Since the CAE of Freshstart (Pty) Ltd is an integral part of the executive management team, the performance of the CAE and the internal audit activity is evaluated informally in management, audit committee and board meetings. In the opinion of the former CAE, this close and continuous monitoring, and assessment, adequately addresses the requirements of the International Standards for the Professional Practice of Internal Auditing (Standards), regarding quality assurance. Upon realising that the former CAE may have incorrectly interpreted her responsibilities regarding quality assurance, you investigated the reasons for her actions which revealed the following: 1. The former CAE is a chartered accountant (CA), who prior to her appointment at Freshstart (Pty) Ltd did not have any internal audit experience and is not a member of the Institute of Internal Auditors (IIA). Moreover, due to her financial auditing experience gained at one of the large auditing firms, she believed that internal auditing was merely an extension of the external auditing function. Since the audit committee was satisfied with the functioning of the internal audit activity and the external auditors placed extensive reliance on the work performed by the internal audit activity, she often sent her staff on training courses presented by an external auditing firm. She also never required her internal audit staff members to be members of the IIA. 2. The CAE prepared an annual audit plan, coinciding with the financial year and based on requests from senior management. This plan was presented to the board for notification after approval by the CEO. At the subsequent audit committee meeting, the audit committee would consider the actual internal audits performed against the approved plan. The CAE was required only to verbally explain any deviations from the annual audit plan at the audit committee meetings. 3.While an audit manual had been developed when the internal audit activity was originally established, it had not been updated for at least 10 years. However, since several of the internal audit staff had been employed within the internal audit activity for some time, the CAE believed that they knew what had to be done and did not see the need to be prescriptive about enforcing procedures. Where changes to policies or procedures were proposed, the CAE would simply arrange a workshop for all internal audit staff where they would be advised of the pending changes and the effective date for implementation. 4. When planning for the audits, the CAE would allocate internal audit staff based solely on their availability. No performance monitoring mechanisms have been implemented to monitor and gauge the overall adequacy of the resources performance. 5. Since no complaints had been received about the functioning of the internal audit activity and the fact that the audit committee, management and the external auditors appeared satisfied with the quality of the internal audit efforts, w.

1. Since the CAE of Freshstart (Pty) Ltd is an integral part of the executive management team, the
performance of the CAE and the internal audit activity is evaluated informally in management,
audit committee and board meetings. In the opinion of the former CAE, this close and
continuous monitoring, and assessment, adequately addresses the requirements of the
International Standards for the Professional Practice of Internal Auditing (Standards), regarding
quality assurance.
Upon realising that the former CAE may have incorrectly interpreted her responsibilities
regarding quality assurance, you investigated the reasons for her actions which revealed the
following: 1. The former CAE is a chartered accountant (CA), who prior to her appointment at
Freshstart (Pty) Ltd did not have any internal audit experience and is not a member of the
Institute of Internal Auditors (IIA). Moreover, due to her financial auditing experience gained at
one of the large auditing firms, she believed that internal auditing was merely an extension of the
external auditing function. Since the audit committee was satisfied with the functioning of the
internal audit activity and the external auditors placed extensive reliance on the work performed
by the internal audit activity, she often sent her staff on training courses presented by an external
auditing firm. She also never required her internal audit staff members to be members of the IIA.
2. The CAE prepared an annual audit plan, coinciding with the financial year and based on
requests from senior management. This plan was presented to the board for notification after
approval by the CEO. At the subsequent audit committee meeting, the audit committee would
consider the actual internal audits performed against the approved plan. The CAE was required
only to verbally explain any deviations from the annual audit plan at the audit committee
meetings.
3.While an audit manual had been developed when the internal audit activity was originally
established, it had not been updated for at least 10 years. However, since several of the internal
audit staff had been employed within the internal audit activity for some time, the CAE believed
that they knew what had to be done and did not see the need to be prescriptive about enforcing
procedures. Where changes to policies or procedures were proposed, the CAE would simply
arrange a workshop for all internal audit staff where they would be advised of the pending
changes and the effective date for implementation.
4. When planning for the audits, the CAE would allocate internal audit staff based solely on their
availability. No performance monitoring mechanisms have been implemented to monitor and
gauge the overall adequacy of the resources performance.
5. Since no complaints had been received about the functioning of the internal audit activity and
the fact that the audit committee, management and the external auditors appeared satisfied with

2. the quality of the internal audit efforts, with consideration of the staffing constraints, the CAE
did not see the need to investigate whether there were any other areas where their expertise could
be utilised, or to formally evaluate whether the expectations of their stakeholders were being
met.
REQUIRED
4.1 Based on the information provided in the scenario, discuss the constraints and how they have
impaired the implementation of a quality culture within Freshstarts internal audit activity. For
each constraint noted, provide a feasible solution. Structure your answer in the following format:
4.2According to the IPPF, recommended topics that should be included in the internal audit
manual to help guide the internal audit activityConstraints identified and discussed
Solution
for the constraint