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UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION
COURSE COURSE CODE EXAMINATION TIME
: : : :
AUDITING AUD360/390/394 APRIL 2008 3 HOURS
INSTRUCTIONS TO CANDIDATES 1. This question paper consists of three (3) parts : PART A : Section 1(10 Questions) : Section 2 (10 Questions) PART B (4 Questions) PART C (1 Question) Answer ALL three (3) parts : i) ii) iii) iv) Answer all PART A, Section 1 in the Objective Answer Sheet, Answer PART A, Section 2 in the True/False Answer Sheet, Answer THREE (3) questions only from PART B in the Answer Booklet, Answer ALL questions from PART C in the Answer Booklet. Start each answer on a new page.
Do not bring any material into the examination room unless permission is given by the invigilator. Please check to make sure that this examination pack consists of: i) ii) iii) iv) the Question Paper an Answer Booklet - provided by the Faculty a True/False Answer Sheet - provided by the Faculty an Objective Answer Sheet - provided by the Faculty
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This examination paper consists of 10 printed pages © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
d. An accounting principle at variance with the generally accepted accounting principles is used. Which of the following types of audit evidence is the least persuasive? a. Correspondence from the client's solicitors about litigation. An auditor may not issue a qualified opinion when a. 4. b. 3. d. Confirming a sample of recorded receivables by direct communication with the debtors. 1. d. © Hak Cipta Universiti Teknologi MARA .CONFIDENTIAL 2 AC/APR 2008/AUD360/390/394 PART A SECTION 1 . c. Bank statements obtained from the client.MULTIPLE CHOICE QUESTIONS This section consists of 10 multiple-choice questions. Observing the client's distribution of payroll cheques. Which of the following procedures would an auditor most likely rely on to verify management's assertion of completeness? a. Reviewing standard bank confirmations for indications of kiting. Prenumbered purchase order forms. d. b. The auditor's report refers to the work of a specialist. c. Choose the most suitable answer and shade the corresponding alphabet representing the answer in the multiple choice answer sheet provided. Comparing a sample of shipping documents to related sales invoices. The auditor should consider the types of errors and fraud that could occur and determine whether the necessary internal controls are prescribed and are being followed. CONFIDENTIAL b. The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements and determine whether the necessary internal controls are prescribed and are being followed satisfactorily. Which of the following statements best describes an auditor's responsibility to detect errors and fraud? a. An entity facing going concern problem has disclosed the uncertainty in the financial statements. The auditor should study and evaluate the client's internal control system and design the audit to provide reasonable assurance of detecting all errors and fraud. c. A scope limitation prevents the auditor from completing an important audit procedure. c. The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements and design the audit to provide reasonable assurance of detecting material errors and fraud. 2. b. Test counts of inventory performed by the auditor.
c. b. 8. satisfy doubts when questions arise about a client's ability to continue as going concern. d.CONFIDENTIAL 5. 10. transactions are executed as authorized by management access to assets is permitted only in accordance with management's authorization recorded accountability for assets is compared with the existing assets at reasonable intervals irregularities will be eliminated . an internal auditor is more likely to be concerned with . c. (Total: 10 marks) © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL . a. d. obtain evidence from details tested to corroborate particular assertions. a. The reason for the change of auditor. b. Internal controls are not designed to provide reasonable assurance that a. Before accepting an audit engagement. b. b. d. An auditor would obtain most assurance of the existence of inventories a. Any disagreements with management about accounting or auditing matters. walk through test. 6. The reliability of the entities internal control structure. In comparison with the external auditor. c. b. 3 AC/APR 2008/AUD360/390/394 The primary objective of using analytical procedures in the final review stage of an audit is to . A test designed to prove that internal controls are operating according to laid down procedures is known as a. c. test of control (compliance test). d. c. substantive test. d. depth testing. b. by confirming inventories in a public warehouse by recomputing inventory extensions by observing physical inventory counts by requesting written inventory representations from management 9. c. The integrity of management. assist the auditor in assessing the validity of the conclusions reached. Compliance audit Financial Statement audit Internal control structure Operational audit . d. the successor auditor should enquire the predecessor auditor regarding all of the following except a. identify areas that represent specific risks relevant to the audit. 7.
