Summer/May 2012

Master in Business Administration — Semester 3

MF0010— Security Analysis and Portfolio Management – 4 Credits

(Book ID: B1208)

Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 Discuss the different forms of market efficiency.

Answer  : The degree to which stock prices reflect all available, relevant information.

Market efficiency has varying degrees: strong, semi-strong, and weak. Stock prices in a perfectly efficient market reflect all available information. These differing levels, however, suggest that the responsiveness of stock prices to relevant information may vary.

The efficient market hypothesis (EMH), a controversial principle stemming from the theory of market efficiency, states that a market cannot be outperformed because all available information is already built into all stock prices. Practitioners and scholars alike have a wide range of viewpoints as to how efficient the market actually is.

When money is put into the stock market, it is done with the aim of generating a return on the capital invested. Many investors try not only to make a profitable return, but also to outperform, or beat, the market.

However, market efficiency – championed in the efficient market hypothesis (EMH) formulated by Eugene Fama in 1970, suggests that at any given time, prices fully reflect all available information on a particular stock and/or market. Thus, according to the EMH, no investor has an advantage in predicting a return on a stock price because no one has access to information not already available to everyone else.

The Effect of Efficiency: Non-Predictability
The nature of information does not have to be limited to financial news and research alone; indeed, information about political, economic and social events, combined with how investors perceive such information, whether true or rumored, will be reflected in the stock price. According to EMH, as prices respond only to information available in the market, and, because all market participants are privy to the same information, no one will have the ability to out-profit anyone else.

In efficient markets, prices become not predictable but random, so no investment pattern can be discerned. A planned approach to investment, therefore, cannot be successful.

This “random walk” of prices, commonly spoken about in the EMH school of thought, results in the failure of any investment strategy that aims to beat the market consistently. In fact, the EMH suggests that given the transaction costs involved in portfolio management, it would be more profitable for an investor to put his or her money into an index fund.

Anomalies: The Challenge to Efficiency
In the real world of investment, however, there are obvious arguments against the EMH. There are investors who have beaten the market – Warren Buffett, whose investment strategy focuses on undervalued stocks, made millions and set an example for numerous followers. There are portfolio managers who have better track records than others, and there are investment houses with more renowned research analysis than others. So how can performance be random when people are clearly profiting from and beating the market?

Counter arguments to the EMH state that consistent patterns are present. Here are some examples of some of the predictable anomalies thrown in the face of the EMH: the January effect is a pattern that shows higher returns tend to be earned in the first month of the year; “blue Monday on Wall Street” is a saying that discourages buying on Friday afternoon and Monday morning because of the weekend effect, the tendency for prices to be higher on the day before and after the weekend than during  the rest of the week.

Studies in behavioral finance, which look into the effects of investor psychology on stock prices, also reveal that there are some predictable patterns in the stock market. Investors tend to buy undervalued stocks and sell overvalued stocks and, in a market of many participants, the result can be anything but efficient.

Paul Krugman, MIT economics professor, suggests that because of the mass mentality of the trendy, short-term shareholder, investors pull in and out of the latest and hottest stocks. This results in stock prices being distorted and the market being inefficient. So prices no longer reflect all available information in the market. Prices are instead being manipulated by profit seekers.

The EMH Response
The EMH does not dismiss the possibility of anomalies in the market that result in the generation of superior profits. In fact, market efficiency does not require prices to be equal to fair value all of the time. Prices may be over- or undervalued only in random occurrences, so they eventually revert back to their mean values. As such, because the deviations from a stock’s fair price are in themselves random, investment strategies that result in beating the market cannot be consistent phenomena.

Furthermore, the hypothesis argues that an investor who outperforms the market does so not out of skill but out of luck. EMH followers say this is due to the laws of probability: at any given time in a market with a large number of investors, some will outperform while other will remain average.

How Does a Market Become Efficient?
In order for a market to become efficient, investors must perceive that a market is inefficient and possible to beat. Ironically, investment strategies intended to take advantage of inefficiencies are actually the fuel that keeps a market efficient.

A market has to be large and liquid. Information has to be widely available in terms of accessibility and cost and released to investors at more or less the same time. Transaction costs have to be cheaper than the expected profits of an investment strategy. Investors must also have enough funds to take advantage of inefficiency until, according to the EMH, it disappears again. Most importantly, an investor has to believe that she or he can outperform the market.

