2011 Winter Solutions
2011 Winter Solutions
2011 Winter Solutions
Suggested Answers
Final Examination – Winter 2011
A.2 (a) Matters that are relevant while updating knowledge of business:
The following matters should be considered by the auditors while updating the
knowledge of company’s business:
(b) Business risks that the company may face on account of its e-commerce activities
(c) Risks to be addressed to ensure integrity of the transactions carried out through the
Company’s website
In an e-commerce environment, the main risk that could affect the integrity of the
transactions carried out are as follows:
(b) If the firm has carried out valuation of items material to the financial statements
or the valuation involves a significant degree of subjectivity, the firm would not
be in a position to reduce the self review threat to an acceptable level by the
application of any safeguard, and should not accept the audit engagement.
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ADVANCED AUDITING
Suggested Answers
Final Examination – Winter 2011
(c) If the valuation services are not material either separately or in aggregate, or if
they do not involve a significant degree of subjectivity, the following actions may
be taken to reduce the self review threat to an acceptable level:
(b) We need to consider the reason for this event. The possible reasons are as follows:
(c) We shall discuss the issue with the management and if necessary with those charged
with governance and ask them to:
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ADVANCED AUDITING
Suggested Answers
Final Examination – Winter 2011
(d) If we establish that the revised audit report should be issued and the management has
not yet issued the financial statements to the shareholders, in this case we shall:
(i) Carry out the audit procedures necessary for verification of amendment in the
financial statements.
(ii) Extend the audit procedures regarding subsequent events, to the date of the new
audit report.
(iii) Provide a new auditor’s report on the amended financial statements.
(iv) Include an emphasis of matter paragraph or other matter paragraph reflecting
such amendment.
(e) If financial statements have already been issued to the shareholders then we should, in
addition to the above audit procedures:
(i) Review the steps taken by the management to ensure that those in receipt of the
previous financial statements together with the auditor’s report thereon are
informed of the situation.
(ii) Notify the management and where necessary those charged with governance
that we would seek to avoid future reliance on the audit report, if the
management does not take appropriate steps to ensure that those in receipt of
previously issued financial statements are informed of the situation and does not
amend the financial statements.
(iii) Seek legal advice in order to prevent the reliance on the audit report on the
financial statements, if in spite of our communication, ML’s management or
those charged with governance fail to take necessary steps to prevent reliance
on the audit report issued on the financial statements.
(f) Under the specific law, regulation or the financial reporting framework where we are
permitted to restrict the audit procedures on subsequent event specific to the amendment,
we will mention an additional date in the audit report restricted to the amendment that
indicates that the audit procedures on subsequent events are restricted to that specific
amendment as mentioned in the relevant note. We would also mention the fact in the
emphasis of matter paragraph or the other matter paragraph that our audit procedures on
subsequent events are restricted solely to the amendment of the financial statements as
described in the relevant note to the financial statements.
(g) If as a result of a misstatement resulting from fraud or suspected fraud, we feel that our
ability to continue performing the audit has been affected, we should:
Discuss with appropriate level of management and those charged with governance,
our withdrawal from the engagement and the reasons for the withdrawal.
Determine whether there is a professional or legal requirement to report to the
shareholders about the withdrawal from the audit or the responsibility to report it to
the regulatory authorities.
Discuss with the legal advisor about withdrawal from the engagement.
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ADVANCED AUDITING
Suggested Answers
Final Examination – Winter 2011
A.5 (i) If audit report on the audited financial statements contains a qualified opinion but the
summary financial statements are consistent with the audited financial statements, the
audit report on the summary financial statements shall:
state that the audit report on the audited financial statements contains a qualified
opinion;
describe the basis for the qualified opinion on the audited financial statements and that
qualified opinion.
describe the effect of the qualification in the audited financial statements, on the summary
financial statements.
(ii) Since it is necessary under the local regulation to report on the summary financial
statements, but the applied criteria is not acceptable, we would:
(iii) We would ask the management to change the presentation of the note explaining the
reasons for decline in profitability, in such a way that it is clearly differentiated from
the summary financial statements.
If the management does not agree to change the presentation, the audit report on the
summary financial statements shall disclose the fact that the said information is not
covered by that report.
A.6 (i) In this case of reporting on more than one set of financial statements,the auditor will
need to determine that whether the reporting requirements of other framework are
acceptable to the auditor in the prevailing circumstances.
(ii) Evaluate the reasons provided by the management for making this payment, to assess
whether the amount paid in the circumstances was reasonable.
In either case, the auditor should consider the impact thereof on his initial risk
assessment and to revise the audit procedures accordingly.
The indication of non-compliance with laws and regulations may require the auditor
to consider the potential financial consequences of the non-compliance, on the
financial statements including, the imposition of fines and penalties and the impact
thereof on the company’s ability to carry out its business.
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ADVANCED AUDITING
Suggested Answers
Final Examination – Winter 2011
The auditor may discuss his findings with those charged with governance if the
auditor considers that they will be able to provide with additional audit evidence in
relation to the transaction.
The auditor may also consider whether it is necessary for him under the relevant laws
and regulations to report the matter to the concerned authorities.
If the auditor concludes that the expenditure incurred is not for the purpose of the business,
the auditor shall express a qualified opinion or an adverse opinion depending upon the
materiality of the transaction.
If the auditor is precluded by management or those charged with governance from obtaining
sufficient appropriate audit evidence to evaluate whether non-compliance that may be
material to the financial statements has, or is likely to have occurred, the auditor shall express
a qualified opinion or disclaim an opinion on account of scope limitation.
(The End)
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