Aud589 (Pya 2019 Dec)
Aud589 (Pya 2019 Dec)
Aud589 (Pya 2019 Dec)
AUD589 AUDITING 1
SUGGESTED SOLUTIONS
DECEMBER 2019
QUESTION 1
B. Aud
Audit
it risk MXM C
Commu
ommunica
nication
tion Sdn
Sdn Bhd:
Bhd:
The company has just appointed a new CEO Encik Herman in 2019. This posed a
risk of familiarity threat due to the family relationship.
The company had just opened two new branches in Sabah and Perlis – difficult to
manage due to diverse locations and the fact that they are new branches
branches opened at
more or less the same time.
The company has purchase exclusive right of HEBAT phone – The mobile phone
model keep fastly changing across time.
The sale of HEBAT phone has drop due to the competitor JAYYID phone – will affect
the revenues for MXM Communication Sdn Bhd.
The company
expansion increased the number of employees drastically by two fold – rapid
of business.
The
Th e comp
compan
anyy hi
hire
red
d ne
new
w fr
fres
esh
h gr
grad
adua
uate
tes
s to pr
prep
epar
are
e fina
financ
ncia
iall st
stat
atem
emen
ents
ts –
inexperienced.
C4 (Any 5 with explanation X 2 marks each = 10 marks)
(Total: 20 marks)
QUESTION 2
Appropriateness is the
Appropriateness the measure of quality
quality of audit evidence.
evidence. A
Audit
udit evide
evidence
nce is said to
be appro
appropri
priate
ate if it is rel
releva
evant
nt and
and rel
reliab
iable
le in the
the given
given se
sett of circum
circumsta
stanc
nces.
es.
However, the appropriateness of audit evidence is affected by the time, source and
the circumstances under which such evidence is obtained.
C1 (2 marks)
o
Indicate possible tests.
Reduce detailed misstatements
Testing:
- ana
analytic
lytical
al proced
procedures
ures can be
be use
used
d as su
substa
bstantiv
ntive
e pro
proced
cedures
ures in
in col
collect
lecting
ing
appropriate audit evidence. They can be performed together with other
substantive procedures (substantive tests of transactions and tests of details
of balances) and they help to:
o Indicate possible misstatements
o Reduce detailed tests.
Completion of audit:
- ana
analytic
lytical
al proced
procedures
ures can be
be use
used
d as p
part
art o
off an overa
overallll revi
review
ew of the ffina
inancia
nciall
statements for the auditors to reach conclusions about the fair presentation of
the financial statements. The auditor shall design and perform analytical
procedures near the end of the audit that assist the auditor when forming an
overall conclusion as to whether the financial statements are consistent with
the auditor’s understanding of the entity. The analytical procedures help the
auditors to take a final review of the audited financial statements objectively
and help to:
o Assess going
going concern
concern
o Indicate possible misstatements.
C3 (2 marks each with explanation = 6 marks)
B. Au
Audit
dit docum
documen enta
tatio
tion:
n:
i. Explain twotwo (2) p
purposes
urposes for the auditor to
to maintain
maintain audi
auditt docume
documentation:
ntation:
It provides evidence of the auditor’s basis for a conclusion about the achievement of
the overall objective.
It provides evidence that the audit was planned and performed in accordance with
ISAs and other legal and regulatory requirements.
It assists the engagement team to
team to plan and perform the audit.
It assists team members responsible for supervision to direct, supervise and review
audit work.
It enables the conduct of quality control reviews and inspections (both internal and
external).
C3 (1.5 marks each with brief explanation = 3 marks)
C3
(Total: 20 marks)
QUESTION 3
A. Analyse six
six (6) interna
internall control weaknesse
weaknesses:
s:
B. Explain the impact of each of the weaknesses:
No A. Weaknesses B. Impact
.
1. Da
Daya
yang
ng is auth
author
oriz
ized
ed to open
open th
the
e mail
mails
s Dayang could have taken the cheques
containing cheques and to complete the (especially cash cheques) for her
recording of cheques without personal use and manipulate the
supervision. recording of cheques.
2. De
Depo
posi
sits
ts of
of ch
cheq
eque
uess int
into
o the
the bank
bank are Possibility for the cheques to be
made on a weekly basis. mishandled/misplaced due to gaps of
time as well as voluminous of
voluminous of
cheques at the end of the week.
3. No se
segr
greg
egat
atio
ionn of
of d
dut
utie
ies
s as
as D
Dayayan
ang
g is
is Dayang could have committed fraud
responsible from end-to-end in handling and manipulate the recording of
the cheques including the the updating cheques.
of the cash receipt journal.
4. Erni
Erniee al
alon
onee iis
s aut
autho
horirize
zed
d to si
sign
gn Unauthorised issuance of cheques by
5. cheques
Pa
Paym
ymenentt below
in
inst
stru
ructRM100,000
ctio
ion
n fo
form
rms
s were
were Ernie
Ferhadmight
couldnot be detected.
have provided incorrect
presigned by the signatories and payment instruction for salary
information on the form were not payments to the bank.
verified by an officer before they are
submitted to the bank.
