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Faculty of Business, Economics & Accounting

Department of Accounting and Finance

HELP Bachelor of Business (Hons) Year 3

INTERNAL SUBJECT DETAILS


Semester 1, 2018

Subject: ACC 303


Auditing & Assurance Services

Subject Lecturer/Tutor: Dr. Lee Teck Heang


Telephone: 03-2716 2000
Fax: 03-2093 5311
Email: lee.teck.heang@help.edu.my

Consultation: Please call or email for appointment


PRE-REQUISITE(S)

ACC302 CORPORATE ACCOUNTING

SYNOPSIS

The subject introduces the practice of auditing in Malaysia. It reviews the roles and
responsibilities of auditors including legal liability issues and professional ethics. The
subject covers the process of an audit including the acceptance of the client, planning
the audit, audit evidence collection and documentation techniques and procedures,
assessment of risks, review of internal controls and substantive testing for the various
accounting cycles, audit completion and audit reporting issues. Other areas such as
sampling techniques, auditing in a computerised environment and the use of
computerised auditing techniques will also be covered. Although the main thrust of this
subject will be to cover statutory audits as required by the Companies Act 1965 other
types of audit will be introduced such as internal audit, forensic audit, performance
audit and compliance audit. Further, reporting on other audit related services such as
review engagements and special purpose audit engagements will be introduced.

OBJECTIVES

Upon completion of this subject, students should be able to:

 understand the scope and responsibilities (including ethical responsibilities) of the


auditor in a statutory audit engagement;

 identify relevant audit risk issues to be addressed at planning stage and indicate the
necessary audit approach for specific scenarios;

 appreciate the various auditing standards as issued by the Malaysian Institute of


Accountants and the application of same to the audit process;

 describe the procedures to be adopted in auditing specific transaction cycles and


balances in the financial statements and appreciate the concepts of internal controls
and audit risk;

 discuss and apply relevant sampling techniques for both compliance and substantive
testing;

 appreciate the audit process within a computerised environment and the application
of computerised audit techniques;

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 discuss completion issues and the various audit report opinions that may be
rendered including assessing case study circumstances and the appropriate audit
opinions, and

 identify and discuss the different types of audit and assurance services offered by
the auditing profession and the various types of reports issued.

TOPICS

Topic 1 Introduction to auditing and the profession

Topic 2 Professional ethics and auditor’s role in corporate governance

Topic 3 Auditors legal liability

Topic 4 Audit evidence and audit documentation

Topic 5 Accepting and planning the audit engagement

Topic 6 Audit risk and internal controls

Topic 7 Test of controls and substantive testing I

Topic 8 Test of controls and substantive testing II

Topic 9 Test of controls and substantive testing III

Topic 10 Audit sampling

Topic 11 CIS auditing

Topic 12 Completion of the audit

Topic 13 Audit reporting

Topic 14 Other assurance services and Internal Audit

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PRESCRIBED TEXTBOOK

Leung, P., Coram, P., Cooper, B.J. and Richardson, P. (2015) Modern Auditing and
Assurance Services, 6th edition, John-Wiley, Australia.

RECOMMENDED REFERENCES

Alvin A. Arens, Michigan State University, Randal J. Elder, Syracuse University, Mark
S. Beasley, North Carolina State University (2016), Auditing and Assurance Services
with ACL Software CD, 16th edition, Pearson.

Gay, G. and Simnett, R., (2015) Auditing and Assurance Services in Australia, 6th
edition, McGraw-Hill, Australia.

Arens, A.A, Elder, R.J. and Beasley, M. (2012) Auditing and Assurance Services, 14th
edition, Prentice Hall, US.

Crawford, L, Gray, I. and Manson, S. (2015) The Audit Process: Principles, practice
and cases, 6th edition, Cengage.

Malaysian Institute of Accountants (2009) Malaysian Approved Standards on Auditing,


MIA, Kuala Lumpur, Malaysia.

JOURNALS, READINGS, AND ARTICLES

1. TH Lee, AM Ali, D Bien (2009), “Towards an Understanding of the Audit


Expectation Gap”, ICFAI Journal of Audit Practice, Vol. 6, No. 1, pp. 7-35.

2. K Lo (2008), “Earnings management and earnings quality” Journal of Accounting


and Economics, Vol. 45, pp. 350-357, 2008.