In collecting audit evidence. The audit report should be signed and dated before the directors' approval of the financial statements. 9. Tests of controls for inventory focus on material movement authorization and the control of inventory against records. 4. Independence in appearance exists when the auditor is actually able to maintain an unbiased attitude throughout the audit. © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL . debtors' confirmations are more reliable as compared to debtors' balance verification. 6.True and False questions. 5.CONFIDENTIAL SECTION 2 . 8. 3. 10. Limited evidence gathered within an effective internal control structure is more competent or reliable than extensive evidence gathered within an ineffective internal control structure. 4 AC/APR 2008/AUD360/390/394 This section consists of 10 TRUE/FALSE questions. Current audit working paper files contain documents. plant and equipment accounts. 1. Companies listed on Bursa Malaysia are required to engage a share registrar to prevent improper issue of shares certificates. the introductory paragraph indicates the responsibility of the management and the auditor. An audit report communicates the auditor's findings to top level management of the company (auditee). (Total: 10 marks) 2. schedules and other data that will be of continuing significance to audit. Shade T for TRUE and 'F' for FALSE in the answer sheet provided. Physical inspection procedures are common audit steps when examining property. 7. In an audit report.
QUESTION 1 A. Juwita accepted the offer. (a) explain two (2) situations which comply with the MIA By-Laws or Companies Act 1965 and (b) state the related By-Laws or Companies Act 1965 provisions. a public accountant firm. a construction company. The Companies Act 1965 requires financial statements to be audited by an approved company auditor.000 in a subsidiary company which is not audited by Juwita & Co. With her vast experience. Juwita is an accounting graduate from UiTM and has been working with established accounting firm for the past five years.CONFIDENTIAL PARTB 5 AC/APR 2008/AUD360/390/394 Answer three (3) questions only from this part. Required: i) From the above case. In promoting her audit services. to become the company's auditor. Present your answer in the following format: Situations according to the ByLaw/Companies Act 1965 The MIA By-Law/Companies Act 1965 followed. Without further investigation. Juwita managed to be accepted as a MIA member and awarded the audit licence to practice. was formed a few months ago. Juwita & Co did not encounter any problem with the assignment. Juwita has been approached by Citra Bina Sdn Bhd. During the course of the audit. As such. Juwita accepted the offer. In return for the services provided. (3 marks) Explain the auditor's responsibilities under section 174 (2) of the Companies Act 1965. address and contact number. (2 marks) ii) B. Juwita & Co printed name cards for the partner and the audit manager. Other than this. Juwita & Co. the management of Citra Bina Sdn Bhd offered Juwita shares amounting to RM10. The business card stated the name of the audit firm. there are also personal particulars on the designation and qualification of the partner as well as the audit manager. in relation to the reporting of financial statements. Recently. Juwita decided to charge the audit fee at RM300 with the intention to secure more professional engagement in the future. (6 marks) © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL . One of the audit partners. Required: i) State the Companies Act 1965 requirements on the disqualification of auditor.
(6 marks) (Total: 20 marks) ii) © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL . (4 marks) Explain the procedures to be performed by the auditor in order to ascertain the client's internal control system. (6 marks) ii) B. Present your answer in the following format: Situations violated the ByLaw/Companies Act 1965 The MIA By-Law/Companies Act 1965 violated. Required: i) Briefly explain any four (4) limitations of an effective internal control system. An internal control system should be designed and operated to provide reasonable assurance that an entity's objectives are being achieved.CONFIDENTIAL 6 AC/APR 2008/AUD360/390/394 ii) From the above case: (a) explain three (3) situations which violate the MIA By-Laws or Companies Act 1965 and (b) state and explain the By-Laws or Companies Act 1965 provisions that have been violated. The policies and procedures have to be designed to provide the firms with reasonable assurance that the likelihood of association with a client whose management lacks integrity is minimised. (9 marks) (Total: 20 marks) QUESTION 2 A. Required: i) Explain any four (4) factors that an auditor should consider before accepting appointment of a new client? (4 marks) If a new client has previously been audited. explain the responsibilities of the successor auditor to the predecessor auditor. Audit firms are required to establish policies and procedures for the acceptance and continuance of client relationship and specific engagement.
Test counts of the raw materials in the warehouse. f. e. (4 marks) ii) Describe four (4) substantive procedures that should be performed to verify the movement of investments during the year. A letter from the client's solicitor indicating that there were no lawsuits in progress against the client. ISA 500 "Audit Evidence" requires the auditors to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. d. The existence of a new factory equipment. Comparison of the current year gross profit percentage with the gross profit percentage of the last four years. Required: i) Explain why in most instances audit evidence is persuasive rather that conclusive. (2 marks) Explain why external evidence is more reliable than internal evidence. Letter to representative sample of debtors to ascertain the debtors' amount Subsequent clearance test on the bank reconciliation statement of the client (6 marks) (Total: 20 marks) CONFIDENTIAL ii) iii) © Hak Cipta Universiti Teknologi MARA . Cash and investment in the form of marketable securities often represent the most liquid assets of an entity. Required: i) Briefly explain four (4) audit objectives for the audit of investments. proper management of cash and investment is essential and the principal objective of cash management is to ensure that sufficient cash is available to meet the entity's needs. (2 marks) iii) B. indicate the type of audit procedure that will be undertaken: a. (2 marks) For each of the following. For every entity.CONFIDENTIAL 7 AC/APR 2008/AUD360/390/394 QUESTION 3 A. (4 marks) List four (4) items for investments that may require disclosure in accordance with FRS 125 "Accounting For Investments". b. c.
