Task 1!

a) The risk internal audit department expect the company to face

One of the risk that the auditors expect the company to face is the inherent risk. Since there are a lot
of procedures need to be done to complete a transaction in the company regarding the booking for
one vehicle, there might be an omission of data entry or incorrect evaluation or wrong statement
due to the integration of human and system is not hundred percent accurate. Thus, this can cause
loss in the business. Misstatement of material recorded in the financial statements is one of the risk
in a company.
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Next, the risk that the company might expect is the control risk. Basically control risk is the risk
that resulted from the inherent risk earlier on. When the misstatements of the materials are not
amended or not being prevented, thus control risk can happen in the company. There are three main
causes of this risk which includes the interior control of the system design, environment control and
also based on how the systems operated around the company.
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Last but not least, one of the risks that the company will be facing based on the evaluation of the
internal auditors also is the detection risk. When a material misstatement which exists in the account
but not been discovered by the auditors are called a ‘Detection Risk’. Detection risk can be affected
or occurred when there are extra long period of time of completing a task, too many new clients,
free press, lack of understanding of an entity, the auditor is lacking in experience and so on.
!
b) Controls expected to be in place to manage the risks identified a) above
Based on the above mentioned risks, there are several test controls which can be done on these
risks. The risks that I have mentioned above, can be handled by performing the internal control.
Basically an internal control serves to safeguard the assets from the loss of material because of
misusage, misspend, omissions, botch, inaccuracy, mistakes, frauds, or other things which are in
contradicting to the rules. Internal controls are to give an efficient conduct of business thus it must
be dependable and must be transparent in showing their reports to the company of how the company
exploits the funds to achieve their objectives for the year assessment.
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Generally, there are a few controls that fall under the internal control. However, I am going to
mention only three here which is: Preventive control, Detective control, and Corrective control.
!
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 Controls
!

!
!
Preventive ! Detective Corrective
!
Evading errors/
! Discerning
Tackling the
mistakes before ! errors made
immediately after
effect of the
errors occurred
they happened
! it has been done

Tracking delivery notes and Controls of the stocks and Make sure to backup every
invoices from the orders, make inventory, the company’s bank procedures or transactions that
sure of the reservations and reconciliation using accounting have been done earlier; restore
deliver the products; give software; detection of any any data maybe there are some
training for security awareness intruders or from any unknown which are lost
sources; installing the anti-
malware in their system

FIGURE 1.1 GENERIC CONTROL CATEGORIES

!
Preventive control was designed to discourage any errors from occurring in the financial statements.
Preventive control can be carried out with the segregation of duties to different people with the
motive of reducing errors or any irregularities. For an instance, the duty for approvals, recording
transactions, and custodies are divided among different people.
!
Detective control was designated to pinpoint and locating errors or irregularities immediately after
they have been made. This type of control can be made by reviewing the current performances of
the company to measure how far have the company achieved its goals and objectives. Also to
discern any results which were not expected or any other form of unusual conditions that needs to
be followed up.
!
Corrective control was designated to tackle or to help mitigate any damage that has occurred once 