3. Nuno Castanheira, Lúcia Lima Rodrigues, Russell Craig, (2010) “Factors


associated with the adoption of risk‐based internal auditing”, Managerial Auditing
Journal, Vol. 25 Iss: 1, pp.79 – 98.

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Subject Outline / Teaching Plan

Department : Accounting & Finance Subject Code : ACC 303


Lecturer : Dr. Lee Teck Heang Subject Title : Auditing & Assurance Service

Week Topics References

1 Introduction to auditing and the profession Ch 1


2 Professional ethics and auditor’s role in corporate Ch 2, 3
governance
Auditors legal liability Ch 5
3 Audit evidence and audit documentation Ch 6, 10
4 Accepting and planning the audit engagement Ch 8
5 Audit risk and internal controls Ch 9, 11
6 Test of control and substantive testing I Ch 12, 14
(Sales, Receivables and Cash and related cycle)
7 Mid-term & Break
8 Test of control and substantive testing II Chap 15, 16
(Purchases, Payables, Inventories, Other Current
Assets / Non-current Assets and related cycle)
9 Test of control and substantive testing III Chap 17
(Current / Non-current Liabilities, Provisions,
Contingencies, Equity and Others and related
cycle)
10 Audit sampling Chap 13
CIS auditing Chap 9, 11, 12
11 Completion of the audit Chap 18
12 Audit reporting Chap 7
13 Other assurance services and Internal Audit Ch 4
14 Revision N/A
15 – 16 Final Examination

Textbook : Leung, P., Coram, P., Cooper, B.J. and Richardson, P. (2015) Modern
Auditing and Assurance Services, 6th edition, John-Wiley, Australia.

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ASSESSMENT DETAILS
There are 3 assessments items for this subject.

Assessment Items Value Due Date

1. Mid Semester Test (Closed Book) 10% 30 March 2018

2. Assignment (Group) 20% Week 10

3. Final Examination (Closed Book) 70% Examination period: 21 April –


5 May 2018**

REQUIREMENTS:

To gain a pass in this subject, students must:

 Achieve a passing grade in the final examination i.e. score a minimum of 35


marks out of 70 marks if there is an examination for this subject.

 Attempt ALL areas of assessment; and achieve a total result of 50% or better
overall.

** - Please check on the notice board and My Acel for the actual date. HELP
University reserves the right to make any changes to the above where appropriate.

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HELP UNIVERISITY
ACC303 AUDITING & ASSURANCE SERVICES
ASSIGNMENT

Due on 30 March, 2018 Marks: 20%

Section 1 (50%)

According to ISA 200, paragraph 9, the objective of an audit of financial statements is


an assurance engagement. The auditor is engaged for purposes of expressing an opinion
designed to enhance the degree of confidence of intended users in the financial
statements. As a basis for the opinion, the auditor obtains reasonable assurance about
whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error.

It is important to note that the auditing is an evolving function; the objective of an audit
has changed over time and hence the objective of the present day audit is unlikely to be
the same as compared to 100 years ago.

Required

You are required to write an essay which outlines the historical development of an audit
function. Based on the literature in auditing, you are required to trace the history of
auditing and evaluate the progress of the duties of auditors over the years. Your essay
should be 1,000 to 1,500 words.

Question 2 (30%)

Computer-assisted audit techniques (CAATs) or computer-assisted audit tools and


techniques (CAATTs) is a growing field within the IT audit profession. CAATs is the
practice of using computers to automate the IT audit processes. CAATs normally
includes using basic office productivity software such as spreadsheet, word
processors and text editing programs and more advanced software packages involving
use statistical analysis and business intelligence tools

Required

Evaluate the benefits and challenges of using CAATs in performing an audit


assignment. Your essay should be about 500 words.

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Question 3 (20%)

As an audit senior you are required to oversee the audit of ABC Sdn. Bhd. To improve
the efficiency of the audit, you have decided to conduct the year-end audit of ABC Sdn.
Berhad using an audit software package called Audit Command Language (ACL).

You assigned an audit junior to carry out the following tasks on Payroll, Account
Payables and Account Receivables for the 2017 financial accounts.

Required:

Payroll (8%)
1) Identify the number of male employees in the company with the age above 50.
2) Identify the number of female employees in the company with the age above 45.
3) Identify the number of employees who is originated from the US.
4) Identity the total annual EPF contribution (employer portion only).