(5 marks) (Total: 20 marks) ii) > Hak Cipta Universiti Teknologi MARA CONFIDENTIAL .000. During the short period of operation in drilling. The facts are adequately disclosed in the notes to accounts. It is a written communication of audit findings to the shareholders. the company has had three dry wells and no success. The amount of the receivable is material in relation to Hayatti Hotel's financial statements. the company refused to make an allowance for diminution in value in the accounts on the ground that the impact is temporary even though they admitted that loss has occurred. Management recognizes that the business is exceptionally risky and could jeopardize the success of its existing refining business. In the last three months of the current year. Audit report is the final stage in the entire audit process. You are unable to satisfy yourself as to the receivable balance by alternative procedures. State with reasons the appropriate type of audit report and opinion to be issued. revealed that an investment in quoted shares stated in the balance sheet at RM500. i) The controller of Hayatti Hotel Bhd will not allow you to confirm the receivable balance from three of its major customers. Required: For each of the following independent situations. The audit work on Sri Kompang Resources Sdn Bhd. However.000 has suffered a material permanent fall in value of RM300. Analytical procedure is an important procedure in an audit.CONFIDENTIAL 8 AC/APR 2008/AUD360/390/394 QUESTION 4 A. assume that you are the audit partner for the engagement. (6 marks) State and explain two (2) types of analytical procedures commonly used during an audit. but there are potential rewards. Palma Oil Refining Bhd decided to change direction and go significantly into the oil drilling business. It consists of evaluation of financial information made by a study of comparisons and relationships among both financial and non-financial data. Required: i) Briefly describe three (3) main purposes of analytical procedures during the different stages of audit. (9 marks) ii) iii) B.
Upon receiving the purchase requisition. En Azhar. receiving department. the accounts clerk will file the purchase orders and goods receive notes from the receiving department. Samira will prepare the cheque which will be signed by the Accountant. he will issue four copies of pre-numbered purchasing order and sends them to following departments. is the receiving department officer. Brief descriptions of the operating procedures are as follows: Samad is the clerk in the Purchasing Department. He will call the selected vendor and request a price quotation from the vendor. he will take out the pre-numbered purchase order and matched it with the delivery note which is attached with the goods delivered by the supplier.CONFIDENTIAL 9 AC/APR 2008/AUD360/390/394 PART C . Upon receiving the pre-numbered purchase order. He will stamps the prenumbered purchase order with the date received. (15 marks) Segregation of duties is an important element in internal control. who is the head of Accounts Department. When signing the cheque. the Assistant Accountant. Lastly. He will issue a good received note and forward it to the accounts department for payment processing and verbally notify the requesting department to collect the goods. a copy each to the requisition department head. using marker. When the particular goods have been received. (3 marks) b) © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL . for his approval. (from any department) he will select an appropriate vendor by searching through the vendor catalogues registered with the company. You have been assigned to review the operation manual in purchasing and payment system implemented by the company. Required: a) Identify ten (10) weaknesses in the system and give five (5) recommendations to improve the system. Taufiq. she will match it with the related purchase order and goods received note and prepare the payment voucher. Briefly explain why it is important to maintain proper segregation of duties. she will file the payment voucher and its supporting documents in the paid invoice file.COMPULSORY QUESTION QUESTION 1 Syarikat Pusaka Amin Press is a medium size entity involve in the printing business. When the vendor's invoice has been received. accounts department and one copy will be kept in his own file. he will keep the document in an open file. The company consists of five different departments. he will note down any differences between the quantity stated in the purchase order and the quantity stated in the delivery notes from the supplier. and if applicable. The voucher is then forwarded to En Mazlan. Samira. Samira will send the cheque to the respective supplier and record the transaction in the accounts. En Azhar will counter sign the payment voucher as an authorization and approval for the payment made to the supplier. After negotiating the price and getting a verbal confirmation from the vendor.
CONFIDENTIAL 10 AC/APR 2008/AUD360/390/394 c) What are the problems that may exist in implementing a formal system of internal control in small companies? (2 marks) (Total: 20 marks) END OF QUESTION PAPER © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL .