The following scenario relates to questions 6-10 The board of directors of Sistar Co are concerned that they are not currently applying best practice in terms of corporate governance and are seeking to make improvements. The company currently has three non-executive directors(NEDs)on the board, who are paid a fee which changes annually depending on company performance. The NEDs all sit on the audit, nomination and remuneration committees. There are currently no formal documents setting out the responsibilities of these committees. At present, Sistar Co does not have an internal audit function but the directors are establishing a team which will be responsible for a range of internal audit assignments. The following is the current proposed structure for the internal audit (IA) department The only role still to be filled is the Head of internal audit. There are two potential candidates: Paul Belling a consultant who helped design and implement the company's current control system, and Maria Marquez who is currently an audit manager at Rossi Bell, an audit firm which has never been used by Sistar Co. Out of the other three members of the proposed lA department, two of them have moved from other departments in Sistar Co and one of the audit assistants has audit experience. 6 Which of the following should be included in a formal document regarding the responsibilities of the audit committee? (1) To monitor and review the effectiveness of the newly established internal audit function (2) To evaluate the balance of skills, experience and independence of board members (3) To take responsibility for the appointment and removal of the external auditors (4) To monitor and review the effectiveness of internal financial controls established by the company A 1 and 2 B 1 and 4 C 2 and 3 D 3 and 4 7 Which of the following options correctly describes the deficiency relating to NEDs remuneration and makes a valid recommendation for improvement? Deficiency Recommendation A Compromises NED independence NEDs should be remunerated on the same basis as the executive team B Compromises the motivation of NEDs NEDs' remuneration should be tied to profit targets C Compromises NED independence NEDs remuneration should be a set amount based on time committed D Compromises the motivation of NEDs NEDs' remuneration should be linked to individual performance 8 The board is in the final stages of establishing the lA department. Which of the following options provides appropriate recommendations which would improve the effectiveness and independence of the lA department? Reports to Head of IA Remaining staff members A Finance director Maria Marquez Appoint more senior staff with audit B Audit committee Paul Belling No changes needed C Chief executive Paul Belling All staff should be new to the company D Audit committee Maria Marquez Appoint more senior staff with audit 9 The board has started to compile a list of tasks for the IA department to carry out once it is up and running. It has been agreed that the first assignment to be completed will be for IA to review Sistar Cos processes over capital expenditure to verify if the right items are purchased at an appropriate time and competitive price. What type of internal audit assignment does this represent? A A value for money audit B A management audit C A financial audit D An IT audit 10 When deciding on the role of the IA department in undertaking operational audits, which of the following should the team NOT be involved in? A Observing procedures carried out by Sistar Co's staff B Reperforming procedures documented in procedures manuals C Designing and implementing internal control procedures to address deficiencies D Reporting findings directly to the board of directors