Accounts Receivable (8%)

1) Identify the total number of invoices for the year 2017.


2) List down the number of Invoices issued before 1 June 2017 and identify the total
amount.
3) List down the number of Credit Note issued before 1 August 2017 and identify the
total amount
4) Identify the number of duplicate invoice.

Accounts Payable (4%)

1) Identify the number of invoice with the amount above RM1,000.


2) List down the number of Invoices issued before 1 September 2017 and identify the
total amount.

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1. This is a group assignment consisting of 4 group members.

2. The assignment should be computer-typed, double-space and to have a font


size of 12, Times New Roman. Hand-written assignments will not be
accepted. There should a one-inch margin on both sides of the page and all
pages must be numbered accordingly.

3. No Late submission is permitted at any circumstance as it is a group


assignment.

4. Assignments must be submitted to the Administration Office of the Faculty


of Business, Economics & Accounting with the proper acknowledgement of
receipt by the staff. Before submitting your assignment, you should make a
copy and submit the original for assessment.

5. All journal articles cited in the essay are required to be submitted (soft
copy in a CD) together with the assignment.

6. Turnitin information:

Class name: acc303


Class ID: 16955939
Password: acc3032018

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GRADING SCHEME
Mark Range GRADE GRADE DEGREE MARKING RUBRICS
POINT CLASSIFICATI
ON

 Comprehensive and excellent grasp of


key concepts
85 - 100 HD 1 4.00  Excellent use of analytical means and
logical arguments
 Excellent synthesis of arguments and
excellent use of relevant examples
 Balanced discussions and excellent
flow of ideas
 Excellent command of language with
FIRST CLASS no errors
 Excellent and consistent referencing

80 – 84 HD 2 3.75

 Comprehensive and excellent grasp of


key concepts
75 - 79 DI 1 3.50  Excellent use of analytical means and
logical arguments
 Good synthesis of arguments and
excellent use of relevant examples
 Balanced discussions and good flow of
ideas
 Excellent command of language with
no errors
SECOND
 Excellent and consistent referencing
UPPER CLASS
70 – 74 DI 2 3.25

 Competent grasp of key concepts


 Competent use of analytical means
65 – 69 CR 1 3.00 and logical arguments, albeit with
some errors
 Fair synthesis of arguments and
moderate use of relevant examples
 Fairly balanced discussions and fairly
clear flow of ideas
SECOND
 Competent command of language and
LOWER CLASS limited amount of errors
60 – 64 CR 2 2.75  Satisfactorily is referencing

 Basic grasp of key concepts


 Less than satisfactory use of analytical
55 - 59 PS 1 2.50 means and logical arguments
 Little synthesis of arguments and
hardly any relevant examples
 Some evidence of balanced
discussions and poor organisation
 Satisfactorily command of language
and considerable amount of errors
 Relatively flawed referencing

THIRD CLASS
50 - 54 PS 2 2.00 PASS

 Shows ignorance of key concepts


 Less than satisfactory use of analytical
0 - 49 FL 0.00 means and logical arguments
 Little synthesis of arguments no
relevant examples
 Little or no balanced discussions and
poor organisation
 Relatively poor command of language
and unable to expressed ideas clearly
 No referencing or poor referencing

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HELP UNIVERSITY
ASSIGNMENT FEEDBACK/MARKING SHEET
ACC303

1. Student ID:_______________________________________
2. Student ID :_______________________________________
3. StudentID:________________________________________
Auditing & Assurance
4.. Student ID:________________________________________
Services

Assessment Criteria Mark Maximum


Achieved Mark

Relevance of materials used 5

Application of appropriate theories 15

Logical flow, sequence and development 15

Evidence of background reading 15

Appropriate depth of analysis 15

Evaluation of issues and results 15

Use of supporting data/evidence 10

Use of referencing system and bibliography 5

Overall presentation 5

Total Mark 100

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Assignment No.:

Assignment Cover Sheet


Student Information (For group assignment, please state names of
Grade/Marks
all members)
Name ID

Office
Module/Subject Information
Acknowledgement

Module/Subject Code

Module/Subject Name

Lecturer/Tutor/Facilitator

Due Date

Assignment Title/Topic

Intake (where applicable)

Word Count Date/Time

Declaration

. I/We have read and understood the Programme Handbook that explains on plagiarism, and I/we testify that,
unless otherwise acknowledged, the work submitted herein is entirely my/our own.
. I/We declare that no part of this assignment has been written for me/us by any other person(s) except where
such collaboration has been authorized by the lecturer concerned.
. I/We authorize the University to test any work submitted by me/us, using text comparison software, for instances
of plagiarism. I/We understand this will involve the University or its contractors copying my/our work and storing it
on a database to be used in future to test work submitted by others.