6. Ba
Bank
nk rrec
econ
oncicili
liat
atio
ion
n stat
statem
emen
ents
ts wer
were
e
Bank reconciliation statements should
prepared on a bi-monthly basis. have been prepared on a monthly
basis as the two-month gap would
make it difficult to reconcile the figure
between the bank account and bank
statement.
C4 & C5 (1 mark each for weaknesses + 1 mark each for impact X 6 answers = 12
marks)
D. Describe two (2) internal control objectives relevant to the activities carried out in the
Finance and Accounts Department of Dinamik Utara Sdn Bhd:
To ensure that the company receives all cash that it is entitled from the customers
To ensure that payments are made to genuine suppliers
To ensure payments are made only for the goods that have been received
To ensure employees’ salaries are paid on a timely basis
To ensure employees’ salaries and deductions are correctly computed
statement
Agree and to thetion’s
reconcilia bankbalance
the reconciliation’s confirmation
bala thletter.
nce per the e cash book
book to the year-end cash boo
book.
k.
Trace all the outstanding lodgements to the pre year-end cash book, post year-
end bank statement and also to paying-in-book pre year end.
Trace all unpresented cheques through to a pre year-end cash book and post
year-end statement. For any unusual amounts or significant delays, obtain
explanations from management.
Any other answers.
other relevant answers
C3 (Any 4 with explanation X 2 mark each = 8 marks)
B. Audit of inventory:
i. Expl
Explai
ainn th
the
e fu
func
ncti
tion
on of ea
each
ch of th
the
e fo
foll
llow
owin
ing
g docu
docume
ment
nts
s us
used
ed for
for inve
invent
ntor
ory
y
management:
a. Re
Rece
ceiv
ivin
ingg rep
repor
ort:
t:
- reco
records
rds the
the receip
receipts
ts of goods
goods from
from supplie
suppliers.
rs. A c
copy
opy of
of thi
this
s doc
docume
ument
nt us
usuall
ually
y
accompanies the goods to warehousing department and is used to update
the perpetual inventory records.
C5 (2 marks)
b. Mat
Materi
erials
als requis
requisiti
ition
on for
form.
m.
- used
used by m man
anufa
ufactu
cturin
ring
g depa
departm
rtmen
entt to trac
track
k raw ma
mate
teria
rials
ls du
durin
ring
g the
production process. This document is used to authorize the released of raw
materials from the store/warehouse department.
C5 (2 marks)
ii. Expla
Explain
in th
three
ree (3) facto
factors
rs th
that
at may ca
cause
use co
compl
mplex
exity
ity for the
the audi
auditor
tors
s in audi
auditin
ting
g
inventory:
Obsolences
The of inventory make misappropriation
risk of pilferage/inventory it challenging for valuation.
is high especially if the control is
lacking.
C5 (Any 3 with explanation X 2 marks each = 6 marks)
(Total: 20 marks)
QUESTION 5
A. Explain th
three
ree (3) con
contents
tents of an auditor’s
auditor’s report:
Title
Adressee
Auditor’s opinion
opinion
Basis for opinion
Management’s responsibilities for the financial statements
Auditor’s responsibi
responsibilities
lities for the financial
financial statements
statements
Key audit matters
Name of the engagement partner
Signature of the auditor
Auditor’s address
address
Date of the auditor’s report
C3 (Any 3 with explanation X 2 marks each = 6 marks)
Modified opinion The auditor is unable to audit all the documents because it
(qualified/except for) is not allowed by the client. This has caused lack of
evidence but only with this respect. For all other items the
auditor has been able to obtain sufficient and adequate
evidence. Therefore, this situation is material and but not
pervasive to the financial statements.
iv Modified opinion The financial statements present a true and fair view except
. (qualified/except for) with respect to inventory, where its valuation method does
not comply with the MFRS. Non-compliance with the
MFRS is a mistatement and is deemed as material but not
pervasive to the financial statements.
material
C4 (1 mark and
for type ofpervasive
opinion +to1the overall
mark financial statements.
for justification = 8 marks)
C. Justify thre
three
e (3) conditions
conditions that
that should be met for the issuance of
of an unmo
unmodified
dified opi
opinion
nion
(standard unqualified) expressed in the auditor’s report:
All statements - statements of financial
financial position,
position, income statement/Statement of
comprehensive income, statements
statements of changes in equity, statemen
statementt of cash flows
and notes to the accounts - are included in the financial statements.
The ISAs have been followed in all respects on the engagement.
Sufficient appropriate audit evidence has been accumulated.
The financial statements are presented in accordance with approved accounting
standards.
There are no circumstances requiring the addition of an explanatory
paragraph or modification of the wording of the report.
C6 (Any 3 with explanation X 2 marks each = 6 marks)
(Total: 20 marks)