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the risk has been materialised. To enforce them, the company can document its own policies and
procedures via warnings and termination of employees if appropriate. However, if the managers are
wisely enough to back up the data, they can restore any lost datas because of the crash.
!
c) The tests of control that should be performed to check that the controls identified above
operating properly
Though the internal control system might sound a good idea, however the internal audit department
are always in need to carry out the test of the figure regarding the financial statements. Thus, the
material figures assertions such as the completeness, valuation or the existence and so forth need to
be addressed. The test for the controls can be grouped into few categories which are: the enquiry
and confirmation, inspection, and observation.
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The enquiry and confirmation is the idea or finding the way or the method on how to encourage
their clients to pay more, how to discern or distinguish a customer that can pay more and how often
the company needs to follow up these clients. Apart from that, they also need to jot down the
confirmation details of the customer. However, there are some limitation to this effort.
!
Next is the inspection, this is a test to see the credit conversations between the clients and the
supplier. For an instance, the client issued an invoice to the supplier to get a credit purchase, thus
the supplier should keep the record and trace the customer account and also through their sales
invoice and generate what are their datas.
!
Last but not least, the observation. Observation is just mainly observing the whole process of the
transactions between the clients and the supplier and this will be over when the whole transaction
has finished.
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Task 2!
a) List factors that influence the reliability of audit evidence
There is a lot of workings expected to obtain and evaluate the proof of the examining for the
reviewers. What is more, it was gotten essentially from the strategies that do when the reviews'
commitment course. Furthermore, it is likewise could be get from different sources like past
reviews working. The progressions occurred amid them interim likewise should have been taken
into the thought precisely.
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Furthermore, the nature of associations' control methodology is additionally critical particularly the
customers' continuation and acknowledgment. The confirmation of review was picked up from the
budgetary evaluating or the papers recording the reviews' workings. The review confirmations are
the data that evaluator considered for the arrangements amid the review commitment
acknowledgment organise like the changing in the whole control condition. At that point the data
considered for the best methodologies in the review arranging stage like solid inside control
strategies.
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Next the review tests blend data is required amid the control testing stages. Following is the
guarantee of money related proclamations affirmation allotment amid the substantive test stages.
For instance fulfilment valuation, events, commitments, presences rights et cetera for the specific
exchanges or record adjusts. In the last stages, conclusion or sentiment definition the evaluators are
suspecting that whether the entire budgetary explanation shows their whole comprehension with
precision, legitimacy, fulfilment.
!
b) List and explain methods of selecting a sample of items to test from a population in
accordance with ISA 500 Audit sampling.
“Population" implies the whole arrangement of information from which an example is chosen
furthermore, about which the auditor wishes to make an interpretation. For an instance, all of the
things in a class of the proceedings or the adjustment of an account constitute a population. When a
population will be isolated into strata, or subpopulations, with every stratum being analysed
independently, thus the term population is used to incorporate the term stratum.
!
When selecting a sample of items to test from a population, there are some appropriate means or
mediums of selecting items for test. They are: (i) Selecting all of the items; (ii) Selecting only 


Page 4 of 12
certain items, and (iii) Audit sampling. These tests can be executed depending on the situation or
circumstances at that moment. Thus, the auditor needs to be contented of the result when using one
of the tests or the combination of the tests for creating a sufficient appropriate audit evidence.
!
(A) Selecting all of the items!
The auditor may conclude that it will be most fitting to look at the whole population of the items
that make up a category of transactions or balance in an account or maybe a stratum within the
population. The hundred-percent inspection is far-fetched on an account of the test of controls.
Therefore, it is far better to test for details since it is more common. For an instance, the hundred-
percent inspection might be suitable at some point when the population constitutes few broad
esteem items, at the point when there is a huge hazard and different mediums there must not be any
adequate fittiing review will be given to confirm, or when the dreary idea of a count or on the other
hand different process performed naturally by a data framework influences a hundred-percent
inspection to financially savvy, which we can see it through the execution of the Computer-Assisted
Audit techniques (CAATs).
!
(B) Selecting only certain items!
Selecting the specific items from the population is based on such factors as the understanding of the
auditors regarding the entity. They surveyed the danger of material errors, and the qualities of the
population being attempted. The selection of the particular things are liable to non-sampling hazard.
The chosen particular things that will include in the sampling will be:
!
• High esteem or main items. The auditor can choose to select particular things inside a population
since they are of high esteem, or showing some other trademarks. For an instance, the items which
might look suspicious, not ordinary, especially chance inclined or that contains something that has
history of mistake.
!
• All things over a specific sum. The auditor may have the authorities to look at things that
surpasses a specific sum in order to check a substantial extent of the aggregate sum of category of
transactions or balance of an account.
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• Items of getting the information. To obtain information regarding issues of interest, auditors may
want to look the items, such as the nature of the entity that needs to be inspected, nature of 