Note:1) The attachment of this statement on any electronically submitted assignments will be deemed to have the
same authority as a signed statement.
2) The Group Leader signs the declaration on behalf of all members.

Signature: Date:

mail:

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Feedback/Comments*

Main Strengths

Main Weaknesses

Suggestions for improvement

Student acknowledge feedback/comments

Grader’s signature Student’s signature:

Date: Date:
Note:
1)A soft and hard copy of the assignment shall be submitted.
2)The signed copy of the assignment cover sheet shall be retained by the marker.
3)If the Turnitin report is required, students have to submit it with the assignment. However, departments may allow
students up to THREE (3) working days after submission of the assignment to submit the Turnitin report. The
assignment shall only be marked upon the submission of the Turnitin report.
*Use additional sheets if required.

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Department of Accounting & Finance

ACADEMIC INTEGRITY

Honesty and Responsibility


Academic integrity is an important tenet for HELP University. In pursuit of the highest
standards of academic integrity, the Department of Accounting & Finance holds it
students to the highest ethical standards defined by the Rules and Regulations section
of the Academic Handbook. All students at the Department of Accounting & Finance
are subjected to and are bound by the Student Academic Misconduct Rule to assure
academic honesty. Students are required to sign a pledge on the assignment cover sheet
before submitting your assignments to the Administration Office of the Faculty of
Business, Economics & Accounting.

What is Plagiarism?
Plagiarism is academic dishonesty or academic theft, and it is a serious academic
offence. Plagiarism includes, but is not limited to, the followings:
1. quote, paraphrase or summarize someone else’s ideas, theories or data, in whole
or in part, without appropriate acknowledgement
2. borrow ideas, opinion or words, in whole or in part, from other sources without
properly crediting the author(s)
3. use any facts, statistics, diagrams or graphs, in whole or in part, without
acknowledging the source clearly
4. claim or imply original authorship of someone else’s ideas, theories or data, in
whole or in part, as your own
5. employ or allow someone to help to revise, amend or write your work and pass
off as your own original work
6. collaborate with or allow other students to copy your work
7. draw on sources more than what you have acknowledged by citations

While a student is not discouraged to discuss an assignment with his/her friends or


classmates, the work he/she submits must be done by the student alone. If a student
shares his/her assignment with other students and they plagiarize it, the student is as
guilty as those students who plagiarized his/her assignment. All parties to plagiarism
are considered equally guilty. Under no circumstances should a student be involved in
collusion with other students unless he/she is permitted to work on an assignment
jointly by the lecturer/tutor. If a student is unsure what constitutes plagiarism, he/she is
obliged to consult the lecturer/tutor on the matter before submission of his/her
assignment.

When and How to Reference?


Knowing when and how to cite is a student’s responsibility. If he/she is in doubt or
need more help on this matter, the student may consult the lecturer/tutor. The following
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list comprises some of the sources a student will need to reference. The list is by no
means exhaustive, but simply consists of the most common sources used by students to
complete their work.
1. Books
2. Chapters in books
3. Journal articles
4. Conference papers
5. Newspaper articles
6. Magazines
7. Websites
8. Study guide

Students are advised to cite in the following cases [1]:


1. When he/she quotes two or more words verbatim, or even one word if it is used
in a way that is unique to the source
2. When he/she introduce facts that he/she have found in a source
3. When he/she paraphrase or summarize ideas, interpretations, or conclusions that
he/she find in a source
4. When he/she introduce information that is not common knowledge or that may
be considered common knowledge in your field, but the reader may not know it
5. When he/she borrow the plan or structure of a larger section of a source’s
argument (for example, using a theory from a source and analyzing the same
three case studies that the source uses)
6. When he/she build on another’s method found either in a source or from
collaborative work in a lab
7. When he/she build on another’s program in writing computer code or on a not-
commonly-known algorithm
8. When he/she collaborate with others in producing knowledge

In general, a referencing system requires two parts:


1. In-text citations
This is information about a source within the text of an assignment.
2. List of references
This is a list of all sources a student has used to research his/her assignment. It
is alphabetically arranged by author surname and appears immediately after the
last page of an assignment.