Degrees of Efficiency
Accepting the EMH in its purest form may be difficult; however, there are three identified classifications of the EMH, which are aimed at reflecting the degree to which it can be applied to markets.
1. Strong efficiency – This is the strongest version, which states that all information in a market, whether public or private, is accounted for in a stock price. Not even insider information could give an investor an advantage.

2. Semi-strong efficiency – This form of EMH implies that all public information is calculated into a stock’s current share price. Neither fundamental nor technical analysis can be used to achieve superior gains.

3. Weak efficiency – This type of EMH claims that all past prices of a stock are reflected in today’s stock price. Therefore, technical analysis cannot be used to predict and beat a market.

Conclusion
EMH propagandists will state that profit seekers will, in practice, exploit whatever abnormally exists until it disappears. In instances such as the January effect (a predictable pattern of price movements), large transactions costs will most likely outweigh the benefits of trying to take advantage of such a trend.

In the real world, markets cannot be absolutely efficient or wholly inefficient. It might be reasonable to see markets as essentially a mixture of both, wherein daily decisions and events cannot always be reflected immediately into a market. If all participants were to believe that the market is efficient, no one would seek extraordinary profits, which is the force that keeps the wheels of the market turning.

In the age of information technology (IT), however, markets all over the world are gaining greater efficiency. IT allows for a more effective, faster means to disseminate information, and electronic trading allows for prices to adjust more quickly to news entering the market. However, while the pace at which we receive information and make transactions quickens, IT also restricts the time it takes to verify the information used to make a trade. Thus, IT may inadvertently result in less efficiency if the quality of the information we use no longer allows us to make profit-generating decisions.

 

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Q.2 Compare Arbitrage pricing theory with the Capital asset pricing model.

 

Q.3 Perform an economy analysis on Indian economy in the current situation.

Q.4 Identify some technical indicators and explain how they can be used to decide purchase of a company’s stock.

 

Q.5 From the website of BSE India, explain how the BSE Sense is calculated.

 

Q.6 Frame the investment process for a person of your age group.

Summer/May 2012

Master in Business Administration — Semester 3

MF0010— Security Analysis and Portfolio Management – 4 Credits

(Book ID: B1208)

Assignment Set- 2 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 Show how duration of a bond is calculated and how is it used.

Answer  : DURATION OF BONDS

Bond Duration is a measure of bond price volatility, which captures both price and reinvestment risk and which is used to indicate how a bond will react in different interest rate environments. The duration of a bond represents the length of time that elapses before the average rupee of present value from the bond is received. Thus duration of a bond is the weighted average maturity of cash flow stream, where the weights are proportional to the present value of cash flows. Formally, it is defined as:

Duration = D = {PV (C1) x 1 + PV (C2) x 2+ —– PV (Can) x n} / Current Price of the bond

Where PV (Chi) is the present values of cash flow at time I.

Steps in calculating duration:

Step 1 : Find present value of each coupon or principal payment.

Step 2 : Multiply this present value by the year in which the cash flow is to be received.

Step 3 : Repeat steps 1 & 2 for each year in the life of the bond.

Step 4 : Add the values obtained in step 2 and divide by the price of the bond to get the

value of Duration.

Example: Calculate the duration of an 8% annual coupon 5 year bond that is priced to

yield 10% (i.e. YTM = 10%). The face value of the bond is Rs.1000.

Annual coupon payment = 8% x Rs. 1000 = Rs. 80

At the end of 5 years, the principal of Rs. 1000 will be returned to the investor. Therefore cash flows in year 1-4= Rs. 80.

Cash flow in year 5= Principal + Interest = Rs. 1000 + Rs. 80 = Rs. 1080

(t)	Annual Cash flow	PVIF @10%	Present Value of Annual Cash Flow PV(Ct)	Explanation	Time x PV of cash flow	Explanation
1	80	0.90909	72.73	= 80 x 0.90909	72.73	= 1 x 72.73
2	80	0.82645	66.12	= 80 x 0.82645	132.24	= 2 x 66.12
3	80	0.75131	60.10	= 80 x 0.75131	180.3	= 3 x 60.1
4	80	0.68301	54.64	= 80 x 0.68301	218.56	= 4 x 54.64
5	1080	0.62092	670.59	= 1080 x 0.62092	3352.95	= 5 x 670.59
Total			924.18		3956.78

 

Price of the bond= Rs 924.18

The proportional change in the price of a bond:

(ΔP/P) = – {D/ (1+ YTM)} x Δ y

Where Δ y =change in Yield, and YTM is the yield-to-maturity.