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• account transactions, and the control from the internal department.
!
• Activities test control for items. The auditor may utilise an assessment to choose and inspect at
particular items to make a decision if a specific control action is being executed.
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(C) Auditing Sample!
When creating an audit sample, the auditor should give a consideration or give it a thought of the
main goals of the audit procedure and the features of the population from which the sample will be
taken down.
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The auditor needs to consider primarily the certain goals to be attained at the end of the session and
the audit procedures which were combined to be likely the goals must be achieved. The issue of the
nature of the audit proof must be sought and any errors possibility or other features that has any
relation with the audit evidence will help the auditor in giving definition of what contributes to the
mistake and what type of population is used for sampling.
!
When performing test of controls, the auditor for the most part makes an appraisal of the rate of
error the auditor hopes to find in the population where he/she wants to test. This appraisal depends
on the auditor's comprehension of the plan of the significant controls and whether they have been
executed or the examination of few things from the population. Essentially, for the test of subtle
items, the auditor for the most part makes an evaluation of the normal measure of blunder in the
population. These judgements are valuable for outlining a review test and in making a decision of
an example measure. For an instance, if the normal rate of blunder is unsatisfactorily high,the test of
controls will regularly not be performed. Notwithstanding, when executing the test of points of
interest, if the normal measure of the blunder is high, 100% examination or the execution of an
expansive example size might be proper.
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(c) List and explain factor that will influence the auditor’s judgement
There are a lot of factors that could be influencing the auditor’s judgement regarding the sufficiency
of the evidence they have obtained. Risk assessment at the money related explanation level as well
as the individual transaction level. As hazard increases thus more proof of evidence is required.

!
First point of the factor that will influence the auditor’s evaluation is the items materiality. More
proof will ordinarily be gathered on material things though irrelevant things may essentially be
surveyed to guarantee they seem redress.
!
Second point is, the bookkeeping’s nature and the frameworks of the internal control. The auditor
will put more dependence on great bookkeeping and inner control frameworks restricting the
measure of review confirm required.
!
Third point that needs to be taken account with is the auditor's information and business experience
in the industry. Where the reviewer has great past information of the business and trusts the
trustworthiness of staff then less confirmation will be required.
!
Fourth point that needs to be taken into account is also the discoveries of review techniques. Where
discoveries from related review methodology are agreeable for an instance where test of controls
are over the receivables at that substantive confirmation point of where it will be gathered.
!
Last but not least, the fifth point that the auditor will be influenced by when doing any judgement is
about the source and dependability of the data. Where proof is gotten from dependable sources for
instance the composed confirmation which is written in black and white where less proof is required
in comparison with a verbal proof where a lot of doubts will be given to the evidence since it is not
reliable to the parties. 


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Task 3!
i. Explain and illustrate different types of qualification within an audit report
There are heaps of types of qualification within an audit report, they are:

(i) Unqualified Opinion

(ii) Qualified Opinion

(iii) Adverse Opinion

(iv) Disclaimer of Opinion

(I) Unqualified Opinion

First and foremost, the unqualified opinion is the most typical opinion that can generate the best
audit outcome. Also, auditors most often report using this outcome. Three other outcomes below in
the contrary that seems to rarely appears.

The term "unqualified" means that, in the evaluator's opinion, which is also sometimes known as
the cleanest opinion of all. When an auditor determines that the financial reporting or transactions
that being submitted from tiny business is free from any deceptions. In an addition, an inadequate
supposition demonstrates that the money related records have been kept up as per the models
known as Generally Accepted Accounting Principles (GAAP). This is the report that the best a
business can obtain.

Typically, an unfit report comprises of a title that incorporates as "free." This is done to represent
that it was set up by a fair outsider. The title is trailed by the primary body. Comprised of three
passages, the principle body features the duties of the examiner, the reason for the review and the
reviewer's discoveries. The examiner signs and dates the record, including his address.

(II) Qualified Opinion

Besides, a qualified sentiment implies the inspector finds that reports fit in with GAAP, aside from
in only a couple of regions. For these zones, the examiner can't affirm conformance.