Different faculties or departments may have different requirement on how referencing


for an assignment should be done. The various formats used for in-text citations and list
of references are available in the following websites:
1. Harvard System (http://www.adelaide.edu.au/library/guide/gen/harvard.html)
2. Chicago Style (http://www.chicagomanualofstyle.org/index.html)
3. American Psychological Association or APA Style (http://www.apastyle.org)
4. Modern Language Association of America or MLA Style (http://www.mla.org)

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http://www.yale.edu/bass/writing/sources/plagiarism/warning.html, accessed May 18, 2008.

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Once a student has selected a referencing style for his/her assignment, he/she must
follow the same style consistently throughout the assignment. We strongly suggest that
the student consults the lecturer/tutor about which method to use before submission of
his/her assignment.

What are the Procedures and Penalties for Plagiarism?


When a lecturer/tutor encounters a possible case of plagiarism, the lecturer/tutor shall
report the matter to the Head of the Department, who then initiates an investigation on
the matter. The following procedures would be carried out:
1. The lecturer/tutor shall provide evidence that substantiates an academic offence
has occurred. The following documentations must be ready prior to reporting of
alleged plagiarism:
a. Copy of the alleged plagiarized assignment
b. Copy of the source material (e.g. articles, websites, newspaper, etc.)
c. Report of plagiarism
d. Any other information that would support the claim of plagiarism
2. If the evidence warrants an accusation of academic offence, the Head of
Department shall establish a Board of Inquiry comprising 3 academic staff. The
Department shall provide all necessary documentations, including report on
prior academic offences if applicable, to the Board of Inquiry.
3. The Board of Inquiry shall put the matter to the student in writing and give
him/her an opportunity to respond to the accusation within 3 working days.
4. The student will be required to attend a meeting with the Board of Inquiry.
After meeting the student, the Board of Inquiry shall decide whether or not the
alleged plagiarism has occurred. The following documentations shall be
submitted to the Head of Department at the end of the meeting:
a. Findings of the investigation
b. Recommended action(s) to be taken or imposed
5. The Head of Department shall review the Board of Inquiry’s report with
supporting evidence and shall decide on an appropriate action(s) based on the
recommendation of the Board of Inquiry.
6. The decision of the Head of Department shall be put in writing to the student.
Copies of all documentations will be retained in the Department.
7. If the student feels that he/she has been unfairly accused or treated, the student
may appeal to the Head of Department within 5 working days.
8. The Head of Department shall review the appeal and the final decision will be
communicated to the student in writing and a copy will be kept with the
Department. Once a determination of plagiarism and penalty has been made by
the Head of Department, the investigative process will be deemed to have ended
and the student will not be allowed to appeal.

Possible penalties for plagiarism range from mark reduction for the assignment to
expulsion from the University. The student will not be allowed to make up the
assignment. If plagiarism has been found to have occurred, the Department will take
action(s) as determined by the forms of plagiarism implicated:

1. Complete plagiarism
Verbatim copying another person’s work without acknowledgement
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1st offence : A grade of “F” in the subject and a warning letter will be
issued
nd
2 offence : Expulsion from the University at the discretion of the Head of
Department
2. Substantial plagiarism
Near-verbatim copying another person’s work by simply altering the order of
the sentences or the format of presentation or by changing a few words or
phrases without acknowledgement.
1st offence : Zero mark on the assignment and a warning letter will be
issued
2 offence : A grade of “F” in the subject and a warning letter will be
nd

issued
3rd offence : Expulsion from the University at the discretion of the Head of
Department
3. Minimal plagiarism
Acknowledgement is made but paraphrasing by changing and/or eliminating
some words
1st offence : Deduction of 50% of available marks on the assignment and a
warning letter will be issued
2nd offence : A grade of “F” in the subject and a warning letter will be
issued
rd
3 offence : Expulsion from the University at the discretion of the Head of
Department
4. Unintentional plagiarism
Insufficient acknowledgement by not applying citation or quotation marks
correctly
1st offence : Deduction of up to 50% of available marks on the assignment
and a warning letter will be issued
2 offence : A grade of “F” in the subject and a warning letter will be
nd

