QUESTION 4

(A) Explain FIVE (5) important assertion in the audit of loans and borrowings.
1. Right and obligation- Memoriz sdn bhd has the right over the cash received
from the loan and obligation to repay the loan.
2. Existence- All the loan stated in statement of financial position must existed
as supported by loan agreement.
3. Classification- The loan should be apportioned correctly between the non-
current liabilities and current liabilities in the statement of financial position
of Memoriz Sdn Bhd.
4. Completeness- All loan and borrowings that should have been recorded in the
statement of financial position have been included and all related disclosure
that should have been included in the financial statement have been
included.
5. Accuracy, valuation and allocation- All loan and borrowings have been
included in the financial statement at appropriate amounts and related
disclosure have been appropriately measured and described.

(B) The relevance of FIVE (5) types of audit procedures for obtaining audit
evidence.
1. Confirmation- Obtain a representation of information directly from a third
party
2. Enquiry- Seeking related information from the organization’s staff or external
sources.
3. Reperformance- Independently executing procedures or controls that were
originally performed as part of the entity’s internal control.
4. Inspection document- Inspect document and records, whether internal or
external, in paper or electronic.
5. Recalculation- Checking mathematical accuracy of documents and records.
This can be perform manually or electronically.

(C) An example of each of the audit procedure in part (b) above that is relevant to
the audit finance cost for Fujima Sdn. Bhd
1. Confirmation- Obtain direct confirmation from banker of the amount
outstanding by Fujima as at year end
2. Reperformance- Reperform the splitting calculation of the loan between non-
current liabilities and current liabilities to ensure the splitting has been make
correctly.
-Reperform the reconcile the loan statement to the loan ledger to ensure the
repayment have been fully captured in the loan ledger.
3. Inspection document- For selected month of loan repayment, inspect to the
bank statement to confirm the amount have been deducted by the bank.
 4. Recalculation- Recalculate the interest payable amount by multiplying the
interest rate with the outstanding balance to ensure mathematic accuracy.
5. Analytical procedure- compare the current outstanding closing balance with
the prior year outstanding balance and ensure the different is due to
repayment during the current year or new loan obtain in current year.

(D) Comment on the reliability of each audit procedures mentioned in part (c)
above as an audit evidence.
1. Confirmation- if the bank confirmation is received directly from bank it is
more reliable compare to bank confirmation received though the Memoriz
Sdn Bhd.
2. Reperformance- Reliable if the loan statement used for reconciliation is
original is more reliable than the photocopy. If the reconciliation prepared by
the accountant have been reviewed and approved by the finance director
then it is more reliable and the chances of unidentified/undetected errors are
minimize.
3. Inspection document- Reliable if it is performed by auditor but it will depend
on the extent of inspection being performed. Inspection of original loan
statement is more reliable than a photocopy loan statement. Inspecting bank
in slip of the cheque payment also support the loan repayment in the loan
statement.
4. Recalculation- Reliable depends on the reliability of data and is enhanced if
recalculation is performed using calculation software. Recalculation of the
repayment amount is reliable if the interest rate is referred to the loan
agreement from the bank rather than relying on the loan repayment schedule
provided by the Memoriz Sdn Bhn. Recalculation of the repayment amount is
reliable if the calculation is performed using calculation software.
5. Analytical procedure- The previous year loan balance obtain from the
previous year auditor report will be reliable. The current year closing balance
obtain from loan statement is more reliable than the loan ledger.