carriesgreater credibility compared to the work done by theinternal audit staff


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Limitations of outsourcing:

Allegiance of in house staff versus external service

provider, where the elements of motivation and loyaltyare questionable.

Outsourcing the internal activities will result in thebusiness incurring a large amount of resources in the

form of fees and time assisting the external provider.Eventually, these costs will become a fixed costs to theorganization in the long term.

Culture of the organization towards the external provider

might limit or hinder the outsource providers fromperforming their assignments. They may find it difficult toaccess information, whether verbal or documentary.Hence, to overcome this, the board will have to ensurethat the external providers given the required authority

and assistance.


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(b) i) Differentiate the internal and external reportingchannel of inappropriate company activities by anemployee.

Internal reporting channel

- The wrongdoing is reported to parties

within the organisation

- gives an organisation the opportunity to deal quickly witha concern without the pressure of external publicity

External reporting channel

- The wrongdoing is reported to parties outside of theorganisation

- can cause serious damage to the organisations


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(b) ii) suggest how internal auditors shouldresponse to a report on inappropriate companyactivities provided by whistleblower

Ensure whistleblower in good faith & notmotivated by a grudge or other doubtful motive.

Ensure that whistleblower not make thedisclosure for purposes of personal gain.


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Having clearly communicate the finding orrecommendation to the appropriate level of

management

Great care must be taken when investigating asuspicion of fraud to avoid false accusations oralerting the suspect that an investigation is taking

place.

Internal Audit shall be responsible for receiving thereports and investigating the facts.


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The Head of Internal Audit shall treat any informationreceived as confidential.

The results of the investigation shall not be disclosed ordiscussed with anyone other than those who are requiredto know them. This is essential to avoid injuring the

reputation of persons that may have been found innocentduring the investigation


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OCT 2008

QUESTION 2


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(a) Explain the related amended provisions on internalauditing and audit committee and its significance tothe internal audit profession.

The amended provisions to the Listing Requirements ofBursa Malaysia Securities Bhd. On 31 January 2008 are:

Essentially, the amendments will enhance the CGframework by:-

enhancing the effectiveness and independence ofaudit committee and

mandating the internal audit function by listed issuersand listed companies.


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The key amendments are in the followingrespects:-

requiring all audit committee members to be non-executive directors

mandating the internal audit function by listedissuers and listed companies and requiring theinternal audit function of listed issuers and listedcompanies to report directly to the audit committee

enhancing the disclosure in the annual reports oflisted issuers and listed companies to includeinformation pertaining to the internal audit function


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expanding the functions of the audit committee toinclude the review of the adequacy of the

competency of the internal audit function

setting out the rights of audit committee to convenemeetings with external auditors, internal auditors orboth, excluding the attendance of other directors and

employees of the listed issuers and listed companies

clarifying that Bursa Securities may "approve" suchother requirements relating to the financial-related

qualifications or experience that must be fulfilled byat least one audit committee member and thesignatory to the statutory declaration in relation tothe accounts; and


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requiring listed issuers and listed companies tosubmit a copy of written representation orsubmission of external auditors' resignation to

Bursa Securities as provided under section 172Aof the Companies Act 1965.2.


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Significance impact to the internal audit function

The internal audit function of a listed company mustbe independent from the management and

operations and the listed company must not allowinter-management audits.

The internal audit function can either be performedin-house or outsourced. If outsourced, the key issuethat must be taken into consideration is the

independence and the objectivity of the firm/personto whom the internal audit function is outsourced.


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The internal audit function can be outsourced to thefirm performing the statutory audit for the listedcompany if the firm fulfils the requirements ofindependence and objectivity pursuant tothe International Standards for the ProfessionalPractice of Internal Auditingissued by the Institute ofInternal Auditors and the Internal AuditingGuidelinesissued by the Malaysian Institute of

Accountants


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(b) i) Identify & explain the various arrangements thatan organization can outsource its internal auditfunctions

Full Outsourcing

Execution of a full scope and risk-focused internal auditplan contracted to the accounting firms. An in-house

contract with reporting responsibility to the board ofdirectors and audit committee will be appointed as aliaison with the accounting firm.

Partial Outsourcing

Execution of the internal audit plan is partly done by anexternal provider on an ongoing basis.


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Co-sourcing

Execution of internal audit plan is shared between theaccounting firm and the organization. Basically,outsourced partly handle specialized areas (eg: financialor operational audit) or those that are more cost effectiveto outsource.

Sub-contracting

It involves the engagement of an external party for alimited period to undertake a specific engagement or aportion of some engagement. Basically in-house internalaudit department will normally provide the managementand oversight functions


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(b) ii) Circumstances that an internal audit canbe outsourced

Regional or "fly-in" internal audit function isexpensive.

The company is not complex or big enough torecruit a permanent internal audit team.

Not enough manpower to carry out internalaudit work due to temporary increase ofworkload.

Reduce fixed costs through reducing headcount to maintain flexibility of internal audit cost.

In-house internal audit team is lacking specialistresources e.g. treasury, information technology,e-commerce, etc., to carry out internal auditwork.

aud 571 past year

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