issued
3rd offence : Expulsion from the University at the discretion of the Head of
Department
Pleading ignorance or unintentional plagiarism does not constitute valid reasons for
plagiarism and will not avoid the penalties from being imposed. Excuses for acts of
plagiarism such as the following, but not limited to, will not be entertained:
1. I don’t have time to do the assignment
2. I have too many assignments due on the same day
3. I don’t know, I really didn’t do it
4. I am not aware
5. I don’t understand what plagiarism means
6. I have no intention to plagiarize
7. I forgot to cite the reference
8. I forgot to include the bibliography
9. My English is not good
10. My lecturer/tutor did not explain to me
11. In my country, it is alright to copy someone else’s work
12. My friend copied my assignment when I let him/her to look at my assignment
13. My friend copied my assignment when I allow him/her to use my laptop
14. I did my assignment in the computer lab, someone must have copied my work
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15. I asked my friend to submit my assignment and he/she copied my work
16. I discussed my assignment with my friends, so our answers are the same/similar
17. Even though I do not have in-text citation but I have bibliography/reference list

Students should be reminded that it is their responsibilities to take due care throughout
their written work to effectively reference or cite when they use others’ ideas from any
source.

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DEPARTMENT OF ACCOUNTING & FINANCE

SEMESTER X, 20XX

SAMPLE FINAL EXAMINATION

Subject Code : ACC303

Subject Name : AUDITING & ASSURANCE SERVICES

This examination carries 70% of the total assessment for this subject.

Examiner(s) Moderator(s)

MR ABC MR XYZ

Day :
Time :
Date :

Time allowed : Reading – 10 MINUTES


Writing – 3 HOURS

INSTRUCTION(S):
1. This examination consists of TWO (2) sections:
SECTION A: FOUR (4) Questions – Answer ALL questions in the answer booklet provided.
SECTION B: TWENTY (20) Questions – Answer ALL questions in the answer book provided.

2. Writing on the examination answer book is NOT permitted during reading time.
3. This is a CLOSED BOOK examination.
4. Students are NOT permitted to retain this examination paper.
5. Students MUST pass this examination to obtain a passing grade in this subject.

(This examination paper consists of 2 sections in XX printed pages, including cover page)

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Answer ALL questions. Each question carries 20 marks

Section A (80 marks)

Question 1 (20 marks)

(a) Identify any Two (2) financial statement assertions for the audit of inventory
(account balance) and describe One (1) relevant substantive audit procedure for
each of the identified assertions.
(5 marks)

(b) You are nearing completion of the 31 December 2013 audit of ABC Wholesaler
Berhad. The Figures below have been extracted from the final draft financial
report.
RM’000
Operating profit before income tax 5,722
Operating profit after income tax 3,541
Total revenue 718,635
Current assets 253,881
Non-current asset 216,752
Total assets 470,633
Current liabilities 103,333
Non-current liabilities 132,760
Total liability 236,093
Equity 234,540

During your review of the audit files, you note the following items recorded on
the summary of audit differences.

(i) ABC Wholesalers have been involved in a long-running dispute with the
taxation authorities in relation to the amount of sales tax payable on
certain lines of merchandise. The case was resolved this year in favour
of the taxation authorities. The court ruled that ABC Wholesalers, as
well as paying the outstanding taxes, must pay a non-tax-deductible fine
of RM420,000.

(ii) Sales cut-off at one ABC Wholesaler’s store was incorrect, resulting in a
large sale of inventory made early in January 2014 being recorded in the
31 December 2013 year-end. The cost price of the inventory sold was
RM250,000. ABC Wholesalers mark up inventory by 40%

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Required:

Consider items (i) and (ii) independently, Discuss with reasons whether the
amount involved would be considered material for the purpose of issuing an
auditor’s report.
(6 marks)

(c) Describe any Two (2) audit procedures that should be performed to determine
the adequacy of the provision for doubtful debts.
(4 marks)

(d) The business performance of XYZ Berhad has been declining over the years
and solvency is a concern.

Required:

Outline any Five (5) audit procedures that the auditor should perform when a
question arises regarding the going concern of a company.
(5 marks)

Question 2 (20 marks)

Consider the following independent and material situations found during the audit of
Dynamic Berhad. The balance date of Dynamic Berhad is 30 June 2013.