The qualified feeling may come about in light of the fact that:

The report misquotes or misclassifies bookkeeping passages. For instance, a cost that ought to
show up over the gross benefit line shows up wrongly beneath it. This prompts deluding gross
benefit figures. 

Page 8 of 12
 There are constrains on review scope. This can mean, for example, that reviewers did not
approach certain money related information.

The reviewer questions the veracity of certain money related information.

The reviewer is not hundred-percent sure that the reports are:

- Consent to GAAP.
- Speak to the substance's records decently.

All in all, reviewers report the review result as "qualified" when they are not happy with calling it
either "inadequate" or "unfriendly." With qualified conclusions, examiners state particular purposes
behind the feeling.

(III) Adverse Opinion

Thirdly, an antagonistic assessment implies the inspector discovers either of the accompanying.

A. Articulations don't reasonably speak to the element's records.

B. The evaluated proclamations don't conform to GAAP.
!
Before distributing an antagonistic feeling, inspectors inform the company's bookkeepers and
officers concerning such issues. What's more, inspectors at that point work with them to revise
issues, seeing that they can. They do this wanting to portray the result as "inadequate" or "qualified"
sentiment, rather than "unfavorable," if conceivable.

At the point when evaluators do report an antagonistic conclusion, they give particular explanations
behind the feeling. Accordingly, reviewers may call attention to particular bookkeeping blunders or
takeoffs from GAAP.

Regardless, an Adverse conclusion has genuine results for the announcing element. At the very
least, the conclusion guarantees that financial specialists, controllers, moneylenders, and
governments will dismiss the reports. Likewise, if the review uncovers lawless acts, corporate
officers might be considered by and by responsible


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(IV) Disclaimer of Opinion
Fourthly, inspectors may issue a disclaimer of supposition. Note particularly this isn't a conclusion.
Rather, it just says that reviewers picks not to issue a supposition.

Inspectors may issue a disclaimer of supposition when:

1. They trust they can't review fairly. With the disclaimer, consequently, inspectors recuse
themselves.

2. The inspector's degree is restricted. This happens, for example, when examiners can't
get to certain money related information.

3. Examiners have different questions about the reports. For instance:

• Reports may appear to damage bookkeeping standards, for example, the

coordinating idea or the conservatism guideline.

• Examiners may scrutinising the arrangement of specific incomes and costs.

• Some promoted things most likely ought not have been promoted.
• They may scrutinising the way the element applies standards, for example, the
Lower of Cost or Market rule, or LIFO and FIFO rules for stock.

Evaluators might issue assessments just when they are sure the sentiment is supportable. Or else,
they issue a disclaimer of conclusion.

!
ii. Explain potential effect on the audit report. Draft the relevant management letter in
relation to this issue.
If the auditor discovered that the internal control systems are not adequate or not operated
efficiently, they can send a letter called the management to the companies’ Board. The letter in
however sense could be sent to the committee of audit if it is within a large company. The letter is
however has three sections which are the problem statement, then the discussion about the
application or the results of the problems to the organisation. In the end, should be the
recommendations on how to solve the issue. The example of the letter will be demonstrated below:


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Management Letter Example!

Dear Sir/Mdm,
Re: Audit of SPG Ltd. for the year ended 31 December 2017
The purpose of this report is to set out certain matters that came to our attention during the course of the
interim audit of the financial statements of SPG Ltd. for the year ended 31 December 2017.
!
Our main purpose to issue this letter is to draw attention to your department on the problem that we have
noticed during the testing of non-current assets of the company, we have found that one lorry was found to
be located at the property of one of the directors. This lorry has not been used to deliver goods during the
year and enquiries indicate that the director has been makes it as a personal use already. The lorry is
supposed to be included under the non-current assists of the company’s financial statements, but however
this situation has breached the company’s credibility.
!
We have issued a letter earlier on, but there is no reply from your department. Thus, I am issuing again
another letter to remind you of replying the letter that we have issued earlier on. This letter is designated to
include helpful suggestions that may help to increase the company’s performance and avoid any
disadvantages that could lead to material loss or misstatement. It is your duty to take the actions needed to
remedy those disadvantages and if you fail to do so we shall not be held responsible if loss or misstatement
occurs as a result.
!
Please provide us a letter that explain this whole situation of why the company’s lorry is not in the place where it
supposed to be in. We would like a clear statement of the usage of the lorry is not something that would give a
disadvantages to the company. Within 14 days from this issuance of this management letter, we would like to
receive the counter letter from your department. If there is still no action from your department, we are very
ungrateful to say that we are going to take serious action on the company.
!
Please do not feel hesitant to contact me if you should have any questions regarding this letter.
!Yours faithfully,
!
!
!
!
Internal Auditor

