QUESTION FOUR

Sakina has been operating a small retail store called Look and Pick selling shoes since 2010. In 2015 she sought to expand her operations due to a rise in demand for the shoes. She approached Helgah and Hussein, who are her friends and bankers to invest in the business. After some weeks of due diligence, they invested in the business with an expectation of increased returns on their investment.

Although, there exist internal controls in the business, it is deficient. In order to ensure transparency and accountability, Helgah insisted that internal auditor(s) be engaged. Sakina expressed concern that, internal auditors in general will not add any value to the business but only a drain on the coffers of the business. Upon the insistence of Helgah and Hussein, internal auditors namely; Eunice, Jeffery, Claude and Francis were engaged. Also, Bintu and Associates were engaged as external auditors.

During the first meeting with the external auditors, Sakina reiterated that, they were going to pay so much for their services hence, they expected nothing but absolute assurance, a position the auditors disagreed with.

Eunice, one of the internal auditors, on realizing deficiency in the internal controls suggested to her colleagues that, they develop comprehensive and robust internal controls for management. The other internal auditors requested for some time to think about the issue in order to make a decision. In the meantime, they agreed that, looking at the huge amount of stock the retail store deal with and the fact that the business is expanding quickly, there is the need for management to introduce a computer software to ensure efficiency in their operations.

In this this light, they suggested that effective controls be put in place to ensure that, the computerized system functions effectively without any manipulation.

1. Do you agree with the assertion of Sakina that, internal Auditors do not add value to the business? Justify your answer with 5 reasons (25 Marks)
2. Is Sakina right in demanding absolute assurance from the auditors? Explain your answer (15 Marks)
3. What is your view regarding developing internal controls for management as suggested by Eunice? (10 Marks)

Total = 50 marks