ACCA AA Syllabus C. Internal Control - Internal v External Audit - Past Papers ^{3 / 3}

You are an audit manager of Buffon & Co, and you have just been assigned the audit of Maldini Co (Maldini). The audit engagement partner who is responsible for the audit of Maldini, a listed company, has been in place for approximately eight years and her son has just been offered a role with Maldini as a sales manager. This role would entitle him to shares in Maldini as part of his remuneration package.

Maldini’s board of directors is considering establishing an internal audit function, and the finance director has asked Buffon & Co about the differences in the role of internal audit and external audit. If the internal audit function is established, the directors have suggested that they may wish to outsource this to Buffon & Co.

The finance director has suggested to the board that if Buffon & Co is appointed as internal as well as external auditors, then fees should be renegotiated with at least 20% of all internal and external audit fees being based on the profit after tax of the company as this will align the interests of Buffon & Co and Maldini.

Following management’s request for information regarding the different roles of internal and external audit, you have collated a list of key characteristics.

(1) Appointed by audit committee
(2) Reports are publicly available to shareholders
(3) Review efficiency and effectiveness of operations to improve operations
(4) Express an opinion on the truth and fairness of the financial statements

Which of the following options correctly allocates the above statements to the relevant auditor?

Which of the following statements relating to internal and external auditors is correct?

A. Internal auditors are required to be members of a professional body
B. Internal auditors’ scope of work should be determined by those charged with governance
C. External auditors report to those charged with governance
D. Internal auditors can never be independent of the company

The audit engagement partner for Hazard Co (Hazard), a listed company, has been in place for approximately six years and her son has just accepted a job offer from Hazard as a sales manager. This role would entitle him to shares in Hazard as part of his remuneration package.

Hazard’s directors are considering establishing an internal audit department, and the finance director has asked the audit firm, Remy & Co about the differences between internal audit and external audit.

If the internal audit department is established, and Remy & Co is appointed as internal as well as external auditors, then Hazard has suggested that the external audit fee should be renegotiated with at least 20% of the fee being based on the profit after tax of the company as they feel this will align the interests of Remy & Co and Hazard.

Required:
(b) Distinguish between internal and external audit. (4 marks)

Distinguish between internal audit and external audit. (4 marks)

Contrast the role of internal and external auditors. (8 marks)