(a) Recent industrial action has seen trade unions win a pay increase of 4 per cent
for their members. Under the terms of the agreement, the pay increase will be
backdated to 1 January 2013. Management has agreed to the pay increase;
however, they have not made any corresponding adjustment to the 30 June 2013
financial report.

(b) A large order from an overseas supplier was shipped FOB (free on board) and
title passed on 1 June 2013. The order arrived on 20 July 2013. The purchase is
not reflected in the 30 June 2013 financial report.

(c) Some of the director related transactions were not disclosed in the financial
statements. The management refused to do so as they felt that it ‘requires
information to be disclosed to the public which should remain known only to
the parties concerned.’ You were satisfied with all other matters in the client’s
financial statement.

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(d) Near the end of the financial year, a fire broke out and destroyed a substantial
amount of its accounting records and source documents. The accountant
managed to salvage and recover some of the records from their backup
computer files stored offsite. In spite of this, you are not satisfied that all the
transactions that occurred during the year are properly reflected in the financial
report and were unable to verify any of the material balances.

(e) An auditor was engaged to audit a client’s financial report after the annual
physical inventory count. The accounting records are not sufficiently reliable to
enable the auditor to become satisfied as to the year-end inventory balances.

Required:
Assume no adjustments have been made. For each of the issues outline above, identify
the type of audit opinion required, and explain the basis of your answer.
(each part carries 4 marks)

Question 3

(a) Your client, Mah Sing Berhad, engaged the service of Z & Co., a firm of real
estate valuers, to perform a valuation of all real estate held by the company. As
a result of this revaluation, property values on the balance sheet were
significantly increased, leading to a material increase in net asset backing per
share.

Required:
(i) Describe Five (5) audit procedures that you will carry out to check
whether the valuer has provided an accurate and independent valuation
of the property.
(5 marks)

(ii) Explain whether the procedures identified in (i) would change if


employees of Mah Sing had performed the valuation.
(5 marks)
(b) Outline Five (5) main objectives of an effective audit committee
(5 marks)

(c) Whilst auditing trade creditors, your audit assistant Jessie Wong vouched a
sample of creditor’s balances to selected invoices. No errors were found. Jessie
concluded that the trade creditors were reasonably stated.

Required:
Determine whether sufficient appropriate audit evidence has been obtained to
support the conclusion reached. Suggest any one (1) audit procedure required if
evidence is insufficient
(5 marks)
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Question 4 (20 marks)

(a) Consider each of the following independent and material situations. In each
case:
 The financial year-end was 31 December 2012
 The financial report and audit report was signed on 25 February 2013
 The financial report and audit report were mailed to members on 13 March
2013

(i) On 18 January 2013, the financial controller informed you that a serious fire
occurred in one of the warehouses. Although it is covered by insurance, the
fire caused an estimated loss of RM5 million to the company.

(ii) Your client, Q&Q’s bank loan is conditional upon certain ratios being
maintained at all times. On 17 March 2013, you discovered that one of the
ratios was breached.

(iii)On 1 February 2013, your client ABC Berhad, an organic food producer in
Malaysia, has decided to acquire one of the competitors in the industry. The
board of director has approved the acquisition and it will cost RM20 million
for the company.

Required:

For each of the above events, state the appropriate Action A to D for the situation and
justify your response. The alternative actions are as follows:

(a)Adjust the 31 December 2012 financial report.


(b)Disclose the information in the notes to the 31 December 2012 financial report.
(c)Request the client to recall the 31 December 2012 financial report for revision.
(d)No action is required
(4 marks each)
Each part carries equal marks

(b) Explain the purpose of an engagement letters and with reference to the relevant
auditing standard, state Two (2) items included in such a letter.
(4 marks)

(c) Explain what analytical procedure is and how it helps the auditor in audit
planning?
(4 marks)

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Section B. Answer All Questions. Each question carries 1 mark

1. The words that best describes the relationship which should exist between the
external auditor and the management of the client company are:
a. adversarial relationship.
b. mutual trust and respect.
c. advocacy of management’s position.
d. skeptical vigilance.

2. During the course of the audit engagement, the external auditor suggests an
adjustment to the financial statements. The suggestion is accepted by management
without argument. This suggests that:
a. the external auditor is primarily responsible for the fairness of the financial
statements.
b. the internal auditor has assumed responsibility for the changes made.
c. the external auditor has prepared the financial statements.
d. the client has assumed responsibility for the changes made.