The term D / (1+YTM) is also known as Modified Duration. The modified duration for the bond in the example above = 4.28 / (1+10%) = 3.89 years. This implies that the price of the bond will decrease by 3.89 x 1% = 3.89% for a 1% increase in the interest rates.

 

 

Q.2 Using financial ratios, study the financial performance of any particular company of your interest.

Q.3 Show with the help of an example how portfolio diversification reduces risk.

Q.4 Differentiate between ADRs and GDRs

Q.5 Study the performance of any emerging market of your choice.

 

Q.6 As an investor how would you select an equity mutual fund scheme?

 

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Summer/May 2012

Master in Business Administration — Semester 3

MF0011— Mergers and Acquisitions – 4 Credits

(Book ID: B1209)

Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 What are the cultural aspects involved in a merger. Give sufficient examples.

Answer  : Merger success is possible; however, being part of the 17% that succeeds, rather than the 83% that does not deliver, requires more than insight. Merger success is based on acceleration, concentration and creating a critical mass for operational change (adaptation).

Up to the point in the transaction where the papers are signed, the merger and acquisition business is predominantly financial – valuing the assets, determining the price and due diligence. Before the ink is dry, however, this financially-driven deal becomes a human transaction filled with emotion, trauma, and survival behavior – the non-linear, often irrational world of human beings in the midst of change.

The seven pitfalls represent the critical and vulnerable areas of the M&A transaction. These areas must not only be valued for their negative impact on the critical success factors that drove the “deal”, they are the very agenda for the organization’s action in the critical first 90 days of the new entity.

In the case of international mergers and acquisitions, the complexity of these processes is often compounded by the difference in national cultures. People living and working in different countries react to the same situations or events in very different manners.

Therefore, a company involved in an international merger or acquisition needs to consider these differences right from the design stage if it is to succeed.

The concept of time is also related to culture. While long-term in North America tends to mean three years, it means up to 30 years in Japan. Consequently, Japanese strategy discussions are likely to take into consideration events that Canadians consider irrelevant, since they are expected to take place beyond the Canadian planning horizon.

Space is also relative. In an increasingly virtual world, those not “connected” in the same space and time feel disconnected from the decisions and the center of the action. Irregular and incomplete communications at headquarters becomes a daunting challenge for those who live in different time zones, regions, countries and organizational units.

Only a new culture can create the context for true change to happen and hold. Changing culture means changing behavior. One of the quickest way to effect change and create the new company is to place in all key positions those individuals who are true representatives of the new culture and who can lead effectively people on both side of the company’s cultural divide.

These pitfalls of mergers and acquisitions challenge today’s leaders to a new standard of managing change. The strategy is clear – accelerate, concentrate, adapt, and in the case of international M&As, consider cultural differences. The human and cultural issues that separate the 17% from the 83% are not about some abstract values or the “soft stuff”, but the concrete reality of productivity, economic value and sustained growth.

 

 

 

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Q.2 What are the sources of operating synergy?

 

 

Q.3 Explain the process of a leveraged buyout.

 

Q.4 What are the basic steps in strategic planning for a merger?

Q.5 Study a recent merger that you have read about and discuss the synergies that resulted from the merger.

Q.6 What are the motives for a joint venture, explain with an example of a joint venture.

 

Summer/May 2012

Master in Business Administration — Semester 3

MF0011— Mergers and Acquisitions – 4 Credits

(Book ID: B1209)

Assignment Set- 2 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 List out the defence strategies in the face of a hostile takeover bid.

Answer  :  The defense against the acquisition by taking over the shares listed on any stock exchanges. It explains the concept and various forms of takeover device prevailing in the corporate world and the technique of corporate raid as well. You will also understand about the various defensive mechanisms that can be adopted to face the takeover raid, which in turn focuses on corporate strategies to avoid takeover raid and the legal measures against takeovers in India.

