In this question, candidates were required to discuss the reasons for and against having an internal audit department in a specific company. A scenario was therefore provided for the question. The scenario contained many “clues” as to why an internal audit department would be useful (or not) and candidates were expected to identify those points and make specific reference to them in their answers.

The question was worth 12 marks. The requirement verb discuss indicated that some comment was needed to show why the points made were relevant. The marking scheme allowed one mark for mentioning the specific area and a second mark for applying this to the scenario.

Many candidates recognised this requirement and provided six well-explained comments to obtain 12 marks. Other candidates did not relate their comments to the scenario at all, which limited the number of marks obtainable per point to 1.

Example comments provided and reasons why those comments did not obtain a pass standard are noted below:

Answer comment
“To examine financial and accounting information.”

Examiners assessment of comment
This is a reason for having an internal audit department; however, it is not clear why this function is necessary in this specific situation. Specific reference should be made to the issue of the non-qualified financial accountant and the potential need to review accounts in case accounting standards have not been applied correctly. The comment at present could attract 0.5 mark; with full explanation and linking to the scenario the full 2 marks would be obtained.

Answer comment
“Montehodge is a family owned company with four of the six shareholders being board members.”

Examiners assessment of comment
The statement is correct; although it is simply a repeat of information provided in the scenario. To gain any credit the reason why this relates to the use of an internal audit department must be explained. For example, the issue of lack of protection for the remaining two shareholders could be mentioned and that internal audit would provide them with some confidence regarding the controls and financial statements of the company.

Answer comment
To evaluate and test the design and implementation of controls at Montehodge Co.

Examiners assessment of comment
This is one of the reasons a company would establish an internal audit department and so the comment is valid. However, there is no reference back to the scenario to show why the controls need testing. Mentioning issues such as lack of controls (directors trusting staff) or the fact that the company has 15 locations and therefore needs a common control system would provide the necessary additional detail in the answer to gain the application mark.

Other common errors included:

• Not linking the points made to the scenario. As mentioned above, this limited the number of marks available per point to 1.
• Not fully explaining the points made. Brief comments such as “internal audit would be expensive” only attracted 0.5 of a mark. Additional detail to show why internal audit was expensive and why it was expensive in the situation of the scenario.

Overall, this section, along with (a), provided the best standard of answer for any question in this examination.

Part (b) particularly catered for candidates who had good theoretical knowledge of internal audit (obtaining 1 mark per point) and candidates who had the ability to apply their knowledge to a scenario (and obtain 2 marks per point made). A significant number of candidates obtained more than 15 marks from this question, enabling them to pass the examination overall.