3. In working with the minutes of meetings of shareholders, those charged with


governance, and their subcommittees, the auditor should:

a. read the minutes of all important meetings.


b. read the minutes of a sample of meetings.
c. read the minutes of all meetings.
d. read the minutes of AGMs.

4. Which of these is among the characteristics of the procedures performed in


completing the audit?
a. they involve many subjective judgements by the auditor.
b. they do not relate to specific transaction cycles or accounts.
c. they are usually performed by audit managers or seniors.
d. all of the above are characteristics of the procedures performed in completing the
audit

5. In a credit sales environment, the documents that serves as the basis for internal
processing of an order is:
a. customer order.
b. sales order.
c. dispatch note.
d. sales invoice.

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6. In the investigation of a potential new client, besides inquiring of the existing
auditor, the prospective auditor should make inquires of other third parties. Which
of the following is least likely to be included in this inquiry?
a. legal advisers/solicitors.
b. bankers.
c. customers.
d. the chamber of commerce.

7. The least likely procedure to obtain an understanding of the internal control


structure would be:
a. reviewing previous experience with the client.
b. confirming transactions.
c. inspecting documents and records.
d. enquiring of appropriate management.

8. A transaction walk-through review is most commonly associated with:


a. documenting the understanding.
b. tests of controls.
c. substantive tests.
d. procedures to obtain an understanding.

9. After performing additional tests of controls, the auditor reassesses control risk
from the initial planning level of slightly below maximum to moderate. The auditor
should now:
a. decrease the level of detection risk, and decrease substantive testing.
b. increase the level of detection risk, and increase substantive testing.
c. increase planned substantive testing.
d. increase the level of detection risk, and decrease substantive testing.

10. When control risk is assessed at the maximum, the extent of documentation
required in the working papers is that:
a. no documentation is necessary.
b. the basis for the assessment and the conclusion must both be documented.
c. only the conclusion needs to be documented.
d. only the basis for the assessment must be documented.

11. What is the purpose of the preliminary assessment of control risk?


a. to obtain a reasonable expectation of controls so as to decide on an appropriate
audit strategy.
b. to determine the extent to which internal controls have been implemented
c. to obtain the necessary information for developing the flowchart.
d. to provide management with an opinion on the effectiveness of controls.
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12. An audit program should be sufficiently detailed to provide all of the following
except:
a. evidential support for the audit opinion.
b. an outline of the work to be done.
c. a basis for controlling the audit.
d. a basis for supervising the audit.

13. Each income statement account is linked to at least one balance sheet account.
Which of the following would be the related income statement account for the
balance sheet account of inventories?
a. cost of sales.
b. depreciation expense.
c. sales.
d. none of the above.

14. Compared to balance sheet accounts, the audit of income statement accounts
generally relies more heavily on:
a. analytical procedures.
b. tests of detail of balances.
c. tests of detail of transactions.
d. both tests of detail of balances and of transactions.

15. An auditor may use sampling to obtain information about many different
characteristics of a population. However, most audit samples lead either to an
estimate of:
a. a dollar rate or a deviation amount.
b. the number of items in the population or the dollar amount of the population.
c. size of the population or the distribution of the population.
d. a deviation rate or a dollar amount.

16. Which of these would not be considered a method of audit sampling?


a. random selection.
b. systematic selection.
c. haphazard selection.
d. block selection.

17. The quantity ordered may not be displayed on the copy of the purchase order sent
directly to the:
a. requesting department.
b. vouchers payable department.
c. receiving department.
d. accounts receivable department.
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18. The receiving department should be instructed to accept no goods without having
on file a properly authorised:
a. purchase requisition.
b. invoice.
c. receiving report.
d. purchase order.

19. Which of the following is not an income statement account related to property,
plant and equipment?
a. depreciation.
b. accumulated depreciation
c. loss on disposal of plant.
d. rent on operating leases.

20. The auditor identifies the specific audit objective: “determine that property, plant
and equipment (PPE) assets represent productive assets that are in use at balance
date”. This objective is derived from the:
a. existence assertion.
b. completeness assertion.
c. presentation and disclosure assertion.
d. rights and obligations assertion.

**END OF EXAMINATION PAPER**

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