 

Takeover implies acquisition of controlling interest in a company by another company by taking over of the shares listed on any stock exchange. It does not lead to the dissolution of the company whose shares are being or have been acquired. It simply means a change of controlling interest in a company through the acquisition of its shares by another group. The acquisition transactions in such shares are subject to the conditions of listing agreement. When a profit earning company takes over a financially sick company to bail it out, it is known as ‘bail out takeover’. Such takeovers are in pursuance of a scheme of rehabilitation approved by public financial institutions. Corporate takeovers in India are governed by the listing agreement with stock exchanges and the SEBI Substantial Acquisition of Shares and Takeover (SEBI Code) Code. The raid, bids and defences are the outcome of takeover. Corporate can stall such takeover through strategic defensive steps.

Mergers and takeovers are motivated and negotiated under the dominance of hostility and friendliness pressure and influences and are accordingly classified as friendly mergers and hostile mergers. The raids, bids and defences are the outcome of human moods. Corporate wars and offensive postures can be avoided and can be stalled through defensive steps.

There are two types of takeover bids as discussed below:

Friendly Takeover

Mergers and takeovers could be through negotiations with the consent of target company’s executives or Board of Directors. Such mergers are called friendly mergers. These mergers are negotiated mergers and if the parties do not reach an agreement during negotiations, the proposal stands terminated.

Hostile takeover

An acquirer company may not offer the target company the proposal to acquire its undertaking, but silently and unilaterally may pursue efforts to gain controlling interest in it against the wishes of the management. Such acts of acquirer are known as “raid” or “Take over raids”. These “raids” when organized in a systematic way are called “Takeover bids”. Both the raids and bids, lead to merger or takeover. A takeover is hostile when it is in the form of “raid”. The forces of competition and product provide strength and weakness to the rivals in the industry, trade or commerce.

Takeover bid

A takeover bid gives impression of the intention reflected in the action of acquiring shares of a company to gain control of its affairs. A bid has been distinguished as below:

Partial Bids

Partial bid is understood when a bid made for acquiring part of the shares of a class of capital where the offer or intends to obtain effective control of the offered through voting powers. Such bids are made for equity shares carrying voting rights. Partial bid is also understood when the offer or bids all the issued non-voting shares in a company. Regulation 12 of SEBI Takeover Regulations, 1997, it is necessary to make public announcement in accordance with the Regulations.

Competitive Bid

This can be made by any person within 21 days of public announcement of the offer made by the acquirer. Such bid shall be made through public announcement in pursuance of provisions of regulation 25 of the SEBI take over regulation 1997. Such competitive bid shall be for the equal number of shares or more for which first offer was m

 

 

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Q.2 Discuss the factors in post-merger integration process.

Q.3 What is the basis for valuation of a target company?

 

 

Q.4 What are the legal compliance issues a company has to adhere to in case of a merger. Explain through an example.

 

 

Q.5 Choose any firm of your choice and identify suitable acquisition opportunity and give reasons for the same.

 

 

Q.6 Take a cross border acquisition by an Indian company and critically evaluate.

 

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(May 2012)

Master of Business Administration – Semester 3

MF 0012: “TAXATION MANAGEMENT”

(4 credits)

(Book ID: B1210)

ASSIGNMENT- Set 1

Marks 60

Note: Each Question carries 10 marks. Answer all the questions.

 

1. Write a note on the following:

 

a. Tax holidays

Answer  : A tax holiday is a temporary reduction or elimination of a tax. Programs may be referred to as tax abatements, tax subsidies, tax holidays, or tax reduction programs. Governments usually create tax holidays as incentives for business investment. Tax holidays have been granted by governments at national, sub-national, and local levels, and have included income, property, sales, VAT, and other taxes. Some tax holidays are extra statutory concessions, where governing bodies grant reduction in tax not necessarily authorized within the law. In developing countries, governments sometimes reduce or eliminate corporate taxes for the purpose of attracting Foreign Direct Investment or stimulating growth in selected industries.

 

Tax holiday stimulate community revitalization, retain City residents, attract homeowners to the City, and to reduce development costs for homeownership and rental projects. The program provides a benefit for residents who improve their homes and encourages home shoppers to buy in the City. The tax abatement benefits stay with the property the entire length of the abatement and will transfer to any new property owner within that period.

