Explain the basic principles of risk based auditing. Set out five examples each of
‘¢ Strategic risks
‘¢ Operational risks
List the basic assumptions under which an entity would be considered to be a going
concern
You are auditing Megabuild plc a company which builds large projects mostly overseas.
At present it is building a dam in the Philippines, a motorway in South Africa and a
holiday village in Egypt.
The audit team has been asked to devise audit procedures for the verification of work in
progress balances as part of inventories. From the test below select whether you would
include them as valid tests or exclude them as invalid.
Identify the role of internal audit in managing risk. Set out what the role of internal
audit is in the risk management process
You are a member of the audit team for the audit of Learnersinnit plc , a private
provider of high quality educational services. The team have just completed the interim
audit for the current year. You performed the work on the salaries system where you
have noted the following issues:
The company currently has over three hundred teaching and office staff, organised into
several different departments. The staff are paid on a fixed scale with annual increments
agreed by the board. The Salaries Department prepares one month’s payroll from the
names on the previous payroll, adding or deleting names as instructed by the personnel
department. Details of increased pay rates resulting from promotion are also supplied
by the Personnel Department. Sometimes, however, the Personnel Department is so
busy that they forget to telephone the Salaries Department with details of staff changes
or promotions. To correct these oversights, there is sometimes an extra payroll run to
prepare additional cheques where necessary.
The payroll is prepared on a personal computer by either of the two Salaries
Department staff, depending on whoever is available. The payroll calculations are
usually checked for accuracy by the other employee in the department, unless one of
them is absent through illness or is on holiday. The Personnel Department manager
corrects any payroll errors identified on her own personal computer, which is part of the
same computer network, and then signs the payroll to indicate overall approval. She
does not have time to authorise any additional runs which are necessary, however, as
these are usually required urgently.
One or other of the payroll staff will usually run off the cheques, which are all
restrictively crossed, on the computer. A rubber-stamp signature for the cheques is kept
by the personnel manager in her drawer, but the payroll staff know where it is in case
she is not available to stamp the cheques. The cheques are then sent in the internal mail
to each departmental head for distribution to staff. Cheques for the deductions for Pay
As You Earn (PAYE), National Insurance, savings accounts, the holiday club, and
charitable donations, are similarly drawn monthly and paid by cheque.
Describe TWO different ways in which fraud could be carried out in the above salaries
system.