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References!
Accaglobal.com. (2018). Internal controls. [online] Available at: http://www.accaglobal.com/my/en/
student/exam-support-resources/fundamentals-exams-study-resources/f1/technical-articles/internal-
controls.html [Accessed on: 13 June 2018].
!
Accaglobal.com. (2018). Matter of opinion. [online] Available at: http://www.accaglobal.com/my/
en/student/exam-support-resources/fundamentals-exams-study-resources/f8/technical-articles/
matter-of-opinion.html [Accessed on: 16 June 2018].
!
CFO Career Planning Tools. (2013). Manage Risks with Preventive, Detective, and Corrective
Controls. [online] Available at: http://www.cfocareer.com/manage-risks-preventive-detective-
corrective-controls/ [Accessed on: 14 June 2018].
!
Henderson, K. (2018). What Are the 4 Types of Audit Reports?. [online] Chron. Available at: http://
smallbusiness.chron.com/4-types-audit-reports-3794.html [Accessed on: 14 June 2018].
!
KPMG.com. (n.d.). Specimen Audit Management Letter. [online] Available at: https://
home.kpmg.com/content/dam/kpmg/ie/pdf/2017/10/21-specimen-audit-management-letter.docx
[Accessed on: 20 June 2018].
!
Office Of Audit, Risk & Advisory Services. (n.d.). Are there Different Types of Internal Controls?.
[online] Available at: https://www.vanderbilt.edu/internalaudit/internal-control-guide/different-
types.php [Accessed on: 13 June 2018].
!
Office Of Audit, Risk, and Advisory Services. (n.d.). What are Internal Controls?. [online] Available
at: https://www.vanderbilt.edu/internalaudit/internal-control-guide/index.php [Accessed on: 13 June
2018].
!
Schmidt, M. (2018). Auditor's or Accountant's Opinion, Statement, Report. [online] Building the
Business Case. Available at: https://www.business-case-analysis.com/auditors-opinion.html
[Accessed on: 16 June 2018].


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Table of Contents!
!
Task 1! 1!
a) The risk internal audit department expect the company to face! 1!
b) Controls expected to be in place to manage the risks identified a) above! 1!
c) The tests of control that should be performed to check that the controls identified
above operating properly! 3!
Task 2! 4!
a) List factors that influence the reliability of audit evidence! 4!
b) List and explain methods of selecting a sample of items to test from a population in
accordance with ISA 500 Audit sampling.! 4!
(A) Selecting all of the items! 5!
(B) Selecting only certain items! 5!
(C) Auditing Sample! 6!
(c) List and explain factor that will influence the auditor’s judgement ! 7!
Task 3! 8!
i. Explain and illustrate different types of qualification within an audit report! 8!
(I) Unqualified Opinion! 8!
(II) Qualified Opinion! 8!
(III) Adverse Opinion! 9!
(IV) Disclaimer of Opinion! 10!
ii. Explain potential effect on the audit report. Draft the relevant management letter in
relation to this issue. ! 10!
Management Letter Example! 11!
References! 12!
Table of Contents! 13
!
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MODULE NAME: AUDITING
MODULE CODE: AAA3033!
ASSESSMENT TYPE: INDIVIDUAL ASSIGNMENT
!
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NAME: AZLINDA JONATHAN
MATRIC ID: LAF425-04/18-00070
!
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MODULE LEADER: DR. RASHEEDUL HAQUE
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MAC/APR 2018