A tax holiday may be given in respect of particular activities,[1] in particular areas with a view to develop that area of business,[2] or to particular taxpayers.[3]

 

 

Sales tax holidays in the United States

 

In New York, a state-wide sales tax holiday was first enacted by the New York Legislature in 1996 and enabled the first tax-free week in January 1997. Local governments in New York were given the option of whether or not to participate.[4] Since then, the initiative has been adopted by thirteen states. It commonly takes place as a form of tax-free weekend lasting Friday through Sunday, usually during a major shopping period for necessities, such as just before school starts. During that period, sales tax is not collected on selected items, such as clothing and school supplies. The items subject to the sales tax exemption may also be restricted by price (for example, clothing up to $100), but consumers are free to buy unlimited quantity of items.

As with other sales taxes, visiting residents of non-participating states who purchase tax-free goods (holiday or not) may still have to pay “use tax” on their goods that they take home.

 

 

 

 

b. SEZ

 

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Q2. Comment on incomes which are exempted from the tax.

 

 

 

 

Q3. Enumerate the differences between tax planning and tax evasion.

 

 

Q4. What are the key steps to calculate the tax liability of an individual.

Q5. Explain the basic rules of deductions.

Q6. Explain the capital gains exempt from tax.

 

 

 

 

 

 

 

 

(May 2012)

Master of Business Administration – Semester 3

MF 0012: “TAXATION MANAGEMENT”

(4 credits)

(Book ID: B1210)

ASSIGNMENT- Set 2

Marks 60

Note: Each Question carries 10 marks

 

1. Write a note on the following:

 

a. Wealth Tax

Answer :  Wealth Tax

Wealth tax is a direct tax, which is charged on the net wealth of the assessed. It is a tax on the benefits derived from ownership of property. The tax is to be paid year after year on the same property on its market value, whether or not such property yields any income. Wealth tax, in India, is levied under Wealth-tax Act, 1957. The Income tax department under the Department of Revenue in the Ministry of Finance administers the Wealth Tax Act, 1957 as well as the Wealth Tax Rules framed there under.

Under the Act, the tax is charged in respect of the wealth held during the assessment year by the following persons :-

 

Individual

 

Hindu Undivided Family(HUF)

 

Company

Chargeability to tax also depends upon the residential status of the assessed same as the residential status for the purpose of the Income Tax Act.

 

Wealth tax is not levied on productive assets, hence investments in shares, debentures, UTI, mutual funds, etc are exempt from it. The assets chargeable to wealth tax are :-

 

• Guest house, residential house, commercial building

 

• Motor car

 

• Jewellery, bullion, utensils of gold, silver etc

 

• Yachts, boats and aircrafts

 

• Urban land

 

• Cash in hand(in excess of 50,000), only for Individual & HUF
• The following will not be included in Assets :-

 

• Any of the above if held as Stock in trade.

 

• A house held for business or profession.

 

• Any property in nature of commercial complex.

 

• A house let out for more than 300 days in a year.

 

• Gold deposit bond.

 

• A residential house allotted by a Company to an employee, or an Officer, or a Whole Time Director ( Gross salary i.e. excluding perquisites and before Standard Deduction of such Employee, Officer, Director should be less than Rs. 5,00,000).
• The Assets exempt from Wealth tax are :-

 

• Property held under a trust.

 

• Interest of the assessed in the coparcenaries property of a HUF of which he is a member.

 

• Residential building of a former ruler.

 

• Assets belonging to Indian repatriates.

 

• One house or a part of house or a plot of land not exceeding 500sq.mts,for individual & HUF assessed.

Wealth tax is chargeable in respect of Net wealth corresponding to Valuation date.(Net wealth means all assets less loans taken to acquire those assets. Valuation date means 31st March of immediately preceding the assessment year). In other words, the value of the taxable assets on the valuation date is clubbed together and is reduced by the amount of debt owed by the assessed. The net wealth so arrived at is charged to tax at the specified rates. Wealth tax is charged @ 1% of the amount by which the net wealth exceeds Rs. 15 Laths.

 

 

 

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b. Service tax

 

 

 

Q2. Define clubbing of income. What are the key provisions for income clubbing?

 

 

Q3. Define fringe benefits and perquisites.

 

 

Q4. Write a note on income from capital gain.

 

 

 

Q5. What are the key rebates and reliefs under Income Tax Act?

 

 

 

 

Q6. Summarise the objectives of tax planning.

 

 

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(May 2012)

Master of Business Administration – Semester 3

MF 0013: “INTERNAL AUDIT AND CONTROL”

(4 credits)

(Book ID: B1211)

ASSIGNMENT- Set 1

Marks 60

Note: Each Question carries 10 marks. Answer all the questions.

