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CS Professional · Internal and Forensic Audit · Practices related to Internal Auditing

Himalaya Foods Ltd's internal audit department has 4 auditors with 1,600 productive hours each per year, so 6,400 hours in total. Management and the Audit Committee have approved risk-based audits needing 7,800 hours. The CAE has no scope to hire this year. Which action is most appropriate under sound audit function management?

The CAE should report the 1,400-hour shortfall (7,800 less 6,400) to the Audit Committee and agree on prioritising high-risk areas. Resource limitations must be communicated transparently; silently cutting audits, skipping follow-up or having auditees audit themselves undermines assurance and independence.

  1. ACut every audit proportionately without informing anyone
  2. BReport the resource shortfall of 1,400 hours to the Audit Committee and agree on prioritising high-risk areasCorrect
  3. CSkip all follow-up work and keep the plan as it is
  4. DAsk auditees to perform their own audits to cover the gap

Explanation

Shortfall = 7,800 - 6,400 = 1,400 hours. The CAE must communicate resource limitations and their impact to senior management and the committee, and agree on prioritising high-risk areas. Silent cuts, dropping follow-up, or auditee self-audit weakens assurance and transparency.

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