1. Write a note on the following:

 

a. Internal Audit

Answer :

Internal Audit The Governing Body of each agency is responsible for establishing the internal audit function and the head of internal audit is primarily accountable to the Governing Body. The head of internal audit will report to the Audit Committee on their function, and to the chief executive (or to an officer nominated by the chief executive) for administrative purposes such as for authorisation of expenditure and approval of travel and leave.

Guideline

The governing body is responsible for determining the need for and scope of internal audit activity. It may delegate this responsibility to the Audit Committee. The head of internal audit ideally would have no executive or managerial powers, authorities, functions or duties except those relating to the management of the internal audit function. The head of internal audit should be responsible to an individual in the organisation with sufficient authority to promote independence and to ensure broad audit coverage, adequate consideration of engagement communications and appropriate action on engagement recommendations.

Each agency must establish an internal audit function where it is cost effective to do so.

Guideline

An internal audit function should be established, unless the costs of such a function outweigh the benefits to be derived. This may be the case where size, risks, complexity, geographical distribution or materiality do not justify the associated cost. In determining the need for an internal audit function, consider:

the size and scale of the organisation;

the organisation’s complexity / diversity;

the organisation’s overall risk profile;

the history of past issues and incidents;

cost benefit; and

the existence of alternative mechanisms to provide adequate assurance on compliance and the operation of internal controls. If an internal audit function is not warranted the governing body must take alternative steps to obtain an appropriate level of assurance from an equivalent function. Alternative in-house assurance activities and / or compliance functions that are sufficiently robust and rigorous may

be regarded as an “equivalent function”.

The need for an internal audit function should be reviewed annually.

 

b. Code of ethics for internal auditor

 

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Q2. Comment on “An auditor is a watch dog and not a blood hound’.

 

Q3. List out the factors that influence the control environment prescribed by SA 400: Risk assessment and internal control.

 

Q4. If you are an internal auditor of a branch of an insurance company, how do you prepare internal control scheme.

 

5. Explain the appraisal of accounting system and related internal control.

Q6. Mention some of the general EDP controls.

 

(May 2012)

Master of Business Administration – Semester 3

MF 0013: “INTERNAL AUDIT AND CONTROL”

(4 credits)

(Book ID: B1211)

ASSIGNMENT- Set 2

Marks 60

Note: Each Question carries 10 marks

1. Write a note on the following:

 

a. Internal audit

Answer  : The Governing Body of each agency is responsible for establishing the internal audit function and the head of internal audit is primarily accountable to the Governing Body. The head of internal audit will report to the Audit Committee on their function, and to the chief executive (or to an officer nominated by the chief executive) for administrative purposes such as for authorisation of expenditure and approval of travel and leave.

Guideline

The governing body is responsible for determining the need for and scope of internal audit activity. It may delegate this responsibility to the Audit Committee. The head of internal audit ideally would have no executive or managerial powers, authorities, functions or duties except those relating to the management of the internal audit function. The head of internal audit should be responsible to an individual in the organisation with sufficient authority to promote independence and to ensure broad audit coverage, adequate consideration of engagement communications and appropriate action on engagement recommendations.

Each agency must establish an internal audit function where it is cost effective to do so.

Guideline

An internal audit function should be established, unless the costs of such a function outweigh the benefits to be derived. This may be the case where size, risks, complexity, geographical distribution or materiality do not justify the associated cost. In determining the need for an internal audit function, consider:

 

the size and scale of the organisation;

 

the organisation’s complexity / diversity;

 

the organisation’s overall risk profile;

 

the history of past issues and incidents; cost benefit; and  the existence of alternative mechanisms to provide adequate assurance on compliance and the operation of internal controls. If an internal audit function is not warranted the governing body must take alternative steps to obtain an appropriate level of assurance from an equivalent function. Alternative in-house assurance activities and / or compliance functions that are sufficiently robust and rigorous may

be regarded as an “equivalent function”.

The need for an internal audit function should be reviewed annually.

 

b. Statutory audit

 

Q2. Differentiate internal audit and internal check.

 

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Q3. Describe internal audit tests.

Q4. Develop an internal control scheme for Banks.

Q5. Discuss the role of internal auditor as a part of management.

 

6. Explain the problems encountered in an Electronic Data Processing Environment.

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